Mañibo, Princess Joy B.

August 06, 2019

BSMA 2-10 Development Economics

CHAPTER 1:
1.Why is economics central to an understanding of the problems of development?
Economics is central to an understanding of the problems of development for it deals on
bringing about a significant change to structure of the economy, institutions (political, social,
technological, and economic), process of production, distribution, and consumption, attitude and
income of the people, infrastructure and etc. Development as a process involves the improvement
of the quality of all human lives and capabilities by raising people’s levels of living, self-esteem,
and freedom. The development process is not an easy one because it also involves different
challenges such as eradication of poverty, creating employment opportunities, provision of health
and education facilities for a strong human capital base, correcting population explosion and
reduction of inequalities, and entire system of working of that particular economy. Therefore, the
development of a country depends upon economic factors, that is why there is development
economics to study how economies are transformed from stagnation to growth and from low-
income to high-income status, and overcome problems of absolute poverty. Economics is an
integral part of the study of development as both move in the same direction and thus becomes
central to the understanding of problems of development.
3.What do you hope to gain from this course on development economics?
Under our course on development economics, I am aiming to gain a better understanding
and in-depth knowledge on how the economies of the world revolve and survive in today’s very
challenging era while uncovering the real conditions and scenarios across the developing
world. I want to level up my analytical skills and basic knowledge of simple economics into a
broader and wider perspective concerning different aspects of the economy that are significant
for development and other scope of the field. I also want to discover how we got to where we are,
how great progress has been made in recent years, and why many development problems remain
so difficult to solve and need to be addressed in the years ahead. Furthermore, I also want to
identify the factors that play a key role in moving the economy to better equilibrium through
conforming to the evidences, resources, real-life development policies and case studies made in
different nations. I am hoping that the principles, concepts and design of development economics
will provide me sufficient and efficient information regarding my goal.

5.Why is an understanding of development crucial to policy formulation in developing

nations? Do you think it is possible for a nation to agree on a rough definition of
development and orient its strategies accordingly?
An understanding of development is crucial to policy formation in developing nations
because for them, development processes is looked at a wider perspective and policies should
be formulated accordingly. The development process brings about strong positive changes in the
economy and take the nation towards the status of being a more developed country.
I believe that it’s possible for a nation to agree on a rough or own definition of development
and orient its strategies accordingly to it because the term “development” means different to
different nations. To some nations, it would mean only an increase in its GDP and per capita
income while to othes, it would mean provision of health and education facilities and some other
changes. Development must therefore 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.
Development, in its essence, must represent the whole gamut of change by which an entire social
system, tuned to the diverse basic needs and evolving aspirations of individuals and social groups
within that system, moves away from a condition of life widely perceived as unsatisfactory toward
a situation or condition of life regarded as materially and spiritually better. To formulate a policy
for a nation, the area that they needs to develop must then accordingly, be the focus of the policies
that they will create.

7.How does the concept of “capabilities to function” help us gain insight into development
goals and achievements? Is money enough? Why or why not?
The concept of “capabilities to function” by Amartya Sen help us gain insight into
development goals and achievements in a way that it presented a new perspective to the
multidimensional meaning of development. The term economic development is oftentimes
perceived to result in well being of the society, mainly driven by financial stability or enough
income. However, for Sen, economic development is not an end in itself, but is concerned with
enhancement of lives that people lead and the freedoms that they enjoy. He argues that what
matters fundamentally is not the things a person has—or the feelings these provide—but what a
person is, or can be, and does, or can do. What matters for well-being is not just the
characteristics of commodities consumed, as in the utility approach, but what use the consumer
can and does make of commodities. Therefore, money is not enough, though it is essential. It is
for the reason that real income level do not suffice as a measure of a person's well-being. The
commodities are of little value if they aren't the way it is desired by the consumer. We need to
think beyond the availability of commodities and consider their use through addressing the
concept of “functioning” or what use a person makes of commodities of given characteristics that
are possessed by them. As Sen stressed: a person's valuation of the kind of life that is worthwhile
might be different from the things that a person gets satisfied from.

