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Economic Development

Purpose of Course  showclose

This course introduces major theories of economic development and to place them in a historical context. In his contributory introduction “Economic Growth, Economic Development and Human Development” in The Development Economics Reader (2008), edited by Giorgio Secondi and published by Routledge, Secondi defines economic development as the “branch of economics that studies relatively poor countries.” In the same book, Mahbub ul Haq, writing under the title “The Human Development Paradigm,” suggests that the “basic purpose of development is to enlarge people’s choices,” which is in line with the views expressed by the Nobel laureate Amartya Sen. Whether development is simply studying poor countries or expanding people’s choices in poor countries, one of the essential requirements is that there must be a means for making the choices available. This means that economic development must include growth, but growth can take place without economic development. Without economic growth, the choices cannot be expanded. At the same time, however, economic growth can take place and people’s choices can still be limited. Therefore, economic development requires economic growth, but the inverse is not required. Indeed, Pearce defines economic development as “the process of improving the standards of living and well-being of the population of developing countries by raising per capita income” (1992). In essence, theories of economic development attempt to explain the process that less developed countries (LDCs) go through to become developed countries (DCs). Further, because economic development is more than economic growth and involves changes in all aspects of the society, both social and political, the discipline tends to be interdisciplinary, drawing from other social sciences such as sociology and geography.

In this course, in addition to discussing the theories of development, we will also try to explain how the theories are applied and how successful they have been in explaining the development patterns of various countries. The oft cited example of Ghana and Malaysia might be instructive at this point. Both countries gained independence from the British in 1957 (Ghana a few months earlier in March and Malaysia in August). At the time, both countries were roughly at the same level of development. If you fast forward to the 2000s, Malaysia’s per capita GDP is five times that of Ghana’s per capita GDP; it is $16,200 in Malaysia and $3,100 in Ghana. The literacy rate in Malaysia is 88.7% and 67.3% in Ghana. Malaysia has 11 times more physicians per 1,000 people than Ghana, and life expectancy is 74.04 in Malaysia but 61.45 in Ghana. There are many questions which the development economist wants the answers to, but mainly this boils down to:  What accounts for the vast differences in the many measures of human development indices? We study economic development to learn from the Malaysians so that we can offer useful advice to the Ghanaians.

The units in this course are stacked as building blocks; each successive unit depends on a thorough understanding of the previous unit. The course begins with some of the stylized facts of the countries classified as developing countries. You will find that they are not all alike. Some countries, such as the oil rich ones, may have a very high per capita GDP. You will learn the definitions of major terms and concepts. The sections that follow the introductory unit outline the major theories of economic development, tracing their development throughout history as the dialogue on development economics has progressed. Finally, the course will present a number of development successes and failures and will prompt you to draw your own conclusions on the validity of certain theories based on case studies.

Course Information  showclose

Welcome to ECON304: Economic Development. General information about this course and its requirements can be found below.

Course Designer: Samuel K. Andoh

Primary Resources: This coursecomprises a range of different free, online materials. However, it makes primary use of the following materials:
Requirements for CompletionBefore taking this course, you should have completed ECON101: Principles of Microeconomics and ECON202: Principles of Macroeconomics. These pre-requisites lay the foundation for understanding the advanced material in ECON304. Pay special attention to Unit 1 as this lays the groundwork for understanding the more advanced, exploratory material presented in the latter units of this course. You have to work through each unit of this course and all of its assigned materials. You will also need to complete:
  • Unit 1 Activities
  • Subunit 2.5.2 Assessment
  • Subunit 2.5.3 Assessment
  • Subunit 2.6 Assessment
  • Unit 2 Activity
  • Unit 3 Activity
  • Subunit 4.3 Assessment
  • The Final Exam
Note that you will only receive an official grade on your final exam. However, in order to adequately prepare for it, you will need to work through the assessments and activities listed above as well as all of the reading material in the course.

In order to pass this course, you will need to earn a 70% or higher on the final exam. Your score on the exam will be tabulated as soon as you complete it. If you do not pass the exam, you may take it again.

Time Commitment: Completing this course should take you a total of approximately 61 hours. Each unit includes a time advisory that lists the amount of time you are expected to spend on each subunit. The time advisory includes the estimated time you should expect to devote to reading through the resources and completing any assignments that may be included. These should help you plan your time accordingly. It may be useful to take a look at these time advisories and to determine how much time you have over the next few weeks to complete each unit and set goals for yourself. For example, Unit 1 should take you 12 hours to complete. Perhaps you can sit down with your calendar and decide to complete subunit 1.1 (a total of 3.5 hours) on Monday night; subunits 1.2 and 1.3 (a total of 4.5 hours) on Tuesday night; subunits 1.4 and 1.5 as well as the activity (a total of 4 hours) on Wednesday night; etc.

