Development Economics

Alessandra Pelloni

Development Lectures I

Winter 2022

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 Presentation of the Course I

This is a six weeks course that will take place in the …rst module of the
second semester.
During the course we will analyse the main theoretical approaches to
economic development and present the key empirical features of the
development process in space and time. Looking at the historical
experiences of both rich and poor countries we will evaluate the relevance
of models to detect the root causes of economic (under)development.

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 General Premise

With 85 percent of the world’s population living in developing countries,

and half of humanity still in poverty, defeating underdevelopment, which
can mean low and uncertain satisfaction of basic needs in material goods
as well as health and education, political and economic inequality and
inequity, lack of environmental sustainability— is one of today’s most
important world challenges.

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 Development economists and practitioners are increasingly aware there are
no magic recipees: the world of underdevelopment is simply too vast and
heterogeneous for universal formulas.
The “big ideas” about development instruments that prevailed in the
1960s and 70s, using the state to overcome market failures, and in the
1980s and 90s, using the market to avoid state failures, have proven to be
too blunt and there is indeed a growing consensus that market, state, and
civil society all have roles to play.

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 Using history, economic theory and statistical analyses of past experiences
and current attempts Development economists try to identify e¤ective
instruments for development. Options include both bottom-up micro-level
initiatives and large-scale national policy initiatives. Development thus
requires both thinking small and improve the wellbeing of local
communities through initiatives almost in everyone’s reach, and thinking
big and acting nationally and globally to promote growth potentially
reaching out to millions of people. , through major technological and
institutional innovations.

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 Presentation of the Course II

The aim of this course is to enable you to:

Acquire knowledge and understanding of the characteristics of
less-developed countries, and of the diversity amongst them
Acquire knowledge and understanding of the economic problems
facing developing countries
Apply economic analysis to those problems and
To formulate and evaluate possible policy responses.

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 Presentation of the Course III

Contents
We will explore some of the economic reasons that have led to the global
inequality we observe today, and some of the steps that might be taken to
relieve the situation. A unifying theme of this module is the role of
markets and market failures in setting the pattern of past development,
and the potential role of policy in the future.

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 Presentation of the Course III

Assessment methods
See posted …le.
Recommended Texts
Michael Todaro and Stephen Smith, Economic Development, Pearson
Higher Education 2020
Alain de Janvry and Elisabeth Sadoulet Development economics : theory
and practice, Routledge 2015.

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 Introduction: Why study Development? I

Development can be seen. . . as a process of expanding the real freedoms

that people enjoy.
— Amartya Sen, Nobel laureate in economics
Basic Questions:
Why are some so rich and others so poor?
Is wellbeing of the rich dependent on su¤ering of the poor?
Why Standard of Living improved over time? Has it always been true?
Will it remain true in the future?
Why countries grow at a di¤erent rate ( China vs many Subsaharan
countries)?
Is development consistent with environmental sustainablity?
What role will new technologies play in this process?

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 Introduction: Why study Development?II

Classical economists e.g. Smith, Malthus, Ricardo, Mill, Marx, were all
concerned with the progress of nations. Neoclassical economists (
Walras,Marshall) on the other hand show little interest in growth and
development theory.
Development Economics started as a separate academic …eld after World
War II and the the end of colonial era, with poor countries increasingly
aware of own backwardness.
At the same time an humanitarian interest in reducing poverty developed
together with a growing recognition of interdependence of world economy.

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 Introduction: Why study Development?V

Some important concepts and research areas have been pioneereed in

Development economics:
Low-level equilibrium trap
‘Big push’theory
Dynamic externalities
Dualism
Theory of circular and cumulative causation
Models of population and growth
Models of rural-urban migration
Immisering growth
Theory of missing markets
Rent-seeking behaviour

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 Introduction: What is Development Economics I

It could be argued that since societies that are rich today are those
that have grown in the last two hundred years, growth and
development are essentially the same thing and should be studied
together.
However standard models of growth tend to emphasize balanced
growth while institutional and structural features are exogenous. The
models study the quantitative expansion of the production possibility
frontier.

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 Introduction: What is Development Economics II

The transition of whole economies from low-productivity into

high-productivity economies encompasses several qualitative changes:
a move out of agriculture and into manufacturing or services,
urbanization, declining fertility rates, integration with global markets.
In the less developed countries, combined market failures interact to
produce poverty traps as stressed by early thinkers such as
Hirschman, Nurkse and Rosenstein-Rodan. Development then
consists in structural transformations which allow nations to move out
of bad equilibria. Only once the structural changes have occured
standard growth models become relevant.

