Marbella, Gracelyn T.

BSA 2-1

Chapter 1
1. Why is economics central to an understanding of the problems of development?
Economics is central to an understanding of the problems of development since it
brings significant change in various areas. This includes the structure of the economy,
institutions, process of production, distribution and consumption, attitudes of people,
incomes of the people, iInfrastructure; etc. It is the change that enables an economy,
to move from worse situations to better situations and which are brought about in an
underdeveloped or a developing economy. This development may face challenges
such as eradication of poverty, creating employment opportunities, provision of health
and education facilities for a strong human capital base, correcting population
explosion, reduction of inequalities; and entire system of working of that particular
economy. This also is concerned with production, distribution and consumption of
goods and services and with the theory and management of economies or economic
systems. It is the study of choice making behavior of people with the limited amount
of resources available at their disposal.
3. What do you hope to gain from this course on development economics?
I hope to know what the development economics’ significance in one country and
how to attain this kind of development especially by the developing countries. I hope to
have more knowledge of the resources that can be used in my country to be able to utilize
it properly and for improving our communities through job growth and through agricultural
sector. I hope to understand different terminologies that are related to this subject to know
more of the factors that can affect our economy.

5. Why is an understanding of development crucial to policy formulation in

developing nations? Do you think it is possible for a nation to agree on a rough
definition of development and orient its strategies accordingly?
Development is a word that cannot be defined since it has a lot of meanings.
Depending on which meaning one adopts, there are a number of policy issues which
could be adopted to achieve the goal. First, one must ask "development for whom." If a
country only wishes to secure development for the wealthiest members of its society, then
it may spend a great deal for nothing more than law enforcement and projects in politically
connected parts of the country. If a state wants to gain broad based development, then
you should pursue programs of public health, education, microfinance, etc.
I think it is impossible for a nation to agree on a rough definition of development
and orient its strategies accordingly since it still depends on various factors to be
considered depending on its current situation and needs. Moreover, it is impossible when
it comes to political aspect.
7. How does the concept of “capabilities to function” help us gain insight into
development goals and achievements? Is money enough? Why or why not?
Economic development is overall improvement of living standards. Hence it is
much more complex than economic growth which is basically increase in real GDP.
Economic development would take health conditions, education, security, infrastructure,
etc. into account. While increase in GDP may help achieve the means to these
developments, it doesn't mean it will. For instance, I'd say Turkey is economically doing
well, there is definitely economic growth however there are many journalists arrested for
being opposed to the government, there is high level of corruption evident from the recent
events. So, I'd say increase in GDP does not reflect the development.

9. What critical issues are raised from the examination of development problems
and prospects facing Brazil?
It might be most accurate to say that Brazil has experienced some economic
growth without as much social development, rather than the more blanketing “growth
without development,” which applies better to a few Middle Eastern countries and some
lower-income countries such as Pakistan, Gabon, and Equatorial Guinea. But continuing
racial disparities, unjust treatment of indigenous peoples, lack of access of the poor to
fertile land, extremely high inequality and surprisingly high poverty for its income level,
and the danger that growth will prove ecologically unsustainable all mean that Brazil will
have to continue its recent efforts to make social inclusion and human development, as
well as environmental sustainability, top priorities if it is to resume rapid economic growth,
let alone achieve true multidimensional development.
Marbella, Gracelyn T.
BSA 2-1

Chapter 2
1. For all of their diversity, many less developed countries are linked by a range of
common problems. What are these problems? Which do you think are the most
important? Why?
Many less developed countries are linked by a range of common problems like
lower level of standard of living and the labor productivity, weak human capital base,
high level of economic inequality and absolute poverty, population explosion, social
fractionalization, large rural population and frequent rural-urban migration,
unsupportive geography, weak financial and other markets, low level of
industrialization, and common history of colonial exploitation and a lot of dependence
of foreign aid and markets.
Among these problems, the most important in my perspective are the common
history of colonial exploitation where te colonials in every region of their exploitation
had set their own rules of exploitation that benefitted them but limited the opportunities
for the nations in which they ruled. Thus, development has been delayed in these
nations; and economic inequalities which is responsible for slow economic
development in these nations. The policy makers have not been very successful so
far to reduce the gap between rich and poor.

