Module 1 in AE 12

(Economic Development)

Module 1: Week 1 (6 hours)

The Real Concept of Development

At the end of Module 1, learners are expected to:

 Analyze the three basic economic problems.

 Discover how countries are classified.

 Appraise the growth and development among developing countries.

 Elaborate the development strategy of the country.

A better quality of life has been the objective of societies and nations. This has been pursued
since the ancient times to the present. About hundred years of Trojan war. Minos, mythical son
of Zeus, organized a communal society in the island of Crete. For centuries, universal justice
and virtue reigned in the island. Conditions were similar to the fabulous Shangrilla of the Lost
Horizon. It was like a paradise for the people. They contributed their individual ideas, talents,
skills and labor to the community for its development, and for the good of all its members. The
needs of the people were justly supplied, and they were happy and contented.

Activity
https://www.youtube.com/watch?
v=ovSJQ4GZeHE&t=176s

Basic Economic Problems

Every nation whether rich or poor has economic problems However, these are more serious and
widespread in poor countries. Economic problems do exist because of two fundamental facts:
resources are limited and human wants are unlimited.
Human wants cannot be possibly be all satisfied because resources are scarce. Most countries
cannot even meet the most basic needs of their people. But rich countries have economic
problems too. People, humans as they are, are not ultimately satisfied with the consumption of
only basic goods. Naturally, they aspire for a higher standard of living. And it is their
responsibility of the economic system to help the people acquire it.
1. What goods are to be produced?
2. How are the goods produced?
3. For whom are the goods produced?
 Activity
https://www.youtube.com/watch?v=-A916v81lYQ

Mixed Economic System

Pure economic systems do not exist anymore. Many countries have mixed systems. Countries
may be a combination of communism and socialism or capitalism and socialism.
The mixed system is a blend of free market economy and government intervention. Such
synthesis is intended to give incentives to businessmen, and to protect the welfare of the
consumers. Due to imperfections of the market system and the presence of less fortunate
members of society, the government has to interfere in market forces.

Activity
https://www.youtube.com/watch?v=jUlby8DKI48

The Meaning of Economic Development

Development is a progressive process. It involves the interaction of different forces. Economic
development is a progressive of improving human conditions such as reduction or elimination of
poverty, unemployment, illiteracy, inequality, disease and exploitations. Evidently, economic
development is not only an economic process. It involves both economic and non-economic
factors. Examples of economic factors are capital, technology, and market. Non-economic
factors are culture, religion, government, education, among other things. The combination and
interaction of these factors determine the extent and nature of economic development. In fact,
the non-economic factors have stronger influence on the economic development of nations.
Some countries are progressive while others are not because of the non-economic factors.

Activity
https://www.youtube.com/watch?v=ovSJQ4GZeHE

Classification of Countries
The economy of a country is measured by its gross national product (GNP) or per capita
income. The basis of comparison is the economy of the highly developed countries, usually the
United States. If the GNP of a certain nation is near the GNP of the rich countries, it is classified
as intermediate. Those that are far below are classified as less developed. The rich ones are
classified as highly developed. There are different country classifications.

Read
https://www.internetgeography.net/topics/how-are-
countries-classified/#:~:text=Countries%20can%20be
 %20classified%20as,newly%20emerging
%20economies%20(NEEs).

New World Bank country classifications by income level: 2020-2021

The World Bank assigns the world’s economies to four income groups—low, lower-
middle, upper-middle, and high-income countries. The classifications are updated each
year on July 1 and are based on GNI per capita in current USD of the previous year
(i.e. 2019 in this case).
The classifications change for two reasons:

1. In each country, factors such as economic growth, inflation, exchange rates, and
population growth influence GNI per capita. Revisions to national accounts
methods and data can also influence GNI per capita.

2. To keep the income classification thresholds fixed in real terms, they are
adjusted annually for inflation. The Special Drawing Rights (SDR) deflator is used
which is a weighted average of the GDP deflators of China, Japan, the United
Kingdom, the United States, and the Euro Area. This year, the thresholds have
moved up in line with this inflation measure. The new thresholds (to be compared
with GNI per capita in current USD, Atlas method) are as follows.