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 Introduction: What is Development Economics III

In studying the process of development political issues cannot often be

taken aside- In fact social priorities may be unifying the nation, resolving
ethnic or religious issues or con‡icts rather than economic development
per se. Very often concepts and notions from Political Economy, a
discipline which focuses on how the economic and political elites gain and
use their power are therefore relevant.

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 Introduction: What is Development Economics IV

Today, “development economics” is mostly the kind of research

initiated by people like Esther Du‡o, Michael Kremer etc.
Distinguishing features are: (1) Researchers are out collecting surveys
or doing studies “in the …eld”. (2) the aim is identi…cation of causal
e¤ects. Randomized control trials (RCTs) identify the causal e¤ect of
some {X} (e.g. de-worming treatments) on some {Y} (e.g. school
attendance). (3) Studies tend to be a-theoretical. The RCTs are
showing empirical e¤ects of some kind of treatment on some kind of
outcome.
This research could be more properly de…ned “poverty economics”.
Du‡o and Banerjee‘s 2011 book is actually called Poor Economics.
The focus is on alleviating the conditions of extreme poverty in LDC:
poor health, poor nutrition, and low education.These researchers have
direct knowledge of the constraints facing poor people in developing
countries, and are studying ways to alleviate those constraints.
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 Introduction: What is Development Economics V

As stated above, economic development is about the transition of

whole economies to high-productivity economies and the structural
changes, that go with it. The RCTs and their like do not study the
transition. “What will make a group of people better o¤ today?” is a
di¤erent question from “What will make this economy develop?”.
Running RCTs to establish the best way to distribute a cheap remedy
is incredibly valuable research.
Since much of current development economics doesn’t address the
broader questions of what drives development in the long-run, the
…eld of growth economics has adopted this set of questions as part of
its own research agenda.
This doesn’t make the growth/macro-development approach better or
worse than poverty economics. The two …elds are just looking at
di¤erent questions.

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 Introduction: Moral Values in Development Economics

Ethical values are central features of the economic discipline in general and
of development economics in particular. Goals such as political economic
and social equality, the elimination of poverty, universal education, rule of
law and due process, etc. all derive from subjective value judgments about
what is good. Other beliefs are possible e.g. the preservation of ancient
costumes and traditions etc. It is important to understand Economics
cannot be value-free in the same sense as, say, logic.
Social scientists often make the mistake of confusing their values with
universal values.

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 Introduction: What is the Aim of Development I

Development has traditionally meant sustained rates of growth of income

per capita. Development strategies have therefore usually focused on rapid
industrialization, often at the expense of agriculture and rural development.
The idea was that growth would “trickle down” to everyone. Problems of
poverty, discrimination,unemployment, and income distribution were of
secondary importance to “getting the growth job done.”

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 Introduction: What is the Aim of Development II

However in the seventies economic development came to be rede…ned

directly in terms of the reduction or elimination of poverty, inequality, and
unemployment.
In fact many developing countries experienced relatively high rates of
growth of per capita income during the 1960s and 1970s ( and in the
following decades) but little or no improvement or even an actual decline
in employment, equality, and median real incomes. By the way, inequality
is today a huge problem in developed countries as well. In the US per
capita income has increased 70% since the seventies, but the median wage
only 1/10 of that ( e.g Piketty 2014: Capital in the 21st century).

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 Introduction: What is the Aim of Development III

The american development theorist Denis Goulet distinguished three core

components of development: life sustenance, self-esteem and freedom.
Life sustenance is provision of basic needs: housing; food; clothing;
education; health
Self esteem is feeling of self respect and independence
Freedom means freedom to chose, so people can determine own destiny.
Development expands range of human choices open to individuals and
society

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 Introduction: What is the Aim of Development IV

In the same vein, Amartya Sen argues in Development as Freedom:

“Economic growth cannot be sensibly treated as an end in itself.
Development has to be more concerned with enhancing the lives we lead
and the freedoms we enjoy"
The idea is not to maximize the availability of commodities, as in most
economic models, but to increase functionings: "functionings may vary
from elementary ones, such as being adequately nourished and being free
from avoidable disease, to very complex activities or personal states, such
as being able to take part in the life of the community and having
self-respect."