3. Can you think of other common (not necessarily universal but widespread)
characteristics of less developed countries not mentioned in the text? See if
you can list four or five and briefly justify them.

Agricultural Backwardness:
The underdeveloped countries are also suffering from agricultural backwardness.
Although being the most important sector, agricultural sector in these countries
remains totally underdeveloped. But what is more peculiar is that these countries are
depending too much on this agricultural sector. Nearly 60 to 70 per cent of the total
population of these countries is depending on agriculture and about 30 to 40 per cent
of the total GNP of these countries is generated from agricultural production.
Agricultural productivity in these countries remained still very poor in spite of its great
importance.In these underdeveloped countries, agriculturists are still following
traditional methods and are applying modernized techniques on a very limited scale.

Unemployment Problem:
Excessive population pressure and lack of alternative occupations have resulted
in huge unemployment and underemployment problem in these underdeveloped
 countries. In the absence of growth of alternative occupations both in the secondary
and tertiary sector of these countries, this increasing number of population is being
thrown on land to eke out their living from agricultural sector. This sort of increasing
dependence on agricultural sector leads to disguised unemployment or under-
employment in these economies to a large scale. Moreover, problem of educated
unemployment in these economies is also increasing gradually day by day due to lack
of industrial development.

Unexploited Natural Resources:

For maintaining a rapid pace of economic growth in these underdeveloped
countries, possession of different types of natural resources in sufficient quantity and
its utilisation are very important. But under-developed countries are either suffering
from scarcity of raw materials or from un-exploited natural resources of its own.
If we look at the endowment position of these countries then we can see that some
of the underdeveloped countries are having natural resources like land, water,
minerals, forest etc. in sufficient quantity but these resources remain largely under-
utilized or even untapped due to various difficulties faced by these countries.
These difficulties include inaccessibility of the region, shortage of capital, lack of
proper attention, primitive technology, transport bottlenecks and small extent of the
market. Thus, by utilizing its natural resources, underdeveloped countries can develop
their economies with minimum initiative of their own.

Shortage of Technology and Skills:

Underdeveloped countries are facing low level of technology and acute shortage
of skilled manpower’s. Poor technology and lower skills are responsible for inefficient and
insufficient production which leads to poverty of masses. The pace of economic growth
in these countries is very slow due to application of poor technologies.

But the application of modern sophisticated technology both in agricultural and

industrial sector is of utmost need in these countries. This requires sufficient amount of
capital, technological advancement and training.

Lack of Infrastructural Development:

Lack of infrastructural development is a common feature of underdeveloped
countries. In respect of transportation, communication, generation and distribution of
electricity, credit facilities, social overheads etc. these countries are very much backward
than most of the developed countries. Thus due to inadequate infrastructural facilities, the
pace of economic development in these countries are very slow.
Mass Illiteracy:
Underdeveloped countries are mostly characterized by the existence of mass
illiteracy. Due to illiteracy the people in these countries are very much superstitious and
conservative which is again responsible for lack of initiative and enterprise on the part of
people of these countries.

Poor Socio-Economic Condition:

Underdeveloped countries are also suffering from totally poor socio-economic
conditions. The path of economic development in these countries is being obstructed by
various socio-economic factors like-joint family system, universal marriage, costly social
customs and the law of inheritance.

