PART I

Economics - branch of Social Science that Development:

deals with allocation of resources, Traditional definition: more focused on
production, distribution, and consumption economic growth
of goods and services. New definition: education or elimination of
Two Branches: poverty, inequality, and unemployment
1. Microeconomics within the context of a growing economy.
2. Macroeconomics “Redistribution from growth” became a
common slogan.
Economic Resources:
Land, Labor, Capital, Entrepreneurship Poverty Equilibrium
Development Economics - poverty itself maintains the forces
- study of how economies are that lead to its perpetuation.
transformed from stagnation to growth Poverty - characterized by malnutrition,
Absolute Poverty illiteracy and disease as to be beneath any
- unable to meet the minimum levels reasonable definition of human decency
of income, food, clothing, health care, Yet within a particular society at a
shelter and other essentials particular time, poverty is often defined
relative to average living standard.
Reasons for Studying Dev’t Econ. Poverty Trap - when an economic
1. Nature - concerned with economic, system requires a significant amount of
cultural and political requirements for capital in order to earn enough to escape
effecting rapid structural and institutional poverty
transformations of entire societies in a Headcount Index - proportion of a
manner that will mostly efficiently bring the country’s population living below the
fruits of economic progress to the broadest poverty line
segments of their populations. Foster-Greer-Thorbecke (FGT) Index
2. Aim - purpose of this field is “to help - class of measures of the level of
people understand developing economies in absolute poverty
order to help improve the material lives of Total Poverty Gap - sum of the difference
the majority of the global population.” between the poverty line and actual income
3. Scope - traces the current state of levels of all people living below that line
developing nations, from what they have
and what they have not, and apply the The Structure of Third World Economies
theories of development applicable to each. 1. The size of the country (geographic area,
Includes analysis of: population, and income)
1. poverty 2. Its historical and colonial background
2. inequality 3. Its endowments of physical and human
3. population growth resources
4. rural-urban migration 4. The relative importance of its public and
5. agricultural development private sectors
6. international trading 5. The nature of its industrial structure
7. stabilization policies 6. Its degree of dependence on external
8. Financial system economic and political forces
9. Fiscal policy 7. The distribution of power and the
4. Importance institutional and political structure within
To help developing countries attain the nation.
development:
1. economic and social equality Characteristics of the Developing World
2. elimination of poverty 1. Lower levels of living and productivity
3. universal education 2. Lower levels of human capital
4. rising levels of living 3. Higher levels of inequality and absolute
5. national independence poverty
6. modernization of institutions 4. Higher population growth rates
7. rule of law and due process 5. Greater social fractionalization (ETHNIC,
8. access to opportunity CULTURAL, RELIGIOUS ASPECT)
9. political and economic 6. Larger rural populations but rapid rural-
participation to-urban migration
10. grassroots democracy 7. Lower levels of industrialization
11. self-reliance 8. Adverse geography
12. personal fulfillment (RESOURCES/WEATHER & CLIMATE)
9. Underdeveloped financial and other Structural Transformation
markets - a major alteration in the industrial
10. Lingering colonial impacts such as poor composition of any economy
institutions and often external dependence.

Lewis Two-Sector Model

Indicators of development: - surplus labor from the traditional
1. Income agricultural sector is transferred to the
a) GDP/GPI/GNI modern industrial sector
b) Purchasing Power Parity (PPP)
2. Health International-Dependence Revolution
3. Education - developing nations as being
threatened by external environment:
Human Development Index  Political
- measures three areas of human  economic rigidities
development: health, education, and  institutional dependence
standard of living.  dominance of the rich countries
Neocolonial Dependence Model
PART II - believes that the developing
Linear Stages Theory countries are underdeveloped and
- Walt W. Rostow continues to be
- development undergoes stages of Center - In dependence theory, the
growth in achieving development economically developed world.
- important factor that will start this Periphery - In dependence theory,
takeoff is for a country to have a sufficient the developing countries.
fund to achieve the necessary growth to Comprador group - In dependence
attain development theory, local elites who act as fronts
for foreign investors.
Harrod-Domar Growth Model
- growth rate of gross domestic Underdevelopment
product (g) depends directly on the national - persistent low levels of living in
net savings rate (s) and inversely on the conjunction with absolute poverty, low
national capital-output ratio income per capita, low rates of economic
- for countries to achieve growth, growth, low consumption levels, poor health
they need to save and invest services, high death rates, high birth rates,
- growth of the labor force and the dependence on foreign economies, and
progress in technology are the other factors limited freedom to choose among activities
needed to attain growth that satisfy human wants

