Lecture 1 - Concept

Development Economics
Lecture # 1
By
Asma Hyder
The Concept of Development (Ref: Handbook of
Development Economics Chapter 1 by Amartya Sen)
• The Background
• Sir William Petty in 1676 estimated national income by using:
• Income Method
• Expenditure method
• He also used a broader approach and examined ‘The common safety’
and ‘each man’s particular happiness’; (Ref: Political Arithmetick
1691)
• Petty is considered as founder of quantitative economics &

development economics
The Concept of Development…..
• Economic problems include:
• Logistic issues & engineering
• Outcomes are judged ultimately in terms of what those engineering to human lives
• Logistics include but not limited to:
• Tax collection
• Profits and distribution of resources and wealth
• Investment
• Living conditions
• Logistic is different in rich and poor countries

Economics & development economics
• Similarities and differences in:
• Theories, ideas & topics
• Methods of investigations
• Measurement of outcomes
Distinction between Growth and
Development
• GNP or GDP per capital Vs. Inequality
• The question of externalities
• Problem of valuation of commodities – prices in different areas
• Trade off between GDP – life expectancy, joy in life, peace and
happiness
• And beyond
Distinction between Growth and
Development
Country GDP per capital Life expectancy
(USD 2018)
Bhutan 3243 71 years
Sri lanka 4102 76 years
South Africa 6374 67 years
Brazil 8920 75 years
Mexico 9673 74 years
Characteristics, functioning and living
• Development is concerned about achievement of better life which
include but not limited to:
• Length of life
• Ability to avoid morbidity
• Ability to be well nourished
• Ability to move from one social class to another
• Ability to migrate to avail better opportunities
• Above points are referred as ‘Functioning of a person”- were used by

Adam Smith(1776) & Karl Marx (1844)
• Functioning: GDP/GNP (Means) ⇢ Achievement equality,
better life (Achievements)
• Consumer theory: Commodities are viewed along with their

characteristics – citizen’s satisfaction depends on the
characteristics and how they reach them (Functioning)
• Commodities have similar set of characteristics but

functioning is different for each individual
• The relationship between ‘commodities’, ‘characteristics’ and ,
‘functioning’ is complex
• The successful functioning depends how public commodities are

available to citizen’s
• This debate involves ‘logistic’ and ’engineering’ issues of governance or state
institutions
Freedom, capability and Achievement
• Two person A and B may have similar achievement, for instance 15
years f education but process of that achievement is different for
everyone
• Similarly, if a person fast, he/she have the freedom to fast or not to

fast. But at the same those who starve from hunger they don’t have
choice not get starve
Weights and Rankings
Functioning Capabilities Spaces
Development: (Partly from Todaro and Smith- Development
Economics, Ed.2012.)
• The process of improving the quality of all

human lives and capabilities by raising
people’s levels of living, self-esteem, and
freedom.
Patterns of Development: Three Experiences (Malaysia)
• Prior to 1970s or Mid 1970s
• Largely agrarian society, Low wages
• High unemployment, Low productivity
• 1970’s
• Export processing zones (EPZ)
• The first beneficiaries of American and Japanese electronic
manufacturing companies: Hong Kong, Singapore, Malaysia
& Taiwan
• American and Japanese companies were looking for:
• Good Infrastructure, English speaking, Hardworking labor
force, Stable political environment , Low wages
Patterns of Development: Three Experiences
(Malaysia)
Improving the lives of the people:
• Malaysia was known for their rubber and palm oil and now they
are world largest electronic component exporters – Proportion
of agri in GDP is 7% in 2019
• Avg Income of a Malay is more that quadrupled in real terms
b/w 1970 & 2010
• Infant mortality rate fell from 41/1000 to 7/1000
• Life expectancy increased from 61 to 75 years
• Adult literacy: 58% – 92%
Ethiopia
• Very poor country
• 1984 – drought and famine further weakened the economy
• HIV/AIDS remain the biggest issue
• Per capita income remains the same as it was in 1981
• Infant mortality rate fell from 136/1000 in 2009 to 35/1000
in 2019
• Life expectancy improved significantly
• Primary enrollment doubled
• 61% from agriculture in national income (1970), 34% (2018)
• Now there is an opportunity
Ukraine
• Became independent in 1991