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 Introduction: What is the Aim of Development V

In his 2009 book The Idea of Justice Sen suggests that subjective
well-being is a kind of functioning— that could be pursued alongside other
functionings such as health an dignity.
Sen then de…nes capabilities as “the freedom that a person has in terms
of the choice of functionings, given his personal features (conversion of
characteristics into functionings) and his command over commodities.”
Sen’s perspective helps explain why development economists place so
much emphasis on health and education and more recently on social
inclusion and empowerment.
Countries with high levels of income but poor health and education
standards experience “growth without development.”

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 Introduction: Happiness and Development
As Sen argued, “Utility in the sense of happiness may well be included
in the list of some important functionings relevant to a person’s
well-being.”
In recent years, economists have explored the empirical relationship
across countries and over time between subjectively reported
satisfaction and happiness and income ( and many other drivers from
being married and cohabiting with children to age, gender etc.).
One of the …ndings is that SWB increases with a country’s average
income but only up to a a certain average income ie the level at which
most citizens have usually escaped extreme poverty and a majority are
usually relatively well nourished, healthy, and educated. The richer
inside each country are happier though: this is known as the Esterlin
paradox. This implies that above a certain SL relative income not
absolute income counts and calls into question the centrality of
economic growth as an objective for high-income countries.
However for the DC happiness data strongly rea¢ rm the importance
of economic
Alessandra Pelloni development
(Development Lectures I) whether the objective is solely Winter
Development happiness
2022 or,
23 / 42
 Introduction: Millennium Development Goals I

In September 2000, the United Nations adopted eight Millennium

Development Goals (MDGs), to be achieved by 2015. The MDGs are the
strongest statement yet of the international commitment to ending global
poverty. They acknowledge the multidimensional nature of development
and poverty alleviation.
The eight goals were ambitious and were assigned speci…c targets deemed
achievable by 2015.

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 Introduction: Millennium Development Goals II

Goal 1: Eradicate extreme poverty and hunger

Goal 2: Achieve universal primary education
Goal 4: Reduce child mortality rates
Goal 6: Combat HIV/AIDS, malaria, and other diseases
Goal 7: Ensure environmental sustainability
Goal 8: Develop a global partnership for development

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 Introduction: Millennium Development Goals III

Criticisms:
Many! These include:
1) a certain arbitrariness for the goals and targets.
2) a lack of speci…c objectives and indicators for within-country equality.
3) a lack of legitimacy through failure to include the voices of the recipient
countries
3) huge measurement Issues ( eg in health or education)
4) not enough attention paid to the environment

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 IV

Progress towards reaching the goals has been uneven across countries.
Brazil achieved many of the goals, while others, such as Benin, are not on
track to realize any. The major successful countries include China and
India.

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 Introduction: Sustainable Development Goals I

The MDG have been succeded by 17 Sustainable Development Goals

(SDGs) with 169 targets to be reached by 2030.
Ban Ki-moon, the United Nations Secretary-General from 2007 to 2016,
has stated that: "We don’t have plan B because there is no planet B."
This thought has guided the development of the new Goals.
The new Goals are universal and apply to all countries, whereas the
MDGs were intended for developing countries only.
The new Goals give climate change center stage
The 17 goals follow:

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 Introduction: Sustainable Development Goals II

1)No Poverty: More than 1 in 5 people live on less than the target …gure
of US$1.25 per day.
2) Zero Hunger: End hunger, achieve food security and improved nutrition
and promote sustainable agriculture. Agriculture is the single largest
employer in the world, 40% of the global population.
3) Good Health and Well-Being The number of children dying under age 5
is extremely high: 5.3 million children under age …ve died in
2018.56%deaths in the WHO African Region in 2015 were due to
communicable, maternal, perinatal or nutritional conditions.

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 Some Facts I

Figure: UNICEF/WHO/ WB, Levels and Trends in Child Malnutrition, 2018.

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 Some Facts II

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 Some Facts III

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 Introduction: Sustainable Development Goals III

4)Quality education Major progress has been made in access to education

at the primary school level. Target 1 of Goal 4 is to ensure that, by 2030,
all girls and boys complete primary and secondary education.
5) Gender Equality. 143 countries guaranteed gender equality in their
Constitutions as of 2014, but 52 did not.
https://databank.worldbank.org/reports.aspx?source=2&Topic=4#

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 Introduction: Sustainable Development Goals IV

6)Clean water and sanitation. Worldwide, 6 out of 10 people lack safely

managed sanitation services and 3 out of 10 lack safely managed water
services.
7) A¤ordable and clean energy.
8)Decent work and economic growth. Attaining at least 7% gross
domestic product (GDP) growth annually in the least developed countries.