Structural Change Model False Paradigm Model

- transformation of the economic - underdevelopment is due to faulty
structures of the developing countries from and misleading and inappropriate advice
traditional subsistence agriculture to given by the experts coming from developed
modern industrialized economy countries
Two-sector Surplus Labor
From traditional, overpopulated, Dualistic-Development Thesis
rural subsistence sector; to high- - we live in is the existence of the rich
productivity modern, urban industrial and the poor: rich and poor nations, rich
sector and poor people
a combination of developing both the Dualism - coexistence of two situations or
traditional sector and the industrial sector phenomena

Structural Change Theory Neoclassical Counterrevolution

- hypothesis that underdevelopment - In developed nations, this
is due to underutilization of resources counterrevolution favored supply-side
arising from structural or institutional macroeconomic policies, rational
factors that have their origins in both expectations theories, and the privatization
domestic and international dualism. of public corporations
 - In developing countries, it called
for freer markets and the dismantling of 4 Highly Desirable Properties Of
public ownership, statist planning, and Measuring Inequality
government regulation of economic 1. Anonymity Principle
activities - measure of inequality should not
1. Free-market analysis - analysis of the depend on who has the higher income
properties of an economic system operating 2. Scale Independence Principle
with free markets - measure of inequality should not
2. New Political Economy Approach - depend on the size of the economy or the
self-interest guides all individual behavior way we measure its income
and that governments are inefficient and
corrupt because people use government to 3. Population Independence
pursue their own agendas - measure of inequality should not be
3. Market-friendly Approach - successful based on the number of income
development policy requires governments to recipients
create an environment in which markets 4. Transfer Principle
can operate efficiently and to intervene only - Pigou-Dalton Principle
selectively - Monotonicity Principle
- all other incomes constant, if we
O-Ring Theory transfer some income from a richer person
- Michael Kremer (1993) to a poorer person the resulting new income
- tasks of production must be distribution is more equal
executed proficiently together in order for
any of them to be of high value Poverty in the Third World
- people with similar skill levels Poverty Groups
work together  Rural poverty
Kremer thinks that the O-ring development  Women and poverty
theory explains why rich countries produce  Ethnic Minorities, Indigenous
more complicated products, have larger Populations, and Poverty
firms and much higher worker productivity  Poor countries
than poor countries
John Maynard Keynes
Major Assumptions of O-ring - Father Of Modern Macroeconomics
1. firms are risk-neutral - Solved the problem of the Great
2. labor markets are competitive Depression – 1930’S
3. workers supply labor inelastically High Unemployment + Inflation =Stagflation
4. workers are imperfect substitutes for one
another Keynes Hypothesis
5. there is a sufficient complementarity of - The only solution for this problem is
tasks to satisfy the minimum absolute needs of
the population by providing enough income
PART III
Measuring Inequality
1. Personal distribution of income (size
distribution of income)
- distribution of income according to
size class of persons
 Quintiles (20%) and Deciles (10%)
 Lorenz curve
- graph depicting the variance of the
size distribution of income from perfect
equality
 Gini coefficient
- measure of income inequality
ranging from 0 (perfect equality) to 1
(perfect inequality)
2.Functional distribution of income
(factor share distribution of income)
- distribution of income to factors of
production without regard to the ownership
of the factors
Megatrends
- driving forces that define the world
today and that of tomorrow.
- they are what we know about a
likely future.
- characterized by being far-reaching,
global patterns related to behaviour,
mobility and environment
- they will present us with both
tremendous opportunities to seize
- as well as extremely dangerous
risks to mitigate

5 Key Megatrends
1. Shift in Global Economic Power
2. Demographic Change
3. Rapid Urbanization
4. Rise of Technology
5. Climate Change/Resource Scarcity