9.What crucial issues are raised from the examination of development problems and
prospects facing Brazil?
From the examination of development problems and prospects facing Brazil, crucial issues
were raised which includes:
-Social Indicator. The problem of short life expectancy, child labor, and highly concentrated
distribution of income, worsened by inequitable social spending was raised.
-Poverty. It has been high in Brazil for an upper middle-income country. Though the poverty
situation in Brazil is improving, still 15 percent of the population is earning less than $1 per
day.
-Inequality. Brazil’s inequality in income (as well as in land and other assets) has ranked among
the worst in the world. High inequality not only produces social strains but can also
ultimately retard growth It has been reflected through a report on brazil income inequality
that up to 60% of Brazilian population falls under low-income group and only 10% fall
under high-income group.
-Land Reform. Land is very unequally distributed in Brazil, and there is both an efficiency and a
social equity case for land reform
-Sustainable development. Brazilians across the political spectrum appear determined not to
acknowledge destruction of forests as a genuine or pressing problem. Deforestation of the
Brazilian Amazon rain forest displays conflicts between short- and long-term
development goals and the consequences of huge inequality and state intervention on
behalf of the rich.
-Racial Discrimination. This can be seen in various forms of Brazil. one could rarely see the Blacks
in political affairs, educational universities, and in good living conditions.
-Income and Growth. Brazil has not absorbed technology to the degree that East Asian countries
have.
CHAPTER 2:
1.For all of their diversity, many less developed countries are linked by a range of common
problems. What are these problems? Which do you think are the most important? Why?
The problems commonly linked in many less developed countries are as follows:
 Lower levels of living and productivity
 Lower levels of human capital
 Higher levels of inequality and absolute poverty
 High population growth rates
 Greater social fractionalization
 Larger Rural populations but rapid rural-to-urban migration
 Lower Levels of Industrialization and Manufactured Exports
 Adverse Geography
 Underdeveloped Markets
 Lingering Colonial Impacts and Unequal International Relations

For me, there are two most important of the above problems and these are: having low
levels of living and productivity followed by higher levels of inequality and absolute poverty. I have
chosen the two because they are somehow interconnected and create the most impact in the
economy. At very low income levels, a vicious circle may set in, whereby low income leads to low
investment in education and health as well as plant and equipment and infrastructure, which in
turn leads to low productivity and economic stagnation. This is known as a poverty trap or what
Nobel laureate Gunnar Myrdal called “circular and cumulative causation.” Furthermore, extreme
poverty represents great human misery, and so redressing it is a top priority of international
development. Development economists have also increasingly focused on ways in which poverty
and inequality can lead to slower growth. That is, not only do poverty and inequality result from
distorted growth, but they can also cause it. Having a low level of living and productivity will
automatically lead to extreme poverty and social inequality that eventually leads to other major
economic problems. These two must be addressed and prioritized first because it encompasses
almost all the remaining common challenges.

3. Can you think of other common (not necessarily universal but widespread)
characteristics of less developed countries not mentioned in the text? See if you can list
four or five and briefly justify them.
Some characteristics of less developed countries not mentioned in the text are as follows:
 Mass Illiteracy: Less developed countries are mostly characterized by the existence of
mass illiteracy. Due to illiteracy the people in these countries are very much superstitious
and conservative which is again responsible for lack of initiative and enterprise on the part
of people of these countries.
 Shortage of Technology and Skills: Less developed countries are facing low level of
technology and acute shortage of skilled manpower’s. Poor technology and lower skills
are responsible for inefficient and insufficient production which leads to poverty of masses.
The pace of economic growth in these countries is very slow due to application of poor
technologies.
 Unexploited Natural Resources: For maintaining a rapid pace of economic growth in these
underdeveloped countries, possession of different types of natural resources in sufficient
quantity and its utilization are very important. But less developed countries are either
suffering from scarcity of raw materials or from un-exploited natural resources of its own.
 Agricultural Backwardness: Less developed countries are also suffering from agricultural
backwardness. Although being the most important sector, agricultural sector in these
 countries remains totally underdeveloped. But what is more peculiar is that these countries
are depending too much on this agricultural sector.
 Inefficient Administrative Set Up: Less developed countries are also suffering from its
existing inefficient administrative set up. In the absence of efficient and sound
administrative set up, these countries are suffering from lack of proper economic
organization, lack of investments and lack of appropriate decisions leading to total
mismanagement of these economies.