Group July 1, 2020 (new) July 1, 2019 (old)

Upper-middle income 4,046 – 12,535 3,996 – 12,375
Lower-middle income 1,036 – 4,046 1,026 – 3,995
Low income <1,036 <1,026
High income >12,535 >12,375

Changes in classifications
The table below lists the ten economies that are moving to a different category. It is
important to emphasize that the World Bank’s income classifications use the GNI of the
previous year (2019 in this case). Thus, the GNI numbers that are used for this year’s
classification do not yet reflect the impact of COVID-1

Economies moving to a higher category

 Economy New Group Old Group GNI/Capita/$ (2019) GNI/Capita/$ (2018)
as of July 1, 2020 as of July 1, 2019
Tanzania Lower- 1,080  1,020 
Low
middle
income
income
Nauru 14,230 11,240
High Upper-
income middle
income
Romania 12,630 11,290
High Upper-
income middle
income
Mauritius 12,740 12,050
High Upper-
income middle
income
Indonesia Upper- 4,050 3,840
Lower-
middle
middle
income
income
Benin Lower- 1,250 870
Low
middle
income
income
Nepal Lower- 1,090 960
Low
middle
income
income

Economies moving to a lower category 

Economy  GNI/Capita/$ (2018)
New group  Old group  GNI/Capita/$ (2019)
as of July 1, 2019 
as of July 1, 2020 
Sudan 590 1,560
Low Lower-
income middle
income
Algeria Lower- 3,970 4,060
Upper-
middle
middle
income
income
4,020 4,060
Sri Lanka Lower- Upper-
middle middle
income income

National accounts revisions have played a significant role in the upward revision for
Benin, Nauru and Tanzania. For Sudan, the GNI series for 2009-2018 has been revised
as a result of revisions to the exchange rates. The 2018 GNI per capita figure has been
revised down to $840 from the previously published figure of $1,560 (which is listed in
the table). Algeria, Indonesia, Mauritius, Nepal, Sri Lanka and Romania were very close
to the respective thresholds last year.

How does the World Bank classify countries?

In the World Development Indicators database (and most other time series ), all 189
World Bank member countries, plus 28 other economies with populations of more than
30,000, are classified so that data users can aggregate, group, and compare statistical
data of interest, and for the presentation of key statistics. The main classifications
provided are by geographic region, by income group, and by the operational lending
categories of the World Bank Group. These groupings change from time to time.
The term country, used interchangeably with economy, does not imply political
independence but refers to any territory for which authorities report separate social or
economic statistics.
Geographic regions
Groupings are primarily based on the regions used for administrative purposes by the
World Bank. There are two main variants: one which includes all economies, and one
which excludes high-income economies (see income groups below for the definition of
low-, lower middle-, upper middle-, and high-income categories).
Income groups
Economies are currently divided into four income groupings: low, lower-middle, upper-
middle, and high. Income is measured using gross national income (GNI) per capita, in
U.S. dollars, converted from local currency using the World Bank Atlas method.
Estimates of GNI are obtained from economists in World Bank country units; and the
size of the population is estimated by World Bank demographers from a variety of
sources, including the UN’s biennial World Population Prospects.
Countries are immediately reassigned on July 1 each year, based on the estimate of
their GNI per capita for the previous calendar year. Income groupings remain fixed for
the entire fiscal year (i.e., until July 1 of the following year), even if GNI per capita
estimates are revised in the meantime.

Development and Growth

Is economic growth the same with economic development? Which comes first, development or
growth?
Development is a progressive and dynamic process. Growth is the result of the process.
Therefore, growth is the product of development. For example, in the case of students, their
development is through education – formal or informal. Because of proper education they get
good jobs, with good incomes. They spend their money for house and lot, for modern
appliances and gadgets. Such material possessions represent growth.
Economic growth is visible and measurable. Examples are roads, vehicles, houses, buildings,
hospitals, banks, schools. These are products of economic development. The total market value
of such products is the GNP of the country. However, economic development does not stop. It
has to create more and better goods and services. In the long run, economic development
embraces a series of economic growths. Thus, earlier economic growths help subsequent
economic development.

