Development Economics

Prof. Dr. Hans H. Bass

Jacobs University, Spring 2010

 Development Economics Agenda Feb. 04

0. Introductory remarks, grading, topics for

presentation, and overview
1. Economics
1.1 Approaches in mainstream economics
1.2 Approaches in Development Economics
2. Development
2.1 Meaning
2.2 Measurement

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 Development Economics Overview

Voices of the Poor ...

... and some questions for our course:
“Why does affluence coexist with dire poverty not only on
different continents but also within the same country?
Can traditional low-productivity, subsistence societies be
transformed into modern, high-productivity, high-income
nations?
To what extent are the development aspirations of poor nations
helped or hindered by the economic activities of rich
nations? ...”
(Todaro/Smith 2009, p. 7)

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 1. Economics
1.1 Approaches in mainstream economics
1.2 Approaches in Development Economics The economic problem
2. Development

Material wants exceed productive capacity

 scarcity!
Utility maximization under conditions of scarcity
 Economics is about making choices

What is the most efficient way to allocate scarce

resources and allow optimal growth of these
resources?

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 1. Economics
1.1 Approaches in mainstream economics From Adam Smith
1.2 Approaches in Development Economics
2. Development to modern times ...

Adam Smith, 1776 (founder of classical economics)

(„An Inquiry into the Nature and Cause of the Wealth of Nations“)

modern mainstream economics

(neo-classical and beyond)

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 1. Economics
1.1 Approaches in mainstream economics Main neo-classical
1.2 Approaches in Development Economics
2. Development assumptions
 homo economicus (fully informed, completely rational, utility
maximizing behavior)
 decisions made on the basis of marginal, private-profit, and
utility calculations
 consumer sovereignty, producer sovereignty
 perfect markets
(perfect market information + no participant with market
power to set prices + no barrier to entry or exit + equal access
to production technology = perfect competition)
 prices equate supply and demand, immediate price
adjustments
 equilibrium outcomes in all product and factor markets
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 1. Economics
1.1 Approaches in mainstream economics The new economic
1.2 Approaches in Development Economics
2. Development problem

What is the most efficient way to allocate scarce

resources and allow optimal growth of these
resources?

and: What are the economic, social, and political

mechanisms necessary to bring about rapid and
large-scale improvements for the world’s poor(est),
i.e. 150+ economies?

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