ELEMENTS & MEASURES OF ECONOMIC DEVELOPMENT

The Factors / Determinants of Economic Development - Population Characteristics: Growth; Structure; Attributes * Two-Way effect - Cultural Attributes: Political Attitudes; Social Values & Attitudes * Two-Way effect - Technology - Energy and Resource Base - Government (?) POPULATION CHARACTERISTICS ECONOMIC DEVELOPMENT TECHNOLOGY Measures of Economic Development - Gross National Product (GNP): total value of goods and services produced by a given national economy for one (1) year, plus income earned by its citizens (including those abroad) minus income of non-residents located in that country. - Per Capita GNP: GNP / Total Population - Gross domestic product (GDP): the market value of all officially recognized final goods and services produced within a country for one (1) year. GDP is related to national accounts, a subject in macroeconomics. - Per capita GDP is often considered an indicator of a country's standard of living; - Difference between GNPand GDP: GNP: outputs generated by a countrys enterprises, whether physically located domestically or abroad (ownership). GDP: total output produced within a countrys borders, whether produced by that countrys own local firms or by foreign firms (geographical). - 2012 World Bank Ranking of Countries based on GDP: 1. EU 3. China 5. Germany Indonesia- 17 Thailand- 31 Singapore- 35 2. USA 4. Japan S. Korea - 15 Norway- 23 Malaysia- 34 Hongkong- 36 Phipippines- 39 (US$250 billion) Vietnam- 55; Cambodia- 118; Laos- 135 - Gross Domestic Income (GDI) is the total income received by all sectors of an economy within a nation. It includes the sum of all wages, profits, and taxes, minus subsidies. Since all income is derived from production (including the production of services), the gross domestic income of a country should exactly equal its gross domestic product (GDP). World Pattern of Economic Development (Per Capita GNP) US$ 20,581-41,210: USA; West European countries US$ 9,741- 20,580: Canada; Australia; Japan; Korea; North & South Europe US$ 2,311- 9,740: Latin American countries; Central America; South Africa; Middle East countries; Malaysia; Singapore US$ 0 2,310: Asia; Africa; Western South America ENERGY & RESOURCE BASE

CULTURAL ATTRIBUTES

Map of countries by GDP (nominal) in US$

- Other Measures of Development: Human Development Index (HDI) composite measure of life expectancy, education and income indices. Adopted by the UNDP. Parameters Measured: 1. Life Expectancy Index (LEI) = (Life Expectancy at birth - 20) / (82.3 20) 2. Education Index (EI) = Square Root of (Mean Years of Schooling Index x Expected Years of Schooling Index) 0.951 3. Income Index (II) = In (GNIpc) In (100) GNIpc = Gross National Income In (107,721) In (100) at purchasing power parity / capita HDI = Cube Root of (LEI x EI x II) 2013 UN Ranking of Countries based on HDI: 1. Norway Japan- 10 Singapore- 18 2. Australia S.Korea- 12 Indonesia- 121 3. USA Hongkong- 13 Brunei- 30 Malaysia- 64 Vietnam- 127 Thailand- 103 Cambodia- 138 Phil.- 114 Laos- 139

Gross National Happiness (GNH)- measures the quality of life or social progress in more holistic and psychological terms. Genuine Progress Indicator (GPI)- measures the health of a nations economy by incorporating cost of harmful effects of economic activities.

MODELS OF ECONOMIC DEVELOPMENT A. Rostows Model of Regional/ Economic Stages of Economic Devt. 1. Traditional Society: subsistence economy; dominantly agricultural; low technological inputs. 2. Pre-Conditions for Take-Off: Stimulus for development as a nation emerges; national prestige; better way of life; increased profits; institutional reforms/ changes emerge to pursue the goals of economic progress; per capita growth increases slowly. 3. Drive to Maturity: Technology widespread in application to economic activities/ production; rapid increases in productivity; political institutions encourage economic growth; usually lasts for 40-60 years. 4. High Mass Consumption: Technology applied to consumption (prepared food; packaging & preserving; styling; luxury items); investments in production continues, but increasing share in investments go to education, social welfare, health care, security, leisure and recreation. Correlation of Level of Economic Development & Labor Employment: Traditional Society Agriculture and Mining (Primary) Pre-Conditions for Take-Off Manufacturing (Secondary) Drive to Maturity Retailing & Services (Tertiary) High Mass Consumption Information & Communications (Quaternary) B. Models of REGIONAL GROWTH: - From a geographic perspective, as economic activities develop and the market economy evolves in a given area or region, this results in regional growth and development. - Two (2) theories on Regional Economic Growth: 1. Internal Growth theory: Economic development occurs due to changes occurring within a region. The structure of the economy evolves because of internal processes in the region, such as application of technology to a local resource, or because of an increase in investments or purchasing power. These results in changes generated within a region. 2. Export Base Theory: Economic growth occurs as a result of the expansion of exports to other regions. Income received from the sale of exqiports induces economic development. Trade is the mechanism that initiated the economic change.