Activity
https://www.youtube.com/watch?v=4D_36i4zVFs

Benefits of Economic Growth

Economic Growth versus Economic Development

Activity
https://www.youtube.com/watch?v=4D_36i4zVFs
 Factors Affecting Economic Development
Growth without Development
Is it really possible to attain economic growth without economic development? It is said that
growth is the product of development.
Not a few less developed countries are apparently progressive. They have modern buildings
and well-developed fruit plantations. Their many corporations are very profitable. But all these
are owned and managed by foreigners. Among the mass poverty, ignorance, squalor and
disease have been rampant. Only the foreigners and the few local elite have become
prosperous. There are countries in the middle east which have experienced rapid economic
growth due to incomes form oil. They have been able to construct modern buildings, and other
symbols of high living. However, there are no significant institutional changes in their education,
public administration, and health. Cultural lags are dominant in their societies. Even economic
institutions are still in the process of development. Because of their big petro-dollars, they can
import skills, technology, management and materials. In short, they can buy development.
Development means more than imposing buildings, beautiful houses, elegant cars, money, or
modern machines. It includes fundamental changes in society, ways of life, values and
institutions. An economic growth which belongs to foreigners or an economic development that
has been imported is meaningless as far as the masses are concerned, unless they receive
reasonable benefits and compensations for their productive contributions to the economy.
However, from the position of the country, such growth or development is not real because it
does not belong to the country and its people.
On the other hand, development without growth is inconceivable. Whenever there is real
development, there will be always growth because growth is a natural consequence of
development.
 Activity
https://www.youtube.com/watch?v=sFNwaNzH6u4

Objectives of Development
In the past, the traditional national objective of the less developed countries was to increase
their gross national products. Emphasis was given to material or economic progress.
In many developing countries, despite the perceptible economic growth, social and economic
conditions are deteriorating. The reason for this has been obvious to the common people. The
fruits of development have not reached them. Only the few top government officials, big
landlords, and business tycoons have been benefited. Such situation happened because
government programs are in the wrong directions, and the ownership of the factors of
production is not in the hands of the masses. As a result, mass poverty, economic servitude,
unemployment, and unjust distribution of income have been widespread.
In view of the proliferation of economic and social problems, especially from the countryside
where most of the people live, the leaders of the developing countries have realized the root
causes of such depressed conditions. Thus, the main focus now of development is toward
social factors. Socially-oriented programs appear to dominate national development objectives.

Read
https://www.dubuquesmartplan.org/pdf/
EconomicDevelopmentGoalsandObjectivesDraftApporved
1-11-2011.pdf

Philippine Development Objective

Activity
https://www.youtube.com/watch?v=RrHChDhDxns
https://www.youtube.com/watch?v=qjWyOnp4LCs

Obstacles to Development
The less developed countries have been eager to attain their economic goals in a short possible
time. The affluence and prosperity that they have seen in the highly developed countries have
stimulated them to adopt their technologies strategies. Unfortunately, such aspirations are not
easy to realize. There are many formidable obstacles that stand on the path of the less
developed countries.
1. Deficient in capital.
2. Management and manpower skills are inadequate.
3. Western technology is difficult to adopt.
4. Population explosion.
5. Man himself.
 Activity

https://www.youtube.com/watch?v=skJDNfakMDo

Stages of Economic Growth

Stages of economic growth maybe based on exchange systems.
1. Barter economy.
2. Money economy.
3. Credit economy.
4. E-banking.

According to Colin Clark, there are three stages on the stages of growth:
Stage 1 – Agriculture is the principal source of employment and income in the agricultural
countries.
Stage 2 – Manufacturing industry becomes the major economic activity as a country develops.
Stage 3 – Service industries grow to be the dominant feature of the economy as a country
develops further.

According to W.W. Rostow, the transition of the economy of one country from
underdevelopment to development passes through several stages such as:
1. Traditional society.
2. Pre-condition for take-off
3. Take-off
4. Drive to maturity
5. Age of high mass consumption

Activity

https://www.youtube.com/watch?v=YJEQi9IKmaI
 References:

 Babatunde, M. A. and Busari, D.T. “Global economic slowdown and the African
continent: rethinking export-led growth,” International Journal of African Studies,
2009.
 Hirschman, A. “The Strategy of Economic Development.” Paperback – January 1, 1978

 Roland, G. “Economic Development.” Pearson. 2014

 Todaro, Michael P. & Smith, Stephen C. “Economic Development”, 11th ed.

Addison-Wesley. 2011.