Tips/Suggestions: It is important to pay close attention to the new terminologies you encounter in this course and every other course. You may think you know what words mean, but as used by economists, these words have technical meanings. Spend the time to study the new vocabulary, and it will pay handsome dividends.

As you read, take careful notes on a separate sheet of paper. Write down any definitions, concepts, or examples that stand out to you. These notes will be useful to review as you study and prepare for your final exam.

Learning Outcomes  showclose

Upon successful completion of this course, you will be able to:
  • define economic development and its components;
  • describe major theories of economic development;
  • explain and apply some basic economic models related to economic development and economic growth, including the Solow Growth model and its extensions;
  • identify and discuss economic development theories in the social and political context in which they were created; and
  • critically examine economic development theories in light of a history of poor performance in development programs.

Course Requirements  showclose

In order to take this course you must:

√    have access to a computer;

√    have continuous broadband Internet access;

√    have the ability/permission to install plug-ins or software (e.g., Adobe Reader or Flash);

√    have the ability to download and save files and documents to a computer;

√    have the ability to open Microsoft files and documents (.doc, .ppt, .xls, etc.);

√    be competent in the English language;

√    have read the Saylor Student Handbook; and

√    have completed the following courses from the “Core Program” of the Economics discipline: ECON101: Principles of Microeconomics and ECON102: Principles of Macroeconomics.

Unit Outline show close


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  • Unit 1: What Is Economic Development?  

    The meaning of the term economic development is not as clear as you might expect. As we learned in earlier economics courses, economies are complex. Many internal and external factors impact whether an economy is able to grow, provide employment to its working-age population, and reduce poverty. Furthermore, different people may hold different views as to what constitutes development. Some may believe that development means higher incomes. Others might believe that development is a change in the structure of society or institutions. Still others might consider development an improvement in the health and education outcomes of a given population. Economics tells us that all of these factors are important in defining economic development population; thus, before considering the major theories of economic development, it is important to understand the key terms and concepts used in the literature of economic development and to determine what is meant by these concepts.

    Development is not simply growth; it is economic growth plus sustainable changes in people’s quality of life. Economists usually measure economic growth in terms of the rate at which GDP changes over time. There is little argument about this measure of growth. A high real GDP growth relative to population growth is necessary to provide schools, hospitals, housing, and adequate nutrition. However, a high per capita GDP growth is not sufficient; it must be accompanied by structural changes that improve welfare. Therein lies the difference between economic growth and economic development. It is important to understand the factors that promote this growth, but it is just as important to understand the factors that change people’s quality of life, allowing people to make choices and to participate in the economy.

    Unit 1 Time Advisory   show close
    Unit 1 Learning Outcomes   show close
  • 1.1 Origin of the Concept of Economic Development  

    The idea and process of economic development involves the deliberate manipulation of forces within the control of humans to alter economic outcomes instead of accepting what nature provides by way of sustenance as inevitable. Some argue that one major reason for underdevelopment is the fatalistic attitude of people who live in poor countries and their unwillingness to alter what has been. A recent paper by Easterly and Levine suggests that a great amount of economic development today is the result of European settlement outside Europe. The argument goes that these settlements “shaped institutional, educational, technological, cultural, and economic outcomes.” (2012) As with many theories, or rather hypotheses, in economic development, this one is not easy to accept. For many in the developing world, this smacks of Eurocentricism. Nonetheless, casual and empirical observations suggest that education introduced by European settlers had a lot to do with changing the fatalistic attitude of many traditional societies, ushering in human capital development in ways that had not been the case before. As you read through the various texts, you will come across many ideas that may sound self-serving to one group or the other. Your ability to discern what may be correct, based on empirical evidence is as much a part of your education as your knowledge of the various theories.

  • 1.1.1 Defining Development  

    By the time you finish reading this section, you should feel comfortable defining economic growth and economic development as well as distinguishing between the two. The piece titled “Approach to Development” is a good opener, and the exercise should help you appreciate the fact that development is a process, a continuum of changes which eventually brings a country to a point at which it is classified as developed. As a continuum, one can always argue about the precise point at which developing has ended and developed has begun. The US is obviously a developed country, yet some parts of it are no different from a typical developing country. Azerbaijan, Brazil, China, India, and South Africa are all developing countries but some parts of these countries can hardly be called developing.

    • Activity: Connexions: Siyavula Uploaders’ “Approach to Development”

      Link: Connexions: Siyavula Uploaders’ “Approach to Development” (PDF)

      Instructions: Read the brief introductory information for a definition of developing countries and developed countries. Complete the activities, which will help you practice identifying which countries are developed and which are not. Once you’ve completed Activities 1–3, you may check your response against the answer key in the “Memorandum” section.