5. What is meant by the statement that many developing nations are subject to
“dominance, dependence, and vulnerability” in their relations with rich nations?
Can you give some examples?
In international relations, the developing countries frequently have to deal with the
rich and powerful nations. They have to depend on the developed countries for trade,
technology, foreign aid and expertise. This dominance of the rich industrial nations and
the dependence of the developing countries on them often leads to the adoption of
inappropriate technologies, educational structures and cultural values in the developing
countries. The influence of the rich lifestyle of the developed countries can lead to elite
lifestyle, private accumulation of capital, brain drain and transfer of capital all of which
retards economic development in the developing countries.
Examples include the colonial transfer of often inappropriate educational
structures, curricula, and school systems; the formation of Western style trade unions;
the organization and orientation of health services in accordance with the Western
curative rather than preventive model; and the importation of inappropriate structures and
procedures for public bureaucratic and administrative systems. Of even greater potential
significance may be the influence of rich-country social and economic standards on
developing-country salary scales, elite life-styles, and general attitudes toward the private
accumulation of wealth. Such attitudes can often breed corruption and economic plunder
by a privileged minority. Finally, the penetration of rich-country attitudes, values, and
standards also contributes to a problem widely recognized and referred to as the
international brain drain—the migration of professional and skilled personnel, who were
often educated in the developing country at great expense.
For Third World nations that possess greater assets and relatively more bargaining
power, the phenomenon of dominance becomes manifested more in the general
tendency of the rich to get richer, often at the expense of the poor.
7. What are some additional strengths and weaknesses of the Human
Development Index as a comparative measure of human welfare? If you were
designing the HDI, what might you do differently, and why?
Some of the strengths of Human Development Index are:
 There is widespread use of HDI to compare development levels and it does reveal
clear global patterns.
 Does not solely concentrate on economic development, and takes into
consideration that there are other, more social, ways to measure human
development.
 Increase in education and health shows an improvement in a country’s
infrastructure.
Weaknesses:
 Data from some developing countries may not be very reliable and may be difficult
to confirm.
 The measures chosen may seem very arbitrary to some because there are other
ways of measuring relative qualities in health and education.
 Similar criticism of GDP, that it does not measure unequal distribution within the
country.
 No indication in the education index about access to education for all groups in
society i.e. continuation of wealthy students through education can hide the fact
that it I difficult for children of poorer families to enter primary education.
If I were to be designing the HDI, I would address the problem of what to be
included and what to be excluded and what weights be assigned to the various variables
included for construction of the index. In fact, until recently, human development index
was prepared taking into account three variables, namely, life expectancy, literacy and
per capita income and inequality in income distribution which also determines well-being
of the people was ignored. Realizing the importance of inequalities in income distribution,
recent Human Development Report, 2013 has also given ‘inequality-adjusted HDF in
addition to the HDI without such adjustment. Besides, human development index still
does not take into account social, economic and political freedoms as well as human
rights on which Amartya Sen laid a great stress in his book “Development as Freedom”.
Further, human development index as it is being presently constructed is not
comprehensive as it does not include the two important indicators such as poverty and
unemployment as reduction in them are important indicators of development. However,
UNDP which constructs human development index separately calculates ‘human poverty
index’ (HPI) which has now been replaced by ‘multi-dimensioned poverty index’. But the
existence of unemployment which is an important aspect of human development still
remains excluded. Thus, in our view, the chief drawback of human development index
(HDI) is that it obscures many dimensions of the concept of development. The concept of
development is so much wider, deeper and richer that single composite measure like HDI
cannot adequately measure it. Therefore, it is better to judge and assess the development
performance of different countries by a number of indicators that reflect different aspects
of development rather to judge it by a single composite index of HDI.

9. Why do many economists expect income convergence between developed and

developing countries, and what factors would you look to for an explanation of
why this has occurred for only a limited number of countries and in such a
limited degree so far?
The term convergence is a hypothesis in economics that believes that there would
be a time when developing nations will grow faster than the developed ones in terms of
per capita income. This can happen because of mainly two reasons:
 The developing nations only need to replicate the development process that was
invented by the developed nations in terms of technology, production methods and
other institutions.
 There is a lot of scope in developing nations to utilize the resources at its disposal.
This means that the stage of diminishing returns is still far for the developing
nations.
The most widely used approach is simply to examine whether poorer countries are
growing faster than richer countries (relative country convergence). As long as this is
happening, poor countries would be on a path to eventually catch up to the income levels
of rich countries. That is, even when the average income of a developing country is
becoming a larger fraction of developed country average incomes, the difference in
incomes can still continue to widen for some time before they finally shrink. This approach
frames the question so as to weight the importance of a country’s per capita income
growth rate proportionately to the size of its population. The most important difference
from population-weighted convergence is that a world-as-one-country convergence study
can take into account changes in inequality within countries as well as between them
there are many institutional and other differences between low- and high-income
economies today, some of which may be very difficult to change. Moreover, a poor
country cannot force a rich country to lower its trade barriers. Although it is true that
conditions have remained stagnant or even deteriorated in many of the least developed
countries, because of their smaller population sizes with the population-weighted
approach the divergence effect is more than compensated for by growth in countries with
large populations.
11. Which measure shows more equality among countries around the world—GNI
calculated at exchange rates or GNI calculated at purchasing power parity?
Explain.
The HDI attempts to make an assessment of 189 diverse countries and territories,
with very different price levels. To compare economic statistics across countries, the data
must first be converted into a common currency. Unlike market exchange rates, PPP
rates of exchange allow this conversion to take account of price differences between
countries. In that way GNI per capita (PPP $) better reflects people's living standards
uniformly. In theory, 1 PPP dollar (or international dollar) has the same purchasing power
in the domestic economy of a country as US$1 has in the US economy.
The current PPP conversion rates have been introduced in May 2014. They were based
on the 2011 International Comparison Programme (ICP) Surveys, which covered 199
economies from all geographical regions and from the OECD.