• Trade with Russia collapsed
• Energy supplied from Russia stopped
• Hyper inflation in 1993-94 and prices increased 5000
percent
• Health outcomes fell apart & life became very harsh ----
Anxiety, stress and uncertainty
• Life expectancy: 69 years (1985), 66 years (1995), 68
years (2009), 71 years (2015)
• Global recession hit the economy in 2008
Figure 1.1 World Income Distribution
1.2 Economics and Development Studies
• Economies as Social Systems: The Need to Go Beyond Simple
Economics
• Social Systems
• Interdependent relationships between economic and non-economic
factors
• Success or failure of development policy
• Importance of taking account of institutional and structural variables
along with more traditional economic variables
• Equality, * Elimination of poverty *Universal education
• Raising the level of living *Rule of law *Access to opportunity
*Equal Political and economic participation
• Grass root democracy *Self reliance *Personal fulfillment
1.3 What Do We Mean by Development?
• Traditional Economic Measures
• Gross National Income (GNI)
• Income per capita
• Utility of that income?
• The New Economic View of Development
• Leads to improvement in wellbeing, more broadly understood
• Amartya Sen’s “Capability” Approach
• Functionings as an achievement
• Capabilities as freedoms enjoyed in terms of functionings
• Development and happiness
• Well being in terms of being well and having freedoms of choice
• “Beings and Doings”:
1.3 What Do We Mean by Development? (cont’d)
• Three Core Values of Development

• The Ability to Meet Basic Needs
• Self-Esteem: To Be a Person
• Freedom: To Be Able to Choose
• Correlation of the Above with levels of Income
• Growth and Distribution
Functioning and Capability
• Functioning: What people do and can do with the
commodities of given characteristics that they come
to possess and control
• Capability: The freedom that people have, given

their personal features and their command over
commodities
Figure 1.2 Income and Happiness: Comparing Countries
1.3 What Do We Mean by Development? (cont’d)
• The Central Role of Women
• To make the biggest impact on development, societies must
empower and invest in women
• The Three Objectives of Development
• Increase availability of life-sustaining goods
• Raise levels of living
• Expand range of economic and social choices
Can all three above be achieved by better credit conditions,
markets and technology? Social Choice is the Issue with Health
and Education.
1.4 The Millennium Development Goals
• Millennium Development goals (MDGs)

• Eight goals adopted by the United Nations in 2000
• Eradicate extreme poverty and hunger
• Achieve universal primary education
• Promote gender equality and empower women
• Reduce child mortality
• Improve maternal health
• Combat HIV/AIDS, malaria, and other diseases
• Ensure environmental sustainability
• Develop a global partnership for development
• Unfortunate Exclusion of Social Mobility as a major indicator of
Underdevelopment. Research has not made to the Text Books.
• It is a critical indicator measuring probability distribution of jumping

the fence.
1.5 Conclusions
• The importance of Development Economics

• Inclusion of non-economic variables in designing development strategies
• Understanding why we need to go beyond Markets and Technology and
Designing Policy Intervention
• Financing of Development
Common Characteristics of Developing Countries
• These features in common are on average and with great

diversity, in comparison with developed countries:
– Lower levels of living and productivity
– Lower levels of human capital
– Higher levels of inequality and absolute poverty
– Higher population growth rates
– Greater social fractionalization
– Larger rural population - rapid migration to cities
– Lower levels of industrialization and manufactured exports
– Adverse geography
– Underdeveloped financial and other markets
– Colonial Legacies - poor institutions etc.

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Development Economics

• Petty is considered as founder of quantitative economics &

• Logistic is different in rich and poor countries

• Theories, ideas & topics

• Above points are referred as ‘Functioning of a person”- were used by

• Consumer theory: Commodities are viewed along with their

• Commodities have similar set of characteristics but

• The successful functioning depends how public commodities are

• Similarly, if a person fast, he/she have the freedom to fast or not to

• The process of improving the quality of all

• Became independent in 1991

• Three Core Values of Development

• Capability: The freedom that people have, given

• Millennium Development goals (MDGs)

• It is a critical indicator measuring probability distribution of jumping

• The importance of Development Economics

• These features in common are on average and with great

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