      Completing this activity should take approximately 2 hours.

      Terms of Use: This article is released under a Creative Commons Attribution 3.0 License. It is attributed to Siyavula Uploaders, and the original version can be found here.

    • Reading: The World Bank’s Beyond Economic Growth: “What Is Development?”

      Link: The World Bank’s Beyond Economic Growth: “What Is Development?” (PDF)
       
      Instructions: Read this chapter for an overview on development. For further clarification on issues raised in this chapter, please refer to the accompanying glossary. This article introduces the concept of development, providing both what might be considered the traditional and more modern definitions of development.
       
      Reading this chapter should take approximately 30 minutes.
       
      Terms of Use: This material has been reposted by the kind permission of the World Bank, and the original version can be found here. Please note that this material is under copyright and cannot be reproduced in any capacity without explicit permission from the copyright holder.

  • 1.1.2 Historical Foundations of Theories of Economic Development  

    The perennial effort to live from one day to the next without the fear of hunger or danger has always preoccupied humankind. Societies have always sought ways to overcome these obstacles. They did so by organizing in ways they felt would give them the best chance of survival. Some were more successful than others. The successful ones gave economists the impetus to study them and apply lessons to others. Our economic systems are ways of organizing production activities. Sometimes it is not easy to differentiate the way we govern ourselves from the way we organize productive activities. From feudalism to capitalism to communism and in between, the social system has been as much about government as about allocating the scarce resources. The piece below traces the historical origins of economic development.

  • 1.2 Comparing Levels of Development between Regions of the World  

    Although the term developing countries refers to a group of countries, no two countries are alike. The stylized facts of developing countries fit them in aggregate, but on just about any measure of development, you will find that some of the facts do not apply to some of the countries. Some developing countries experience frequent extreme poverty and hunger, whereas others rarely do. Some developing countries have low literacy rates, whereas others have high literacy rates. Some have low doctors per thousand of population, whereas others do not. The contrast between development and the absence of development will be between the poor developing countries and rich developed countries. The UK is a developed country compared to Ethiopia, but how does Ethiopia compare to say Haiti? They are both developing countries, and in regard to some measures, Ethiopia will do better and on others Haiti may do better than Ethiopia.

  • 1.3 Population Growth in the Developing World  

    Population growth is both a boon and a bane for economic development. First, it is from the population that society derives the labor force. Thus, without population growth, this essential factor of production will dwindle. Second, it is from the population that society derives entrepreneurs with the qualities to take risks and to organize production. On the other hand, if the population grows too quickly, it poses problems. The population must be cared for, be educated over a long period, be made ready for participation in economic activity, and be prepared to take care of the aging. Is there an ideal population growth rate? Are the poor countries poor because the populations are growing too fast? These are important issues of interest to the development economist. 

    • Reading: The World Bank’s Beyond Economic Growth: “World Population Growth”

      Link: The World Bank’s Beyond Economic Growth“World Population Growth” (PDF)

      Instructions: Read this chapter, which explains the importance of population growth in the dynamics of development and underdevelopment. This article also shows how recent trends in population growth differ between regions in the world.

      Reading this chapter should take approximately 30 minutes.

      Terms of Use: This material has been reposted by the kind permission of the World Bank, and the original version can be found here. Please note that this material is under copyright and cannot be reproduced in any capacity without explicit permission from the copyright holder.

    • Guest Lecture: YouTube: TED Talks’ “Hans Rosling: Asia’s Rise – How and When”

      Link: YouTube: TED Talks’ “Hans Rosling: Asia’s Rise – How and When” (YouTube)

      Instructions: Watch this lecture. The idea that poorer countries’ income per capita will grow faster than richer countries’ income per capita is known as convergence. Does that mean that eventually all countries will converge to the same level of income? The rate at which China, India, and Brazil have been growing has led several people to conclude that eventually China will have a higher (per capita) income than the US. In this invigorating guest lecture, the speaker compares the growth of US to the growth of emerging nations such as China and India and makes some predictions about when these economies are likely to catch up to the US economy. He also points out existing roadblocks in these economies. As you listen, think about the factors that promote and inhibit growth. 

      Watching this lecture and pausing to take notes should take approximately 45 minutes.

      Terms of Use: This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License. It is attributed to TED, and the original version can be found here.

    • Guest Lecture: YouTube: TED Talks’ “Martin Jacques: Understanding the Rise of China”

      Link: YouTube: TED Talks’ “Martin Jacques: Understanding the Rise of China” (YouTube)

      Instructions: Watch this lecture. You previously listened to Hans Rosling’s talk on the rise of Asia. In this lecture, Martin Jacques talks about China’s road to success. Jacques explains the factors that render the country distinct from its western counterparts, the reasons that have led to its success, and the factors that will determine its future.
       