5. What is meant by the statement that many developing nations are subject to
“dominance, dependence, and vulnerability” in their relations with rich nations? Can you
give some examples?
Many developing nations are subject to “dominance, dependence and vulnerability” in their
relations with rich nations. This means that many developing countries do not have any means of
their own that they come to depend on the rich nations and pretty much become vulnerable and
dominated. In other words, rich nations can kind of force the developing nations to do what they
want, and make them poor if they refuse. For example, a developing country is poor that it cannot
invest and that is where the rich countries come and provide financial aid, making the poor nation
dependent on them.
Another explanation is that developing countries lack capital resources for development
or investment, but have abundant raw materials or natural resources, as a starting point. On the
other hand, developed countries have financial and capital resources in excess, but lack natural
resources or raw materials. Lack of financial or capital resources means the developing countries
will fail to run effectively as they wont be able to feed the population, buy machinery, drugs for
hospitals, have clean running water, etc. This creates an imbalance in a relationship with
developed countries. Developed countries will bargain unfavorably for the natural resources or
raw materials in exchange for 'aid', funding or grants. Developing countries will end up being
dominated, they will depend on developed countries even for simple things like budget support
for essential services, and will constantly be found in a state of vulnerability. A great example of
this is the relationship of Philippines and China.

7.What are some additional strengths and weaknesses of the Human Development Index
as a comparative measure of human welfare? If you were designing the HDI, what might
you do differently and why?
As a comparative measure of human welfare, the Human Development Index or HDI is
the one that measures the socio economic development of a country based on the parameters
like health, education, and per capita income. The countries are ranked on a scaled of 0 to 1.
Its strength include:
 it does not rank the countries based on their income alone. It takes into account the
measures like education, health status, poverty, life expectancy etc. that would combine
to reflect true status of the economy. The ranking comes as low, low, medium, and high.
 The HDI indicators are accepted worldwide at the country level provided appropriate
statistical data are available while its estimation. It can further be used within the nation to
measure disparity state/region wise on availability of the required data.
 The result of HDI indices enables the government of a nation to devise appropriate policy
measured that will help the development of areas that need urgent attention.
 It also enables the government in allocation of funds or asking for international financial
aid in underdeveloped areas..
It’s weaknesses include:
 Data from some developing countries may not be very reliable and may be difficult to
confirm.
  The measures chosen may seem very arbitrary to some because there are other way of
measuring relative qualities in health and education.
 Similar criticism of GDP, that it does not measure unequal distribution within the country.
 No indication in the education index about access to education for all groups in society

If I were to design the HDI, I will not necessarily change the way it is. What I will do is to
supplement it with other useful indicators in order to get a comprehensive view.

9. Why do many economists expect income convergence between developed and

developing countries, and what factors would you look to for an explanation of why this
has occurred for only a limited number of countries and in such a limited degree so far?
Many economists expect income convergence between developed and developing
countries because of two reasons.
The first reason is due to technology transfer. Today’s developing countries do not have
to “reinvent the wheel”. This should enable developing countries to “leapfrog” over some of the
earlier stages of technological development, moving immediately to high-productivity techniques
of production. As a result, they should be able to grow much faster than today’s developed
countries are growing now or were able to grow in the past, when they had to invent the
technology as they went along and proceed step by step through the historical stages of
innovation. (This is known as an “advantage of backwardness,” a term coined by economic
historian Alexander Gerschenkron.)
The second reason to expect convergence if conditions are similar is based on factor
accumulation. Today’s developed countries have high levels of physical and human capital; in a
production function analysis, this would explain their high levels of output per person. That is, the
impact of additional capital on output would be expected to be smaller in a developed country that
already had a lot of capital in relation to the size of its workforce than in a developing country
where capital was scarce. As a result, economists would expect higher investment rates in
developing countries, either through domestic sources or through attracting foreign investment.
With higher investment rates, capital would grow more quickly in developing countries until
approximately equal levels of capital and (other things being equal) output per worker were
achieved.
However, convergence has occurred for only a limited number of countries and in such a
limited degree so far mainly because not all developed and developing countries has similar
growth experience and condition. Therefore, we cannot see tendencies of convergence among
them without having such similarity. Whether there is now convergence in the world economy
depends on two levels of how the question is framed: whether across average country incomes
or across individuals (considering the world as if it were one country); and whether focusing on
relative gaps or absolute gaps.