- Process of Internal Growth: - Subsistence economies based on location and environment. - Self- subsistence economies interact with each other, as roads connect the various areas local trade evolves. - As the system of trade grows, with more producers, competitive advantages of certain areas will begin to emerge, as some producers will prove to be more efficient, or their location more advantageous. - The more competitive producers will eventually expand their markets and produce more. Larger sales will enable application of new technology where the average cost per item may decrease as the number of items produced increases. This is the concept/ principle of Economies of Scale. - As agricultural trade grows, there is an increase in per capita income. Moreover, with agricultural surplus, local manufacturing and service industries will be stimulated. - The process will feed on itself, together with application of technology in reducing transport costs and also unit production costs resulting in growing trade, especially for the advantageously located producers. - Shift from agriculture to an industrial base. With industrialization comes increased need for tertiary activities, leading to the stage of economic maturity. - The Export Base Theory - The theory is premised on the recognition that areas have a natural resource base, which can attract foreign capital and technology. - An area therefore, can specialize on such resource base for its production, becoming its export known as regional specialization. - Income received from the export of the resource provides the initial impetus for growth. C. GROWTH POLE THEORY - Formulated by a French Economist, Francois Perroux, in the early 50s. - A variant of the Internal Growth Theory - The theory has undergone several modifications to give it geographic character, primarily by Albert Hirschman, Gunnar Myrdal and John Friedmann - The Theory in Summary Development does not occur evenly in a region. Some areas would tend to grow faster, while others would lag behind. The areas growing faster are the metropolitan areas, which initially started to grow with the presence of a KEY INDUSTRY. As the Key Industry grows with increased output, it leads to; - Increase in employment; - Rise in purchasing power; - New industries and activities (called AFFECTED INDUSTRIES) are attracted to the area; - Improvements in banking, government, retailing, health care, etc. Agglomeration follows and sustains the growth of the area, until it becomes a metropolitan/ urban area GROWTH POLE. - Initial Negative Effects of Growth at a Pole (POLARIZATION EFFECTS) Local industries in the lagging areas become uncompetitive; Outmigration of skilled manpower from the lagging areas to the growth pole. Capital shifted from the lagging areas to the growth center. - Trickle-Down Effects of Growth Poles Increase in purchases of production inputs by the growth center from the lagging areas; Employment absorption by the growth center of unemployed in the lagging areas; Spill over of capital from the growth center to lagging areas;

 With further development in the growth center, it will gradually enlarge, bringing about 2 processes of growth diffusion: Areal Accretion expansion of growth to the periphery. Leapfrogging growth jumps to another center with Secondary Key Industry, leading to Hierarchical Diffusion of development. - Other Factors Supporting the Growth Pole Theory Multiplier Effect additional economic activities & services are stimulated by the growth and expansion of an economic activity. Market Threshold minimum number of people (aggregate purchasing power) necessary for an economic activity or industry to exist profitably. Technological Innovation/ Invention Circular/ Cumulative Causation

PROBLEMS OF ECONOMIC DEVELOPMENT - Development has no sure fire formula that will be universally or generally be applicable to all countries. - Spurring economic growth and development involves an integrated and coordinated approach on the various factors affecting development. - Illustrations: Shifting the economys focus from agriculture to manufacturing and services will not be effective unless there is a consumer market to sustain the further growth of manufacturing and service industries. The shift from agriculture to manufacturing, then to services, must naturally evolve in order to bring about income increases of the agricultural population, to eventually serve as market for manufactured products - enough to bring about a threshold market. Infrastructure developments will not likewise stimulate development unless there is a corresponding increase in economic production that will make use of the infrastructures. Investing in agricultural development will not also be sufficient unless rapid population growth is addressed so as to realize surplus production. - The importance of Investments, Capital Accumulation and Institutional Changes. - Problems in Philippine Economic Development
- Population Characteristics: Growth; Structure; Attributes - Cultural Attributes: Political Attitudes; Social Values & Attitudes - Technology - Energy and Resource Base