      Watching this lecture and pausing to take notes should take approximately 45 minutes.

      Terms of Use: This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License. It is attributed to TED, and the original version can be found here.

    • Reading: The World Bank’s Beyond Economic Growth: “Economic Growth Rates”

      Link: The World Bank’s Beyond Economic Growth: “Economic Growth Rates” (PDF)
       
      Instructions: Read this chapter, which tracks trends in economic growth according to a number of classifications including geography, natural resource endowment, and income level. When reviewing this reading, start to consider the origin of the differences in economic growth rates for these different countries.

      Reading this chapter should take approximately 30 minutes.
       
      Terms of Use: This material has been reposted by the kind permission of the World Bank, and the original version can be found here. Please note that this material is under copyright and cannot be reproduced in any capacity without explicit permission from the copyright holder.

    • Guest Lecture: YouTube: TED Talks’ “Nandan Nilekani’s Ideas for India’s Future”

      Link: YouTube: TED Talks’ “Nandan Nilekani’s Ideas for India’s Future” (YouTube)

      Instructions: Watch this lecture. This lecture introduces another case study in the context of a developing country’s recent growth. In this guest lecture, the speaker presents four categories of ideas that help shape the development of a nation. He explains these ideas in the context of India’s progress and emphasizes those that are important for its continued progress.

      Watching this lecture and pausing to take notes should take approximately 45 minutes.

      Terms of Use: This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License. It is attributed to TED, and the original version can be found here.

  • 1.4 Poverty and Income Inequality  

    Per capita GDP is not always a good measure of the level of poverty or of wealth. First, many development practitioners consider poverty to be multi-dimensional, meaning that is it not only defined by how much income a household has to spend. Second, GDP per capita does not consider the impact of inequality in the distribution of income, which may mask problems of poverty. A high per capita GDP may be distributed such that a small fraction of the population gets a large fraction of the income. This may result in a large percentage of the population being poor even though the country has a high per capita GDP. Economists have come up with an ingenuous way of measuring this concept by using the Lorenz curve. The Lorenz curve is a square graph with the cumulative percent of income on the vertical axis and the cumulative percent of the population receiving the cumulative percent of income on horizontal axis. For example, if the first 20 percent of the population receives 20 percent of income, then the coordinates will put that point on the line 45o from the origin (the line from the origin which bisects the 90 degree angle). If the first 20 percent of the population receives 5% of the income, then the coordinates will be below the 45o line. Zero percent of the population will receive zero percent of the income, and naturally 100 percent of the population will receive 100 percent of income; thus, if we plot the coordinates of the cumulative percentage of population against the percent of income it receives, then the line will start from the origin and end at the vertex of the parallel to the horizontal axis and the line parallel to the vertical axis. Now, if the bottom 20 percent of the population receives 5% of the cumulative income and the bottom 40% receives 25% of cumulative income, then these points will lie below the 45o line. If we continued till we have covered 100 percent of the population and 100 percent of income, we would have a new line which lies below the 45o line. The area between this line and the 45o line divided by the area formed by the triangle to the left of the 45o line is called the Gini Coefficient (named after Corrado Gini, a mathematician). This coefficient gives us a sense of the distribution of income. If the coefficient is zero, then there is equal distribution of income or perfect distribution of income. The bigger the coefficient, the more unequal income is distributed.

  • 1.5 Industrialization in the Developing World  
    • Reading: The World Bank’s Beyond Economic Growth: “Industrialization and Postindustrialization”

      Link: The World Bank’s Beyond Economic Growth: “Industrialization and Postindustrialization” (PDF)

      Instructions: Read this chapter, which looks at how the structure of countries’ economies tends to change over the course of the development process. Following the decolonization of most of the developing world after WWII, many former colonized poor countries saw their path to development in terms of industrialization. Therefore, these countries embarked on extensive industrialization. Along with the issue of industrialization as a means to develop was whether the process was to be government led or private sector led. If it was to be government led, how was it to be financed? In Latin America, some countries decided that it was to be government led and its deficit financed. The result was a period of rapid inflation and poor economic performance. This text is a primer on the subject. While reading this text, consider how this evolution has differed during various historical periods and how new technologies will impact this change in the future.

      Reading this chapter should take approximately 30 minutes.

      Terms of Use: This material has been reposted by the kind permission of the World Bank, and the original version can be found here. Please note that this material is under copyright and cannot be reproduced in any capacity without explicit permission from the copyright holder.