13. What is the meaning of a “colonial legacy”? Discuss any disadvantages and
possible advantages.
Colonial legacy is used as a same word for Colonialism. This is referred to as a
process in which a strong country takes over the control (legal, social and political) of a
weaker country at their will. For example: this practice was followed by British Empire
from 16th to 20th century.
The disadvantages of a colonial legacy are:
 Enslavement and mass exploitation: The labors of the weak country were forced
to work at very low wages for the strong country for a definite period of time.
 Impact on health: The invasion process introduced new diseases like measles,
small pox, malaria that affected the health of population of both the countries.
 Inequality amongst masses: The access to education was restricted to few rich
classes only that led to inequalities between rich and poor.
 Resource Drain: The natural and other resources were drained from the colonized
colonies to the ones that ruled them. This left behind poverty and hunger in these
colonized nations.
 Economic dependence: colonialism has made most colonies dependent on their
colonial masters even after the colonies have gained independence. This is
because the colonial masters tapped into and exploited the mineral and human
resources of the colonies and this has left the former colonies somewhat
underdeveloped or developing. Many countries fall back to their former colonial
masters for help on how to boost their economy and so on. In Nigeria for example,
there are so many mineral resources which are just lying around. The oil which is
the major source of income to Nigeria is sold to other countries to be refined and
then sold back to Nigerians for consumption. Nigeria is still very much dependent
on Britain for many things. Even the clothing materials and other things are
 imported from Britain and other countries. This form of economic dependence is
referred to as a type of neocolonialism.
 Unfamiliar system of government: the colonial masters brought new and alien
systems of government which the natives were not familiar with. These systems
of government gave less importance to, and had less regard for the systems of
government of the colonies. The methods of ruling which were introduced to the
colonies were completely different from what the natives were used to. The new
systems of government imposed taxes on the natives and also came up with
new, strange and harsh laws for the natives.

Advantages:
 Religion: colonialism has helped to spread religion especially the Christian
religion. The European missionaries brought Christian religion to their colonies and
taught the people of the colonies the religion very well. In the process of learning
the religion the colonial masters also made the people acquire new skills. This
brought about a development in the people as they were being liberated from the
illiteracy which had kept them in the dark for many years.
 Modernization and technological advancement: colonialism brought
modernization to underdeveloped areas. Advanced technological equipment and
facilities necessary for improvements in medical and healthcare services, building
of railroads and other developments in transportation, modern education etc. have
helped in the development of the colonies to what they are today. These
developments have improved the status of the colonies globally. The
improvements in education have provided opportunities for competition in different
disciplines like literature, mathematics, art and science. This is evident in Africa
with people like Wole Soyinka, Chinua Achebe, Ngugi wa Thiongo and many
others.
 Discovery of natural resources: the discovery of natural resources was due to
the provision of new technology which were made known to the colonies by their
colonial masters. The use of new technology made exploration of natural
resources easier and more efficient. This resulted in the development and growth
of the colonies. There were jobs for the people to do, even though they were not
well paying jobs, and this added to the experience of the people as they acquired
knowledge and learned new skills which turned out to be useful to them. This
meant cheap labour for the colonial masters.
 Expansion of land: colonialism also brought about the expansion of land for their
colonies. Before colonialism, there was no territory known as Nigeria. There were
only towns and villages, which were more or less restricted to their areas, surviving
on their own. The coming of colonial masters expanded the land for all ethnic
groups, towns and villages. Members of any ethnic group can now move to and
live in any part of the country and call the place home. The name Nigeria was also
given to the territory around the Niger River by the colonial masters.
  Language: the adoption of the language of the colonial masters by the colonies
has fostered unity to an extent in most multilingual and multicultural nations. A
clear example is seen in Nigeria which has well over five hundred languages. Since
no language is considered superior to the other, it would be difficult for any of the
native languages to be made the lingua franca. The adoption of English language
has made things easier for Nigerians as the language is foreign and does not
belong to any particular ethnic group or people in the country.