11.Which measure shows more equality among countries around the world—GNI
calculated at exchange rate or GNI calculated at purchasing power parity? Explain.
The measure of GNI calculated at purchasing power parity shows more equality among
countries around the world than GNI calculated at exchange rate. This is because Purchasing
Power Parity uses a common set of international prices for all goods and services, to provide
more accurate comparisons of living standards. Thus, income gaps between developed and
developing nations tend to be less when PPP is used. Moreover, per capita GNI comparisons
between developed and less developed countries were exaggerated by the use of official foreign-
exchange rates to convert national currency figures into U.S. dollars. This conversion does not
measure the relative domestic purchasing power of different currencies.
13. What is the meaning of a “colonial legacy”? Discuss any disadvantages and possible
advantages.
The term colonial legacy is used as a synonym of Colonialism. This is referred to as a
process in which a strong country takes over the control (legal, social and political) of a weaker
country at their will. Some of the disadvantages of colonial legacy are as follows:
 Colonial era institutions often favored extractors of wealth rather than creators of wealth,
harming development then and now.
 Both domestically and internationally, developing countries have more often lacked
institutions and formal organizations of the type that have benefited the developed world.
 Property rights have been less secure, constraints on elites have been weak, and a
smaller segment of society has been able to gain access to and take advantage of
economic opportunities
 Colonization often created or reinforced differing degrees of inequality, often correlated
with ethnicity, which have also proved remarkably stable over the centuries.
 Tradition-shattering ideas such as private property, personal taxation, and the requirement
that taxes be paid in money rather than in kind were introduced in ways that facilitated
elite rule rather than broad-based opportunity.
On the other hand, some advantages of colonial legacy, though not really significant, include:
 Different colonial heritages and the diverse cultural traditions of the people have combined
to create different institutional and social patterns in countries
 The diversity of colonial experiences is one of the important factors that help explain the
wide spectrum of development outcomes in today’s world.

15. Discuss the differences between the traditional HDI (examined in Appendix 2.1) in
comparison to the New NHDI formulation. In what ways do you think either one is a better
measure of human development? In your answer, consider the 103 significance of
computing with a geometric mean, instead of an arithmetic mean.
Both traditional and new Human Development Index (HDI) measures national
socioeconomic development, based on combining measures of education, health, and adjusted
real income per capita. They attempt to rank all countries on a scale of 0 (lowest human
development) to 1 (highest human development) based on three goals or end products of
development. However, they have differences primarily because the New HDI was formulated to
address the issues of the traditional, therefore, there were changes in its calculation and they are
the following:
Probably most consequential: The index is now computed with a geometric mean, instead of
an arithmetic mean used in the traditional. A geometric mean is also used in the NHDI to build up
the overall education index from its two components
Traditional HDI added the three components and divided by 3 while New HDI takes the cube
root of the product of the three component indexes.
The traditional HDI calculation assumed one component traded off against another as perfect
substitutes, a strong assumption. The reformulation now allows for imperfect substitutability.

For me, the New HDI is a better measure of human development because through using
this, the drawbacks or criticisms of the traditional were addressed:
Gross national income per capita replaces gross domestic product per capita.
Revised education components: now using the average actual educational attainment of the
whole population, and the expected attainment of today’s children.
The maximum values in each dimension have been increased to the observed maximum rather
than given a predefined cutoff.
The lower goalpost for income has been reduced due to new evidence on lower possible
income levels.
 Moreover, the use of a geometric mean in the NHDI is very important. When using an
arithmetic mean (adding up the component indexes and dividing by three) in the HDI, the effect
is to assume perfect substitutability across income, health, and education. So in the NHDI, instead
of adding up the health, education, and income indexes and dividing by 3, the NHDI is calculated
with the geometric mean.