  • Unit 1 Activity  
    • Activity: The Saylor Foundation’s “ECON304 Course Discussion Board”

      Link: The Saylor Foundation’s “ECON304 Course Discussion Board”

      Instructions: After reviewing the course materials for this unit, please respond to the following questions by posting to the course discussion board. Please feel free to start your own discussions as well as review and respond to other students’ postings.

      1.    Economic growth is more important than economic development. Economic development is more important than economic growth. Which do you think is more important, and why? Provide supporting evidence for your reasons.

      2.    People who live in developing countries are by definition poor. Why might this be true or why might this be false? Explain your reasons.

      Completing this activity should take approximately 2 hours.

  • Unit 2: Traditional Theories of Economic Development  

    This unit will introduce you to the four periods of economic development that traditional schools of thought have identified:

    1.    linear-stages-of-growth models,
    2.    theories and patterns of structural change,
    3.    international-dependence theories and structuralism, and neo-classical models.

    This overview will be followed by in-depth explorations of each school. Linear-stage models see economic growth and development as proceeding in linear fashion with the economy moving from one stage to another and to another. The most famous of the linear-stage models is the one propounded by W.W. Rostow. Rostow saw five stages of growth:

    1.    the traditional society,
    2.    pre-conditions for take-off,
    3.    take-off,
    4.    drive to maturity, and
    5.    the age of high mass consumption.

    Rostow looked at how the Western world, in particular, went through the process of economic development and concluded more or less that all countries must go through the same stages. The beauty of the stages approach is that policy makers only need to ensure that the conditions exist in order to usher in the next stage of the development path. If there is one thing we have learned about economic development, it is that it is not easy to generalize the process. The processes appear to vary from region to region and sometimes from country to country. Harrod and Domar’s model is another linear-stage model. The model sees savings as essential to development and, in some sense, the only necessary input. The more a country saves, the more it grows. Savings of course is necessary but not sufficient.

    The structural change models look at how the economy develops or grows by changing its structure. How does a predominantly agricultural economy become an industrial economy? Among the several theories trying to explain such structural change is one by Arthur Lewis. Structural changes can be sparked by population changes, resource changes, or government policies.

    Dependency theories have their roots in colonialism and post colonialism. Proponents of these theories argue that developing or poor countries have their own structures that are different from those which modernists would like to see prevail. There is also the assertion that rich developed countries like to see the poor countries in a state of submission in order to provide the raw materials that developed countries need for their industries at low costs. The response from the developing countries, particularly in the early 1960s in Latin America was rapid industrialization.

    Neo-classical growth models relate back to neo-classical economics. Neo-classical economists argue that growth is a function of the factors of production (capital, labor) productivity and technological change. They represent extensions of the Harrod-Domar model, and the most popular one now is the Solow Growth Model. You may have noticed that many of the models talk about growth not development. Economists like to talk and write about things they can measure.

    Unit 2 Time Advisory   show close
    Unit 2 Learning Outcomes   show close
  • 2.1 Overview of Theories of Economic Development  

    Early traditional theories of economic development drew lessons from the experiences of the West (mostly Europe and North America) as well as the experience of re-building Europe after the World Wars. Other theories were conceptualized by intellectuals from developing countries; these adopt a view from the bottom. In the context of the Cold War, these theories are heavily influenced by the debate on economic structure taking place between the market-oriented West and the Communist countries.

  • 2.2 Linear-Stages-of-Growth Model: 1950s and 1960s  
  • 2.2.1 Fisher-Clark Theory of Structural Change  
    • Reading: biz/ed: “Fisher-Clark’s Theory of Structural Change”

      Link: biz/ed: “Fisher-Clark’s Theory of Structural Change” (HTML)

      Instructions: Read this brief overview of Fisher-Clark’s theory. This article will introduce you to the main concepts behind Fisher and Clark’s theory on economic development that centers on changes in the sophistication of the products made in a country. For clarification on terms used, please see the glossary at the bottom of the page.

      Reading this article should take approximately 15 minutes.

      Terms of Use: Please respect the copyright and terms of use displayed on the webpages above.

  • 2.2.2 Rostow’s Linear-Stages Growth Model  
  • 2.2.3 The Harrod-Domar Model  
  • 2.3 Theories and Patterns of Structural Change: 1970s  
  • 2.3.1 The Lewis Model  
  • 2.3.2 Chenery’s Patterns of Development Model  
  • 2.4 International-Dependence Revolution & Structuralism: 1970s  
  • 2.4.1 Neo-Marxist  
  • 2.4.2 Dependency Theory  
  • 2.5 Neo-Classical, Free-Market Counterrevolution: 1980s and 1990s  
  • 2.5.1 Neo-Classical Approach  
    • Reading: biz/ed: “Neo-Classical Theory of Growth”

      Link: biz/ed: “Neo-Classical Theory of Growth” (HTML)
       
      Instructions: Read this brief overview of Neo-Classical economic growth theory. This article will introduce the main concepts behind neo-classical theories of economic development. This section is followed by details on the Solow Growth Model and extensions of this model. For clarification on terms used, please see the glossary at the bottom of the page.

