Introduction to Economic Development

MEANING OF DEVELOPMENT
CHARACTERISTICS OF DEVELOPING COUNTRIES
MEASURING DEVELOPMENT
LINKS BETWEEN GROWTH AND HUMAN DEVELOPMENT
Case Study: Why is South Korea so rich? - South Korea's Economy
Interactive Class Atmosphere
 MOTIVATION
Family Work Education Food Shelter Happiness
Rich
Economically
Challenged

Describe a Rich Family or a Economically Family

 Common
Characteristics
of Developing
Economies
Meaning of Development
Development is always
deliberated with economic
connotations, and it is
referred to as an increase in
the gross domestic product
or in per capita income. In
this understanding,
development is equated with
growth, and it is envisioned
that a quantum increase in
the production of goods and
services would bring
development.
 Development is a process that creates growth, progress,
positive change or the addition of physical, economic,
environmental, social and demographic components.

The purpose of development is a rise in the level and

quality of life of the population, and the creation or
expansion of local regional income and employment
opportunities, without damaging the resources of the
environment.

Development is visible and useful, not

necessarily immediately, and includes an aspect
of quality change and the creation of conditions
for a continuation of that change.
Economic growth did not necessarily lead to a rise in the level and quality of life for populations all over the world. Place emphasis on
specific policies that would channel resources and enable social and economic mobility for various layers of the population.
Amartya Sen developed the “capability approach,”
which defined development as a tool enabling people to
reach the highest level of their ability, through granting
freedom of action, i.e., freedom of economic, social and
family actions, etc.
This approach became a basis for the measurement of
development by the HDI (Human Development Index), which
was developed by the UN Development Program (UNDP) in
1990.

ECONOMICS
SCIENCE
Economist Jeffrey Sachs focused on
mechanisms that prevent or oppress
development in various countries and cause
them to linger in abject poverty for dozens of
years. These are the various poverty traps,
including civil wars, natural resources and
poverty itself. The identification of these traps
enables relating to political – economic – social
conditions in a country in an attempt to advance
development.

One of the emphases in the work of Jeffrey

Sacks is the promotion of sustainable
development, which believes in growth and
development in order to raise the standard of
living for citizens of the world today, through
relating to the needs of environmental resources
and the coming generations of the citizens of the
world.
Definition of Economic
Development: 1950s
In economic terms, development is the capacity of a nation to
generate and sustain an annual increase in its GDP of 5% or more.
Traditional economic measures:
GDP: is the market value of all final goods and services
produced within a country in a given period of time
Y=C+I+G+NX
GNP: is the market value of all final goods and services
produced by permanent residents of a country in a given
period of time

GNP= GDP+ net factor income from abroad

Four Asian Tiger Countries
(Korea, Singapore, Hong
Kong, Taiwan) vs ASEAN
countries GDP Comparison
Common Per capita gross domestic product (GDP) measures
a country's economic output per person and is
alternative calculated by dividing the GDP of a country by its
population.
index is the
Per capita GDP is a global measure for gauging the
rate of prosperity of nations and is used by economists,
along with GDP, to analyze the prosperity of a
growth of country based on its economic growth.
income per
Small, rich countries and more developed
capita or per industrial countries tend to have the highest per
capita GDP.
capita GDP.
 PPP Measure
What is Purchasing Power Parity (PPP)? Purchasing power parity (PPP) is an economic
term that calculates the relative value of different currencies.

It is a theory that says that a basket of goods in one country should cost the same in
another country once you account for the exchange rate.

Calculating relative PPP

The formula for relative PPP is: S = P1 / P2

where:
S = the exchange rate of currency A to currency B
P1 = the cost of good “x” in currency A
P2 = the cost of good “x” in currency B
EXAMPLE
SONY Xperia 1III in SONY Xperia 1III
Philippine Peso Japanese Yen
the Philippines in Japan
PHP1.00 YEN2.25 PHP71,990.00 YEN161,977.50

SAMSUNG Galaxy SAMSUNG

South Korean
Philippine Peso Z Fold3 5G in the Galaxy Z Fold3 5G
Won
Philippines in South Korea

PHP1.00 KRW23.21 PHP58,590.00 KRW1,359,873.90

iPhone 13 6.1-inch iPhone 13 6.1-inch

Philippine Peso US Dollar display 512GB in display 512GB in
the Philippines USA

PHP1.00 USD0.02 PHP63,990.00 USD1,279.80

Under PPP, exchange rates should adjust to equalize the price of a common basket of goods and services across countries.
BURGERNOMICS: The Price of a BIG Mac in Comparison
The Big Mac index | The Economist

The Big Mac PPP exchange

rate between two countries is
obtained by dividing the price
of a Big Mac in one country
(in its currency) by the price
of a Big Mac in another
country (in its currency). This
value is then compared with
the actual exchange rate; if it
is lower, then the first
currency is under-valued
(according to PPP theory)
compared with the second,
and conversely, if it is higher,
then the first currency is
over-valued.
 Underreporting of income by developing
countries

High proportion of income is generated

for self-consumption.
Problems
Prices of non-traded goods are not
appropriately reflected in exchange rates.