15. Discuss the differences between the traditional HDI (examined in Appendix 2.1)
in comparison to the New NHDI formulation. In what ways do you think either one
is a better measure of human development? In your answer, consider the
significance of computing with a geometric mean, instead of an arithmetic mean.
Gross national income (GNI) per capita replaces gross domestic product (GDP)
per capital. The education index has been completely revamped the average actual
educational attainment of the whole population and the expected attainment of today’s
children. Expected educational attainment, the other new component, is somewhat more
ambiguous. The two previous components of the education index, literacy and enrollment,
have been correspondingly dropped literacy is clearly an achievement, and even
enrollment is at least a modest achievement. However, literacy has always been badly
and too infrequently measured and is inevitably defined more modestly in a less
developed country. The upper goalposts (maximum values) in each dimension have been
increased to the observed maximum rather than given a predefined cutoff. The lower
goalpost for income has been reduced. Another minor difference is that rather than using
the common logarithm, it is computed with a geometric mean.
Marbella, Gracelyn T.
BSA 2-1

Chapter 3
1. Explain the essential distinctions among the stages-of-growth theory of
development, the structural-change models of Lewis and Chenery, and the
theory of international dependence in both its neo-Marxist and false-paradigm
conceptualizations. Which model do you think provides the best explanation of
the situation in most developing nations? Explain your answer.

For the stages of growth theory of development says that a developing country
passes through five stages of development namely traditional society, the pre-conditions
for takeoff into self-sustaining growth, the take-off, the drive to maturity and the age of
high mass consumption.
According to it, the developed nations have passed through the take-off stages
whereas the under developed nations are still in the stage of being a traditional society.
Thus, it is important for underdeveloped nation to save a portion of their national income
plus mobilize their savings towards generation of sufficient investments, if it wants to
achieve development at a faster pace.
The structural change theory of Lewis and Chenery is based on the hypothesis
that underdevelopment is due to underutilization of resources. In this theory, an
underdeveloped economy consists of two sectors namely; agricultural sector and a
manufacturing sector.
There is surplus labor seen in the traditional agricultural sector whose productivity
is zero. If this surplus labor is transferred to the manufacturing sector, it will absorb this
labor and will utilize this labor for the production of commodities needed by the society.
This way the productivity will give increasing returns to the labor and the producer, the
problem of unemployment and poverty would be solved and the industrialization would
take place at a faster pace. Thus, we will see development in these nations.
Neo Marxist theory of international dependence believes that underdevelopment
is seen in various nations because of the perpetuation of highly unequal international
capitalist system. The developing nations were once ruled by the colonialist. These
people divided the population into rich and poor class through mass exploitation of labor
and enslavement and giving access to education to little elite class of people during that
time. This process continues even today and thus development has not been made
possible in these nations.
 The false paradigm model says that nations are underdeveloped because they
have blindly accepted the path of development as suggested by the developed nations
without considering the needs of their nation.
Each of these theories has some information about the causes of under
development in the nations. These reasons if reconciled would provide better solutions
for accelerating development process in various nations.

3. Some people claim that international dualism and domestic dualism are merely
different manifestations of the same phenomenon. What do you think they mean
by this, and is it a valid conceptualization? Explain your answer.
International dualism and domestic dualism can be considered manifestations of
the same phenomenon because the concept of “rich and poor” can be applied on both a
national and global scale. In domestic dualism societies are rich or poor, in international
dualism countries are either rich or poor, and if one country is rich then interminably
another country has to be poor. Conceptually, the superior country stifles the
development of another inferior country; however, countries can grow and develop
regardless of another countries’ existence.
For example, if a dualism advocate where to say Norway is superior and Chile is
inferior one would assume that Chile will never develop as long as Norway exists. The
problem exists in the degree to which we assess development and as such dualism.
When analyzing the scenario through HDI one could say Chile (0.819) has made
significant improvements in overall HDI moving from a rank of 44th in 2012 to 40th in the
2013 Human Development Report and Norway (0.955) HDI has remained unchanged
from 2012 to 2013. Dualism still exists in that Norway is superior to Chile though
significant development has occurred in Chile regardless of the stagnant development
figures in Norway. On the other hand, one could argue that the significant drop of the
United Arab of Emirates from 30th in 2012 to 42nd in 2013, is because Norway remained
unchanged. However, it is hard to determine all of the underlying reasons behind growth,
development, and decline though dualism can continue to exist in either scenario.
If by dualism we mean unequal divisions of wealth and economic power, it’s a
crude concept because wealth follows something roughly like a continuum or power-law
distribution.