      Reading this chapter should take approximately 15 minutes.
       
      Terms of Use: Please respect the copyright and terms of use displayed on the webpages above.

  • 2.5.2 Solow Growth Model  
  • 2.5.3 Endogenous Growth Theory and the Romer Model  
  • 2.6 Recap of Unit 2  
    • Assessment: Pearson Education: Michael P. Todaro’s and Stephen C. Smith’s Economic Development: “Student Resources for Chapter 4”

      Link: Pearson Education: Michael P. Todaro’s and Stephen C. Smith’s Economic Development: “Student Resources for Chapter 4” (HTML)
       
      Instructions: To access the Todaro and Smith quiz, click on “Quiz,” on the left hand side of the page. Please complete the entire quiz for Chapter 4. To grade your quiz, click on the link titled “Submit answers for grading” at the bottom of the page. For more practice, see the graphing and quantitative exercise.
       
      Completing this assessment should take approximately 30 minutes.
       
      Terms of Use: Please respect the copyright and terms of use displayed on the webpages above.

    • Activity: The Saylor Foundation’s “ECON304 Course Discussion Board”

      Link: The Saylor Foundation’s “ECON304 Course Discussion Board”
       
      Instructions: After reviewing the course materials for this unit, please respond to the following questions by posting to the course discussion board. Please feel free to start your own discussions as well as review and respond to other students’ postings.

      1.    How does the Solow model differ from the Harrod-Domar model?

      2.    Which model do you think is the most realistic, and why?

      3.    In recent years, many developing countries have been liberalizing their economies. Compare North Korea’s development progress with one such recently liberalized economy.

      4.    In A. Lewis’ economic development with unlimited supply of labor, what are the main factors that could drive economic development and what might be some of the constraints?

      Completing this activity should take approximately 5 hours.

  • Unit 3: New Models of Development  

    This unit will examine new theories in economic development that have emerged as a result of earlier development theories failing to produce predicted results. These new models center on market and coordination failures. Market failures come in the form of externalities, increasing returns, market imperfections, and distributional equity. Coordination failures are the result of the absence of complementary activities, which are necessary for a project to be successful. Some models deal with poverty traps, geography, institutions, and social capital. Other models, most notably the capacity approachto development, raise the question of how to define development.

    Unit 3 Time Advisory   show close
    Unit 3 Learning Outcomes   show close
  • 3.1 Coordination Failures, Poverty Traps and the Big Push  

    The idea of the Big Push in development economics was first brought to the attention of economists by Paul Rosenstein-Rodan in 1943. Simply put, developing countries cannot do anything to lift themselves out of poverty until they can do it in a big way. Among the reasons for this idea is that there are indivisibilities in the production of goods and services, in the demand for goods, and in the supply of savings. Economies of scale can only be achieved when a minimum output can be produced. This minimum output may be too large for any one firm or individual. The theory provided an argument for government intervention, because it argued that only the government can produce and buy at the scale sufficient enough to overcome the indivisibilities. The theory went out of fashion in the 1970s and 1980s as a result of the lack of empirical evidence to support the idea. It has since been revived by other economists, including Jeffrey Sachs and William Easterly.    

  • 3.2 Geography as the Main Determinant of Development  

    The idea that geography is destiny in economic development has been with economists and non-economists for a long time. That the sun saps the energy of people in the tropics and therefore makes them less inclined to work, or that the prevalence of malaria-borne mosquitoes and sleeping sickness-borne tsetse flies in the tropics sickens people and effectively reduces the number of productive hours they can put to work each day, is both anecdotally appealing and almost intuitive. In recent years, several serious scholars have attempted to assess the impact of such geographic impediments on economic development.

    • Reading: Columbia University: Jeffrey Sachs, John Luke Gallup, and Andrew Mellinger’s “Geography and Economic Development”

      Link: Columbia University: Jeffrey Sachs, John Luke Gallup, and Andrew Mellinger’s “Geography and Economic Development” (PDF)

      Instructions: Scroll down to 1999, and find the paper titled “Geography and Economic Development.” Click on the “PDF” link under the title to access the paper. Read this 56-page article, which explores how geography might either promote of inhibit development. When reading this articles, consider how global warming might make the effects that the authors describe more extreme.
       
      Reading this article should take approximately 3 hours.
       
      Terms of Use: Please respect the copyright and terms of use displayed on the webpages above.

