Development Economics: Lecture Notes, Lecture notes of Economics

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Development

Economics

Lecture 1

Anne Mikkola

Partly using slides of Prof.

Haaparanta

EXAMS (one of the following)

„ Date: 11.12.2007: Time: 12-

Place: Porthania II

„ Date: 16.1.2008: Time: 12-

Place: Economicum lecture room.

„ Faculty exam: 1.3.

REQUIRED READINGS (preliminary)

„ Debraj Ray (1998): Development Economics. Chapters 1-11.

„ Lecture notes

Follow the course webpage as the course proceeds: http://www.valt.helsinki.fi/blogs/mikkola/post50.htm

„ David N. Weil (2005): selected chapters

„ Check the course binder at the department office of materials.

OTHER READINGS

„ Charles I Jones (2002): Introduction to Economic Growth. Used in class on growth theories.

„ William Easterly (2001): The Elusive Quest for Growth. Economists’ Adventures and Misadventures in the Tropics.

„ Jeffrey Sachs (2005): The End of Poverty. Economic Possibilities of our time

„ Anne Mikkola – Carrie Miles (2007): Development and Gender Equality: Consequences, Causes, Challenges and Cures HECER Discussion Paper, No. 159. (downloadable from internet)

Overview

„ Why development economics?

„ World marching by: need for development

„ Measuring development

„ What is the development?

„ Solutions?

„ History of income growth

Why development economics as a

separate field of study?

„ Many markets missing: labor, financial, insurance „ Institutions and public infrastructure may be missing: property rights, laws, transportation „ Development taking place when there is a developed world elsewhere: aid dependency, technology transfer. „ Speed of development differs from European experience (medical innovations, directly to the mobile phones) „ History of colonialism

GDP per capita in year 2000, USD, PPP exchange rates Source: David Weil: Economic Growth, 2005

Map of world income per capita, 2002

What happened in the developed

countries?

Technological changes (over the past 200 years)

industrialization, specialization in the market

production out of the household

household technology. „ Engines of liberation (of women). Greenwood et al, RES,

changing role of children

declining fertility, falling mortality, longer lives, and rising population

Self-sufficient economies :

clothing from farming to garment, food preparation

from fields to bread, water, heating Æ no statistics

Industrialization 1:

Men leave homes, separate spheres of life

Industrialization 4:

ƒ Women to the labor market (and men’s towards home).

ƒ Sexual division of labor starts to fall apart

Growth theories that we will study

„ were developed to explain the steady growth

experience coinciding with these 200 years of

western development.

„ empirical data on incomes values only market

based work.

„ We will study these models, but it is good to

keep in mind how and why they were

developed.

Measuring development

„ What do we mean by development?

„ Operational definitions:

Millenium Development Goals (MDG’s) (to be

achieved by 2015)

Human Development Index (HDI): achievement of

the goals or improvement in the index is a measure

of development.

ƒ MDGs by the UN

1. Eradicate extreme poverty and hunger.

2. Achieve universal primary education.

3. Promote gender equality and empower

women.

4. Reduce child mortality.

5. Improve maternal health.

6. Combat HIV/AIDS, malaria, and other

diseases.

7. Ensure environmental sustainability.

8. Develop a global partnership for

development.

15. Côte d’Ivoire 30. Kenya
16. Zambia 29. Yemen
17. Malawi 28. Madagascar
18. Angola 27. Nigeria
19. Chad 26. Mauritania
20. Congo, Dem. Rep. of the 25. Haiti
    9. Central African Republic 24. Djibouti
    10. Ethiopia 23. Gambia
    11. Mozambique 22. Eritrea
    12. Guinea-Bissau 21. Senegal
    13. Burundi 20. East Timor
    14. Mali 19. Rwanda
    15. Burkina Faso 18. Guinea
    16. Niger 17. Benin
    17. Sierra Leone 16. Tanzania

“Least Livable” Countries by HDI, 2004

15. Luxembourg 30. Malta
16. Austria 29. Cyprus
17. Finland 28. Barbados
18. United Kingdom 27. Korea, South
19. Switzerland 26. Slovenia
20. Ireland 25. Portugal
    9. Japan 24. Singapore
    10. United States 23. Greece
    11. Iceland 22. Israel
    12. Belgium 21. Italy
    13. Netherlands 20. Spain
    14. Canada 19. Germany
    15. Australia 18. New Zealand
    16. Sweden 17. Denmark
    17. Norway 16. France

“Most Livable” Countries by HDI, 2004

What do these tell about the concept of

development and problems of

development?

„ Development is seen as an improvement in incomes

(and eradication in poverty ), health, education,

equality in incomes (both locally and globally),

achievement of gender equality , and good

environment.

„ Problems in achieving development are seen as

interlinked: low incomes go together with low

education and high inequality, etc.

„ But what is the nature of linkage? Why are

income levels and income inequality related?

Or are they?

„ What do we mean by income, inequality, and

poverty?

„ What type of policies are needed to achieve the

goals? Does aid work? Does debt reduction

help? What is the role of national policy

making?

Growth of income in the history

• what do we learn?

„ Long run development of GDP per capita

reveals interesting aspects of development

Source for the figures is A. Maddison: The World Economy, Historical Statistics, OECD. The figures are US 1990 dollars at PPP exchange rates.

2000 2920 524 16642 999 7218 5556 20235 19817

1990 2522 540 9886 808 6119 4923 16866 16430

1980 2069 593 5869 637 6289 5198 12949 12931

1970 1254 567 2980 653 4320 3057 9577 10767

1960 991 459 1492 607 3155 2335 6230 8645

1950 910 424 924 496 2356 1672 4253 6939

1900 902 (1913) 550 (1870) 539 (1913) 1366 678 1668 4450

1820 475 415 499 397 692 759 646 781 1707

1700 475 415 527 568 638 1250

1500 475 415 416 425 451 714

Year Egypt W-Sahel & A Tanzania Taiwan Nepal L-A Mexico Brazil Finland UK

1. by around 1500 income levels were quite equal

around the world (with the exception of UK).

2. by 1700 the situation had changed: Latin America (North

America also, US income 527 $ by 1700, Canada 800 $ for European immigrants, 400 $ for indigenous people) and Europe. The most dramatic increase in income in UK.

3. from 1800 on Europe (and North America) have

grown much faster than other regions reaching very

high relative incomes by 2000.

What do we learn from this?

4. incomes in some other areas have also grown.

E.g. Latin America and Egypt. The most dramatic change has taken place in South East Asia (example here is Taiwan. Earlier, Japan started to grow by late 1800’s).

5. not all Asia has experienced sustained income

growth:

e.g. Nepal, though during the last two decades it has started to grow.

6. the most serious trouble spot is Sub-Saharan Africa

(presented here through Tanzania).

Tanzania grew during the first decade of its independence, then growth first slowed down and finally stopped completely. A case of a “development trap”?