CHAPTER 3:
1. Explain the essential distinctions among the stages-of-growth theory of development,
the structural-change models of Lewis and Chenery, and the theory of international
dependence in both its neo-Marxist and false-paradigm conceptualizations. Which model
do you think provides the best explanation of the situation in most developing nations?
Explain your answer.
There is surely, a distinction among the four major models and often competing
development theories.
The stages-of-growth theory of development associated with the American economic
historian Walt W. Rostow, according to which a country passes through sequential stages in
achieving development. It is possible to identify all societies, in their economic dimensions, as
lying within one of five categories: the traditional society, the preconditions for takeoff into self-
sustaining growth, the take-off, the drive to maturity, and the age of high mass consumption. It
was primarily an economic theory of development in which the right quantity and mixture of saving,
investment, and foreign aid were all that was necessary to enable developing nations to proceed
along an economic growth path that had historically been followed by the more developed
countries. Development thus became synonymous with rapid, aggregate economic growth.
On the other hand, structural-change theory models focuses on the mechanism by
which underdeveloped economies transform their domestic economic structures from a heavy
emphasis on traditional subsistence agriculture to a more modern, more urbanized, and more
industrially diverse manufacturing and service economy. It employs the tools of neoclassical price
and resource allocation theory and modern econometrics to describe how this transformation
process takes place.
Meanwhile, the theory of international dependence in its neo-Marxist
conceptualization has its main proposition that underdevelopment exists in developing countries
because of continuing exploitative economic, political, and cultural policies of former colonial
rulers toward less developed countries; while False-paradigm model proposes that developing
countries have failed to develop because their development strategies (usually given to them by
Western economists) have been based on an incorrect model of development, one that, for
example, overstresses capital accumulation or market liberalization without giving due
consideration to needed social and institutional change.
For me, the model that provides the best explanation of the situation in most developing
nations is the international dependence models because they call for the outright expropriation of
privately owned assets in the expectation that public asset ownership and control will be a more
effective means to help eradicate absolute poverty, provide expanded employment opportunities,
lessen income inequalities, and raise the levels of living (including health, education, and cultural
enrichment) of the masses. However, the key to successful development performance is
achieving a careful balance among what government can successfully accomplish, what the
private market system can do, and what both can best do working together, not just being based
on a development model.

3. Some people claim that international dualism and domestic dualism are merely different
manifestations of the same phenomenon. What do you think they mean by this, and is it a
valid conceptualization? Explain your answer.
 For me, what people mean on their claim that international dualism and domestic dualism
are merely different manifestations of the same phenomenon is that the two concepts vary on the
range or scope that it manifest but still falls on the same phenomenon, which is
underdevelopment. International dualism is more because it is beyond the control of the third
world since the implications are coming from the outside. Although international dualism can be
considered more serious, one will also agree that domestic dualism also posts a threat to the
development process of any given nation.
I believe that it is a valid concept because dualism does not stop at an international level.
In developing countries, there are also pockets of wealth within broad areas of poverty. There is
also a persistence divergence between the rich and the poor. Dualism can be noticed domestically
in terms of rural and urban sectors as stated by Lewis, gender, the young and old, religious and
ethnic difference, the formal and informal sector, the literate and the illiterate, etc., all of which in
one or the other manifest poverty for the majority of the people in the third world as that of the
international dualism.

5. Given the diversity of developing countries, do you think that there could ever be a
single, unified theory of development? Explain your answer.
For me, it is almost impossible to have a single, unified theory of development, given the
diversity of developing countries, because differing nations need different patterns depending
upon their necessity and situation. One theory may be sufficient in accordance to what they need
to develop or change, but it’ll surely contain patterns that’s unfit for them. Moreover, development
economics has no universally accepted doctrine or paradigm. Instead, we have a continually
evolving pattern of insights and understandings, reflecting in part improved data and emergence
of new technologies and new institutions, that together provide the basis for examining the
possibilities of contemporary development of the diverse nations. As development should be
perceived as a multidimensional process involving the reorganization and reorientation of entire
economic and social systems, then the theories about it shall also be continuously modified which
shall also involve radical changes in institutional, social, and administrative structures as well as
in popular attitudes and even customs and beliefs. But if it will come to happen, such theory
requires considerable modification in assumptions and analysis to fit the reality of most
contemporary developing nations.

7. In what ways do developing countries depend on rich countries? In what ways is the
opposite true?
Developing countries frequently have to deal with and depend on the rich and powerful
nations. They have to depend on the developed countries in different ways concerning trade,
technology advancement, foreign aid and expertise, and investment and capital borrowing. It may
always seem that weaker countries are economically reliant on stronger countries, allowing the
stronger countries to exercise significant control over the weaker countries’ economic and political
behavior. Foreign dependency generally fosters underdevelopment in the dependent country; a
country’s adoption of policies tailored to the interests of a stronger country may inhibit the weaker
country’s domestic growth, speed environmental destruction, or create temporary growth that
precludes sustainable development and economic independence. However, the opposite thing
also happens. Rich countries were also dependent on developing countries in some ways. The
interest from payment of debt of the developing countries to rich countries as well as the returns
of their investment greatly contribute to their income. Rich countries were also dependent on poor
countries when it comes to natural resources and raw materials, as well as being its source of
human capital and labor. Therefore, it should no longer be that only rich countries can bring help
to developing countries because the truth is they are interdependent with each other.