    • Reading: World Bank’s Overview of the World Development Report 2009: “Reshaping Economic Geography”

      Link: World Bank’s Overview of the World Development Report 2009: “Reshaping Economic Geography” (PDF)

      Also available in:
      EPUB

      Instructions: Read this 32-page overview. When reading this articles, consider how global warming might make the effects that the authors describe more extreme.
       
      Reading this article should take approximately 3 hours.
       
      Terms of Use: World Bank’s Overview of the World Development Report 2009: “Reshaping Economic Geography” has been reposted by the kind permission of World Bank. Please note that this material is under copyright and cannot be reproduced in any capacity without explicit permission from the copyright holder.

    • Web Media: NPR’s Talk of the Nation: “Jared Diamond: The Rise and Fall of Civilizations”

      Link: NPR’s Talk of the Nation: “Jared Diamond: The Rise and Fall of Civilizations” (HTML and Flash)
       
      Also available in:
      QuickTime
      Transcript (HTML)
       
      Instructions: Please click on the link above, and begin by reading the description of the interview. To listen to the interview, click on the “play button.” You may have to press control and right click at the same time to allow the media player to open.
       
      Jared Diamond is a very influential thinker in this school of thought on development. If you are intrigued by this interview, you can find much more in his books, which should be available at most public libraries.
       
      Listening to this lecture and pausing to take notes should take approximately 1.5 hours.
       
      Terms of Use: Please respect the copyright and terms of use displayed on the webpages above.

  • 3.3 New Institutional Economics (NIE)  

    This subunit might properly be titled “Institutions Matter.” Taking its cue from Ronald Coase’s two seminal articles, “The Problem of Social Cost” (1960) and “The Nature of Man” (1973), the New Institutional Economists (NIE) examine the role of institutions in furthering or impeding economic development. Some of the institutions are property rights, hierarchy, and social organizations. In a well-acclaimed book by Henon De Soto,The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else (2001), he argues that one of the factors hindering economic development in poor countries is the inability to make real estate (land) fungible. Since then, there have been many others who have echoed that theme and other institutional barriers.

  • 3.4 Social Capital and Development  

    Social capital is one of those concepts in economic development which is clearly borrowed from sociology but which has become an important idea in the literature of economics. It represents social relations that have economic or productive benefits. In today’s language, one could substitute the term networking.

    The World Bank defines social capital as “a set of horizontal associations between people, consisting of social networks and associated norms that have an effect on community productivity and well-being. Social networks can increase productivity by reducing the costs of doing business. Social capital facilitates coordination and cooperation.”
     
    The implications of social capital for economic development have been exploited in many areas. For example, some micro financiers find that the rate of recovery of loans is higher if the lending is made to social groups rather than to individuals. The concept of susu or (rotational savings) depends on the social networking group to make it work. One cannot be in the rotational saving if one is not a member of the social group. The group generates social capital with economic benefits; it enables people to save or have access to capital which may not be easily obtained any other way. 

  • 3.5 Human Capabilities Approach  
    • Reading: Policy & Practice: A Development Education Review: Denis O’Hearn’s “Amartya Sen’s Development as Freedom: Ten Years Later”

      Link: Policy & Practice: A Development Education Review: Denis O’Hearn’s “Amartya Sen’s Development as Freedom: Ten Years Later” (HTML)

      Instructions: Read this text; make sure to click on “next” to read both pages of the article. This article examines the impact of the thoughts of influential development thinker Amartya Sen. Amartya Sen is a prominent Indian economist, who is currently the Thomas W. Lamont University Professor and Professor of Economics and Philosophy at Harvard University. He has published on a wide variety of topics including inequality, alternative definitions of poverty, and gender inequality, among many others. Pay particular attention to O’Hearn’s description of Sen’s capability approach. Do you think his critiques are justified?
       
      Reading this article and answering the question above should take approximately 1 hour.
       
      Terms of Use: Please respect the copyright and terms of use displayed on the webpages above.

    • Web Media: PBS’ Good Fortune: “Additional Video: Amartya Sen”

      Link: PBS’ Good Fortune: “Additional Video: Amartya Sen” (Flash)
       
      Also available in:
      YouTube
       
      Instructions: Once the website has loaded, click on the “play” sign in the media box to launch the video. While watching consider the reading on Sen’s work and impact. This interview with key thinker Amartya Sen is part of the online supporting media for PBS’ Good Fortune, a provocative documentary film exploring how massive international programs to alleviate poverty in Africa may be undermining the very communities they aim to benefit.
       
      Watching this video and pausing to take notes should take approximately 30 minutes.

      Terms of Use: Please respect the copyright and terms of use displayed on the webpages above.

