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Chapter 1, 2, 3, 5, 7, 9

ECON 3508 Chapter Notes - Chapter 1, 2, 3, 5, 7, 9 : Mpla, Weighted Arithmetic Mean, Ethnocentrism

Course Code
ECON 3508
Ana C.Dammert
1, 2, 3, 5, 7, 9

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Traditional economics: utility, profit maximization, market efficiencyPolitical economics: merge
economic analysis with pratical politicsDevelopment economics: a greater scope, also political,
social, institutional mechanisms.
Value is important for development economics: what is favorable? The validity of economic
analysis and correctness has to be evaluated in the light of the underlying assumptions of value.
Economics and especially development economics has to be viewed in a context of the overall
social system: the interdependent relationships between economic and noneconomic factors.
Religion, cultural and historical factors are in play. Difficult to measure: no quantifiable.
Values, attitudes, institutions: The perspective to place growth policy in. Institutions form the
ules of the gae. Nos, ules of odut ad geeall aepted as of doig thigs.
Traditional measures:- GNI (gross national income)- GDP (gross domestic product)
The new economic view of development: It is not only about growth! Development is
multidimensional and involves major changes in social structures, popular attitudes and
institutions, as well as economic growth, reduction of inequality and je eradication of poverty.
Amartya Sen: economic growth cannot be sensibly treated as an end in itself. Development has
to be more concerned with enhancing the lives we lead and the freedoms we enjoy. What
matters is not the things a person has, but what a person is or can be and does or can do.
Functionings: what a person does or can do with commodities that they own or control.
Looking at real income or even the levels of consumption of specific commodities cannot suffice
as a measure of well-being. These are of little value if they are not what consumers desire.
Capabilities: the freedom that a person has in terms of the choice of functionings, given his
personal features and his command over commodities. Real income is essential, but to convert
the characteristics of commodities into functionings, in most cases, surely requires health and
education as well as income.
Financial security is only one factor of happiness. Also relationships, work, friends, health etc.
Social capital also. Bhutan is an example of great happiness, low income.
Three core values of development (SSF):-Sustenance: the basic goods and services that are
necessary to sustain an average human being- Self-esteem: the feeling of worthiness that a
society enjoys when it systems promote human values as respect, dignity and self-
detemination.- Freedom: to have to your disposal several alternatives to satisfy its wants.
A set of eight goals adopted by the UN in 2000. Eradicate extreme poverty and hunger, achieve
education, gender equality, empower women, reduce child mortality, combat diseases.
Hoofdstuk 2: Comparative Economic Development
World Bank has a system that is commonly used to define the developing world. They are
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ranked by GNI per capita. (LIC, LMC, UMC, OECD, and other high income countries).
PPP is calculated using a common set of international prices for all goods and services. In a
simple version, purchasing power parity is defined as the number of units of goods and services
in the local developing country market as $1 would buy in the US. In practice, adjustments are
made for differing relative prices across countries so that living standards may be measured
more accurately. Prices of non-traded services are much lower in developing countries because
wages are so much lower.
PPP provides more accurate comparisons of living standard. Income gaps between rich and poor
tend to be less when using PPP instead of exchange rate.
Core capabilities: health and educational attainments.
HDI: Human Development Index (life expectancy, knowledge, income). Rank all countries on a
scale of 0 to 1 based on three goals: longevity as measured by life expectancy at birth,
knowledge as measured by a weighted average of adult literacy and standard of living as
measured by real per capita gross domestic product adjusted for the differing purchasing power
parity of each contries currency.
The traditional HDI calculation assumed one component traded off against another as perfect
substitutes, not a strong assumption. New HDI takes the cube root of the three component
indexes: a geometric mean, instead of an arithmetic. Also: per capita income, other educational
measures, maximum values have been increased.
There are some common features of developing countries. Within these areas of commonality is
also a great deal of diversity. Different problems call for different specific policy responses.
1) low level of living standard and productivityA e lo shae of gloal ioe. It doest
depend on how big a country is.
2) Lower levels of human capitalDeveloping countries lag in its average level of nutrition,
health and education.
High mortality rate under 5. Low school enrollment. Correlation between under-5 mortality and
othes eduatio.
3) higher levels of inequality and absolute poverty
4) Higher population growth ratesHigher growth in developing countries. The crude birth rate
is higher for developing countries (number of born alive kids per 1000).
5) Greater social fractionalizationEthnic, linguistic and other social divisions within a country.
More political instability.
6) Larger rural populations but rapid rural-to-urban migrationOne of the hallmarks of economic
development is a shift from agriculture to manufacturing and services. A very low percentage of
people lives in urbs in developing countries.
7) Lower levels of industrialization and manufactured exportsIn developing countries there is
low industrialization. Not many people work in industry, more in agriculture. Industrialization is
associated with high productivity and incomes and has been a hallmark of modernization and
national economic power.
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8) Adverse geographyThe extreme case of favorable physical endowment (the supply of usable
factors of production including mineral deposits, raw materials and labor) is the oil-rich Persian
Gulf states.
9) Underdeveloped marketsLack of a legal system, currency stability, infrastructure of roads
and utilities, a well-developed and efficiently banking system, substantial market information,
social relationship norms: imperfect market, incomplete information.
10) Lingering Colonial Impacts and unequal international relations Dependence, colonial legacy.
The position of developing countries now is very different of the positions of now developed
countries when they started developing:
1) Physical and human resource endowmentsSoe ae edoed, ut dot hae the apital to
2) Low levels of per capita income Lower than developed countries then.
3) Climatic differences Tropical, subtropical.
4)Population size, distribution, growth Too much growth of the population.
5) The historical role of international migration
6)The growth stimulus of international tradeBad terms of trade. Exports expanded, but not so
fast as the exports of the developed countries. Their terms of trade worsened.
7) Basic scientific and technological research and development capabilities No research and
development, what developed countries had.
8) Efficiacy of domestic institutionsThe efficiacy of economic, political and social institutions.
No entrepreneurial spirit. No strong political atmosphere, also because the states are drawn by
We should epet oegee eause of teh tasfe ad apital auulatio diiishig
returns).But we see no convergence, but divergence. Only convergence in OECD countries.
Hoofdstuk 3
Four major and competing strands of thought about economic growth: 1. The linear-stages-of-
growth model2. Theories and patterns of structural change 3. The international-dependence
revolution 4. The neoclassical, free market counterrevolution
‘ostos stages of growth model of development described the transition from
underdevelopment to development in terms of a series of steps through which all countries
must proceed. One of the principal strategies of development necessary for any takeoff was the
mobilization of domestic and foreign saving in order to generate sufficient investment to
accelerate economic growth: Harrod- Domar model (AK model).
Capital-output ratio: a ratio that shows the units of capital required to produce a unit of output
over a given period of time.
Harrod-Domar states that growth is a function of: (savings ratio / national capital-output ratio).
The highe the saig the highe the goth. If outies didt had the apital to sae, thee
had to be aid from foreign: like the marshall plan.
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