Development Economics

BA-4706

BBA 5
Lecture # 1
Dr. Muhammad Aqil
 Marks Distribution

Total Total Marks Total Marks

Marks Head
Frequency Exempted /Frequency /Head

Quiz 4 1 5 15

Final Paper 1 0 40 40

Mid Term Paper 1 0 20 20

Presentation 1 0 10 10

Case Study 4 1 5 15

  Total Marks 100

Basic Concepts

 Branches of Economics
 Micro Economics
 Macro Economics
 Managerial Economics
 Business Economics
 Political Economy
 Labor Economics
 Public Finance
 Monetary Economics
 Development Economics
Basic Concepts

 GDP
 GNP
 NNP = GNP – Depreciation
 National Income = NY= NNP
 NY = C+I+G+Xn
 Per Capita Income = NY/ Population
 Real Per Capita = Nominal PCI – Inflation effect
 Savings
 Investment
 Consumption
New Concepts

 Unemployment
 Underemployment
 Poverty
 Economic Growth
 Economic Development
 Human Development Index
 Theories of Development
Division of World
 Rich Countries
 Poor Countries
 Developed, Developing and Under Developed Countries
 What is the difference?
 Why is this difference?
 How can the difference be removed?
 The Answer is Socialism?
 The answer is Capitalism?
 The answer is mixed economy?
 The answer is still awaited?
What is the difference
 The richest 1% own 45% of world wealth
 836 million people living in extreme poverty i.e. less
than $1 (UN)
 1/5th of the world population below $1.25
 22,000 children die each day due to poverty
 805 million people worldwide do not have enough
food to eat.
 More than 750 million people lack adequate access
to clean drinking water.
 80% of the world population lives on less than $10 a day.
Why to Study Economic Development

 What is Growth and Development?

 Why Development is necessary?
 What mistakes were made by Past economists to
attain economic development?
 Are non-economic factors significant to economic
development?
 What if there is no economic development?
 What are the determinants of Eco Development?
 How can economic development be achieved
today?
What is Economic Development

 https://
www.youtube.com/watch?v=ovSJQ4GZeHE
Why Development is necessary?

 For Producers
 Maximization of Profit
 For Consumers
 Maximization of Satisfaction
 Standard of Living
 For Government
 Eradication of Poverty
 Decrease in Crime Rate and Violence
 Better Defense
 Infrastructure
 Health
 Education
 High Per Capita Income
Numerical

 In 2016, A Country produced the total goods for Rs 60

billion and services worth Rs. 40 billion. The total
expenditures by consumers amounted to Rs. 39 b. The
producers made capital expenditures of Rs. 23 b and
government spent 25% of NI. Import for the year was
Rs. 9 b and export Rs.11 billion.
 Calculate:
 National Income
 Real National Income if Inflation Rate is 15% P.A.

Y=C+I+G+Xn
Traditional View of Economic
Development 1950s
 Eco Development = Eco Growth
 Eco Growth = Rise in GDP / GNP (5% or more)
 Rise in GDP / GNP = Rise in Income
 Problems
 Industrialization at the cost of Agriculture
 Issues of Concentration of Wealth
 Poverty
 Unemployment
Limitations of Traditional Measures

In 1970s, the definition was criticized on the

following grounds
 It did not address poverty of the masses
 It did not take into account income disparity
 It did not focus on unemployment reduction
 The Growth Rate Dilemma might be
misleading
 The countries with rapid growth also failed
View of Economic Development in
1970s
 Slogan was “Redistribution from Growth”
Economic Variables
 Elimination of Poverty
 Reduction in Unemployment
 Reduction in Income Inequality
Non-Economic Variables
Summary of Traditional View of
Development
 Focus is on National Income
 Poverty means the person who is deprived of
certain level of income
 Development means increasing the level of
income By
 Increasing GDP
 Reducing Income Inequality
 Reducing Unemployment
Problems with Traditional View

 Amerta Sen and Dr. Mehboobul Haq

 Income is important thing but not everything
 Income without health is not development
 Income without education is not
development
 Income without social freedom is not
significant
 The Centre of Development is NOT INCOME
BUT HUMAN
Sen’s “Capabilities” Approach: 1985

 GDP standard is not the only good measure

of welfare or development
 Happiness standard (measured by Gross
Happiness Index ) is also subjective to
measure
 Basic Needs Approach is also difficult to
identify as to what basic needs of people are
and what are not
Sen’s “Capabilities” Approach: 1985

 Capability Approach has two dimensions

 Do People have capability to live their own life that
make them happy?
 Do People have functioning (Freedom) to live their own
life that make them happy?
 For example a book is irrelevant to an illiterate person
or A TV set is meaningless to a blind as they do not have
capability to use them
 A wife in a joint family system may not enjoy many
facilities due to lack of freedom
 A sick person can not enjoy regular food
Explanation

 So, if we measure the well-being of people by

means of availability goods and services, that
may be misleading
 Therefore to conditions are necessary to get
benefit from goods i.e. Capability and
Functioning
 Hence: Freedom of Choice or control of one’e
own life is a central aspect of wellbeing
Capability approach

 Broad evaluative framework

 Focus on what individuals are able to be and do
 Functioning = actual activity or state of being
eg being healthy
 Functioning vector = combination of functioning at
any one time
eg caring for elderly parent AND being healthy
 Capability set = set of alternative functioning vectors
available to an individual
eg (caring for elderly parent AND being healthy) OR
(receiving care services AND being healthy AND being in
paid work)
Definition of Development in 1990s

1. The challenge of Development is to improve

the quality of life (World Bank Report 1991)
2. The improved QOL 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 (labour, 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

27
Final Definition

1. Development must be conceived of as a

multidimensional process involving major
changes in social structures, popular attitudes
and national institutions as well as the
acceleration of economic growth, the reduction
of inequality, and the eradication of poverty
(Todaro and Smith)
2. Development is both a physical reality and a
state of mind for attaining a better life.
Economic Development and SDGs

 In 2015, 195 nations agreed with the United Nation

that they can change the world for the better.
 This will be accomplished by bringing together
their respective governments, businesses, media,
institutions of higher education, and local NGOs to
improve the lives of the people in their country by
the year 2030.
Economic Development and SDGs

 Eliminate Poverty
 Erase Hunger
 Establish Good Health and Well-Being
 Provide Quality Education
 Enforce Gender Equality
 Improve Clean Water and Sanitation
 Grow Affordable and Clean Energy
 Create Decent Work and Economic Growth
Economic Development and SDGs

 Increase Industry, Innovation, and Infrastructure

 Reduce Inequality
 Mobilize Sustainable Cities and Communities
 Influence Responsible Consumption and Production
 Organize Climate Action
 Develop Life Below Water
 Advance Life On Land
 Guarantee Peace, Justice, and Strong Institutions
 Build Partnerships for the Goals