  • Unit 3 Activity  
    • Activity: The Saylor Foundation’s “ECON304 Course Discussion Board”

      Link: The Saylor Foundation’s “ECON304 Course Discussion Board”
       
      Instructions: After reviewing the course materials for this unit, please respond to the following questions by posting to the course discussion board. Please feel free to start your own discussions as well as review and respond to other students’ postings.
       
      1.    How can market failures retard economic development? Try to provide examples to support your answer.

      2.    In your opinion, what is the best way to address the market failures? Explain your response.
       
      Completing this activity should take approximately 2 hours.

  • Unit 4: Conclusion  

    This final unit (the conclusion to the course) will ask you to compare development theories once more, considering them in light of the experience of developing countries. The first reading will present a number of case studies of development success stories in Africa. An online documentary provides a second opportunity to try to identify development theories in action.

    Unit 4 Time Advisory   show close
    Unit 4 Learning Outcomes   show close
  • 4.1 Explaining Development  

    So far, we have been discussing various theories that try to explain the development process. Economics, unlike physics or chemistry, does not easily lend itself to experimentation; identifying the factors responsible for success or failure ex post is not easy. When the development process succeeds or fails, it is often the result of several factors and not the result of a single factor. Nonetheless, there are times when we can point to the factors that caused success or caused failure. A good way to understand the issues is to actually read cases and try to isolate common factors. That is the reason why the collection of cases below is important. The full document is 34 pages long and lists the experiences of several African countries.

    • Reading: World Bank: Shanta Devarajan’s Africa Can End Poverty Blog: “African Successes – Listing the Success Stories”

      Link: World Bank: Shanta Devarajan’s Africa Can End Poverty Blog: “African Successes – Listing the Success Stories” (PDF)

      Also available in:
      EPUB
       
      Instructions: Read the following case studies from Devarajan’s blog: “Achieving Shared Growth in Post-Stabilization Mozambique,” “Rebuilding Local Governments in Post-Conflict Sierra Leone,” “Leveraging Regional Markets to Build a Domestic Manufacturing Sector in Africa,” and “Rural Electrification in Mali.” Pay close attention to the information in the case studies as the exercise which follows will attempt to connect these case studies to a number of the theories we have studied throughout the course.
       
      Reading these case studies should take approximately 1 hour.
       
      Terms of Use: This material has been reposted by the kind permission of the World Bank, and the original version can be found here. Please note that this material is under copyright and cannot be reproduced in any capacity without explicit permission from the copyright holder.

  • 4.2 Analyzing Success and Failure  

    Many of the cases highlight successes, yet with some of the successes, we read about the need to overcome difficulties and risks that could derail the achievements. As you read through the cases, think of the dangers and how they can be mitigated. It is important to be able to relate the successes and failures to one or more theories that we have studied. If no theory can explain the successes, then it might be worthwhile to note that too.

    • Reading: World Bank: Shanta Devarajan’s Africa Can End Poverty Blog: “African Successes – Listing the Success Stories”

      Link: World Bank: Shanta Devarajan’s Africa Can End Poverty Blog: “African Successes – Listing the Success Stories” (PDF)

      Instructions: Click on the link above to download the PDF, and read the following case studies from Devarajan’s blog: “Tanzania’s Transformation to a Market Economy,” “Rebuilding Local Governments in Post-Conflict Sierra Leone,” and “Rwanda: Growing Coffee Sector.” Pay close attention to the information in the case studies as the exercise in subunit 4.3 will attempt to connect these case studies to a number of the theories we have studied throughout the course.

      Reading these case studies should take approximately 1 hour.
       
      Terms of Use: This material has been reposted by the kind permission of the World Bank, and the original version can be found here. Please note that this material is under copyright and cannot be reproduced in any capacity without explicit permission from the copyright holder.

  • 4.3 Formulate/Critique a Simple Development Plan Based on the Theories  

    In reading through the case studies, sometimes it is not obvious whether the success or failure was due to any one particular theory/policy or another, and whether or not there are any lessons to be learned. For example, the piece by Ahmad (link below) takes aim at the failure of secular theories to explain development in general and Islamic societies in particular. You may not agree with some of his contentions, but culture and institutions seem to matter and these are things some societies take for granted, because it has always been the way of life. This story is not very different from Hernando De Soto’s contention in The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else that the most important factor in the development of western economies is how western societies have succeeded in making the capital tied to land fungible, while in many developing countries it is not so. In De Soto’s view, neo-classical economists hardly talk about this, because in the western world, private ownership of property goes without saying. Yet, private property ownership of land and the ability to sell or take equity in it encourages entrepreneurship. Economic growth and economic development thus appear to be inextricably linked to institutions and culture.

  • Final Exam  

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