Markets are not competitive, and

externalities are not reflected.
Definition of Economic
Development: 1970s
• Dethronement of GDP in the 1970s and
increasing emphasis on “redistribution
from growth.”
• Increasing emphasis on non-economic
social indicators.
• Economic development consists of the
reduction or elimination of poverty,
inequality and unemployment within
the context of a growing economy.
 Human goals of economic
development : Sen’s
“Capabilities” Approach: 1985
• Economic growth is not an end in
itself and has to enhance the lives
people lead and the freedoms that
they enjoy
• Capability to function is what
matters for status as a poor/non-
poor person and it goes beyond
availability of commodities
• Capabilities: “freedom that a person
has in terms of the choice of his
functionings,…”
• Functioning is what a person does
with commodities of given
characteristics that they
possess/control.
• The concept of functioning reflects the various things a
person may value doing
• Therefore, development cannot focus only on income,
but we also need to look at other factors impacting a
person’s capability to function.
• Amartya Sen traced five sources of disparity between
real incomes and actual advantages:
Personal heterogeneities
Environmental diversities
Social climate variations
Differences in relational perspectives
Distribution within family
Definition of Economic
Development: 1990s
QUALITY OF LIFE

World Bank in its 1991 World Development Report

asserted that the “challenge of development is to
improve the quality of life.”

The improved Quality of Life involves higher incomes,

better education, higher standards of health and
nutrition, less poverty, a cleaner environment, more
equality of opportunities, greater individual freedom,
and a richer cultural life.
Economic factors

• capital
• Labor
• Natural resources
• technology
• established markets (labor, financial, goods)

Non-economic factors (institutional,

social, values)
• attitudes toward life and work
• public and private structures
• cultural traditions
• systems of land tenure, property rights
• integrity of government agencies
Development is
both a physical
reality and a
state of mind
for attaining a
better life.
Three basic core values as a practical
guideline for understanding
development
• Sustenance
• Self-esteem
• Freedom
Specific components
of better life vary
from time to time and
from society to
society.
Three Objectives of
Development
Increase Increase availability and distribution of
basic goods

Raise Raise levels of living

Expand Expand range of social and economic

choices available to individuals
LINKS BETWEEN GROWTH AND
HUMAN DEVELOPMENT
What is Human Development?
 Human
Development
Index
 Initiated in 1990 and undertaken by United Nations
Development Programme in its annual series of HDRs.
HDI is based on 3 goals:
Longevity
Knowledge
Standard of living

NOTE: HDI= 1/3(Income index)+1/3(Life expectancy index)+1/3(education index)

Ranks 189 countries into 3 groups:

• Low human development = Categories of countries in Terms of:

0.00-0.099
• Medium human
development = 0.50-0.799 1. Life Expectancy at Birth
• High human development = 2. Expected Years of Schooling/Mean years
0.80-1.00 of Schooling
3. Gross National Income (GNI) per Capita
 Philippines Highlights
Human Development Report 2020
Philippines’ HDI value for 2019 is 0.718— which put the
country in the medium human development category—
positioning it at 107 out of 189 countries and territories.

0.70 0.70 0.71 0.71 0.72

0.63 0.65 0.67
0.59 0.61

1990 1995 2000 2005 2010 2015 2016 2017 2018 2019
Understanding the Dimensions of
Sustainable Development
Core Values of Development
• The ability to Meet Basic Needs (Sustenance)
• To Be Able to Choose (Freedom from Servitude)
• To be a Person (Self-Esteem)

44
• Weak agriculture sector that failed to
raise the incomes of the rural poor;
• Growth that is primarily based on
consumption and not on creating
employment opportunities;
• High population growth;
• Income inequality, which remains
relatively high;
• Inability of the government to provide
sufficient basic services;
• Vulnerability of poorer communities to
natural disasters and civil unrest.

45
• Population Growth
• Food Shortages
• Third World Debt

46
Case Study: Why is
South Korea so rich?
- South Korea's
Economy

47
Conclusion:
 A Short Story
OPPORTUNITYISNOWHERE
Owner and
CEO of a Shoe
Company
OPPORTUNITY
IS NO WHERE
OPPORTUNITY
IS NOW HERE
 Lesson of the Story

OPPORTUNITYISNOWHERE

Being rich or poor is

a state of mind!
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Much