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 Introduction: Sustainable Development Goals V
9)Industry, innovation and infrastructure
Manufacturing is a major source of employment. In 2016, the least
developed countries had less "manufacturing value added per capita". The
…gure for Europe and North America amounted to US$4,621, compared to
about $100 in the least developed countries. The manufacturing of high
tech products contributes 80% to total manufacturing output in
industrialized economies and barely 10% in the least developed countries.
Reduce the cost of exporting goods from least developed countries.
"Duty-free treatment" has expanded. As of 2015, 65% of products coming
from the least developed countries were duty-free, as compared to 41% in
2005.
The target of 3% was established as the cost international migrant workers
would pay to send money home (known as remittances). Post o¢ ces and
money transfer companies charge 6% of the amount remitted, .commercial
banks charge 11%. Prepaid cards and mobile money companies charge
2-4% but those services were not widely available as of 2017 in typical
"remittance
Alessandra corridors.
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 Introduction: Sustainable Development Goals VI

10) Reduce income inequality within and among countries.

11)Sustainable cities and communities: the target for 2030 is to ensure
access to safe and a¤ordable housing. The indicator for this target is the
proportion of urban population living in slums. Between 2000 and 2014,
the proportion fell from 39% to 30%. However, the absolute number of
people living in slums increased.

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 Introduction: Sustainable Development Goals XII

12)Responsible consumption and production: Using eco-friendly

production methods, reducing the amount of waste and increase national
recycling rates. Companies should adopt sustainable practices and publish
sustainability reports.
13)Climate Action "Take urgent action to combat climate change and its
impacts by regulating emissions and promoting developments in renewable
energy".
14)Life below water "Conserve and sustainably use the oceans, seas and
marine resources for sustainable development."
15)Life on land "Protect, restore and promote sustainable use of terrestrial
ecosystems, sustainably manage forests, combat deserti…cation, and halt
and reverse land degradation and halt biodiversity loss"

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 Introduction: Sustainable Development Goals XIII

16)Peace, justice and strong institutions

Reducing violent crime, sex tra¢ cking, forced labor and child abuse are
clear global goals. By 2017, the UN could report progress on detecting
victims of tra¢ cking. In 2004, 84% of victims were females and by 2014
71%. Sexual exploitation numbers have declined but forced labor has
increased.
One target is the end to sex tra¢ cking, forced labor and all forms of
violence against children. However, monitoring is di¢ cult. For instance,
84% of countries have no or insu¢ cient data on violent punishment of
children: nearly 8 in 10 children aged 1-14 are subjected to regular violent
discipline (regardless of income). More than a quarter of children under 5
were unregistered worldwide as of 2015.

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 Introduction: Sustainable Development Goals XIV

17)Partnerships for the goals

"Strengthen the means of implementation and revitalize the global
partnership for sustainable development".
Increasing international cooperation is seen as vital to achieving each of
the 16 previous goals. Goal 17 is included to assure that countries and
organizations cooperate instead of compete. Developing multi-stakeholder
partnerships to share knowledge, expertise, technology and …nancial
support is seen as critical to overall success of the SDGs. Public-private
partnerships that involve civil societies are speci…cally mentioned.

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 Nice words but the pandemic has shown the limits of any international
action to solve problems:
The World Health Organization has repeatedly condemned rich countries
for buying up the global supply of COVID-19 vaccines and only leaving
doses that are set to expire for poorer countries.
Two important books you may choose to focus your presentation on:
Amartya Sen: Justice as Freedom (2009)
Daron Acemoglu, James Robinson The Narrow Corridor (2019).

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 Some Important International Organizations

Food and Agriculture Organization of the United Nations (FAO)

International Labour Organization (ILO)
International Monetary Fund (IMF)
Organization for Economic Cooperation and Development (OECD)
United Nations Conference on Trade and Development (UNCTAD)
United Nations Industrial Development Organization (UNIDO)
United Nations Statistics Division (UNSD)
World Bank (WB)
World Health Organization (WHO)
World Trade Organization (WTO)

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 Data Bases:
A useful site is:
https://www.economicsnetwork.ac.uk/data_sets#B._International_sites_fo
It contains a list of websites for data bases as well as descriptions of each.

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