However, having accepted this concept of two categories, the have’s and the have
not’s, it’s evident that (1) the rich use their capital to get richer, while the poor lack that
resource, and (2) the global movement of capital means that this process becomes
international as well as domestic (within a specific nation). Meanwhile the “middles” get
emptied out, contradicting a smooth distribution and creating a rough dualism.
5. Given the diversity of developing countries, do you think that there could ever
be a single, unified theory of development? Explain your answer.
All four theories of economic development have their own importance and focuses
on aspects of the development process in low-income countries. Its focus is on methods
of promoting economic growth but also of realizing individual potential for the mass of the
population, for example, through health and education and workplace conditions, whether
through public or private channels. Thus, development economics involves the creation
of theories and methods that aid in the determination of types of policies and practices
and can be implemented at either the domestic or international level. This may involve
restructuring market incentives or using mathematical methods like inter-temporal
optimization for project analysis, or it may involve a mixture of quantitative and qualitative
methods. Unlike in many other fields of economics, approaches in development
economics may incorporate social and political factors to devise particular plans.
There can’t be a single, unified theory of development because:

 Linear stage of growth model focuses on the accelerated accumulation of capital,

through the utilization of both domestic and international savings to promote
economic growth whereas in structural change theory, focus is on shift of surplus
labor from rural to urban areas.

Thus, the countries can’t follow one theory because the condition and the economy
of every country is different like some countries are rich in capital but have short
of labor and vice versa.

 International dependency theory is also not applicable for all countries because
some countries are so poor that they can barely afford the basic needs of the
people and are unable to save and invest in foreign affairs. Thus, if this theory is
the final theory then it can’t be applicable in such poor countries.
 Per capita Gross Domestic Product (GDP per head) is used by many
developmental economists as an approximation of general national well-being.
However, these measures are criticized as not measuring economic growth well
enough, especially in countries where there is much economic activity that is not
part of measured financial transactions (such as housekeeping and self-
homebuilding), or where funding is not available for accurate measurements to be
made publicly available for other economists to use in their studies.

Thus, it is impossible to make one single theory because the conditions, economy,
social set up and political stability vary from country to country.
7. In what ways do developing countries depend on rich countries? In what ways
is the opposite true?
Generally speaking, developing countries often have resources that benefit rich
countries — whether it be physical resources or manpower. Rich countries want to take
advantage over this and also be able to gain leverage or influence — financial and political
— over that country.

They do this by donating money, by trading in technology, by investing in

infrastructure, etc. Often the donated money comes with strings that benefits the
contributing country. Example: Rich country will donate $10m but that money must be
used to buy Rich country’s computers. Both countries benefit, but it’s not as altruistic as
it may seem on the surface. Nothing necessarily wrong with that, it just is.

In short, there’s an economic and technological balance between established, rich

countries, and the developing countries that rely on them.

Developing countries trade with rich countries. Developing countries depend on

wealthier countries for demand for their products, such as bananas, coffee, or abundant
natural resources such as oil/iron ore/bauxite/precious metals. Jobs that otherwise would
not exist; supply of infrastructure necessary for electricity production and
cellar/telecommunications; transportation equipment such as cars, trucks, ships and
planes; services such as civil engineering, and access to capital markets; tourists bringing
in hard cash reserves to pay for essential imports; in some cases, military weaponry and
training; and lastly, access to modern healthcare including pharmaceutical and medical
instruments such as MRI.

Dependency works both ways, and good for both countries so long as there is no
coercion. This is also why global growth is good for all parties. Rich countries need
developing for production of consumer products. The most typical could be clothes.
Developing countries have much lower costs of production. Developing countries have
often natural resources too and developed countries are the biggest consumers.