Economics: Development and Underdevelopment
Total Product Cost
TotalProductCost=DM+DL+MOH
Unit Cost
P*UnitCost=TPC/Nºunits Porduced
Prime Cost
PrimeCost=DM+DL
Conversion Cost
ConversionCost=DL+MOH
Absolute Poverty
A situation of being unable to meet the minimum levels of income, food, clothing, healthcare, shelter, and other essentials.
Subsistence Economy
An economy in which production is mainly for personal consumption and the standard of living yields little more than basic necessities of life (food, shelter and clothing)
Development
The process of improving the quality of all human lives and capabilities by raising people’s levels of living, self steem and freedom.
Developing Countries
Countries of Asia, Africa, the Middle East, Latin America, eastern Europe and the former Soviet Union, that are presently characterized by low levels of living and other development deficits.
Traditional Economics
Is concerned primarily with the efficient, least-cost allocation of scarce productive resources and with the optimal growth of these resources over time so as to produce an ever-expanding range of goods and services
Institutional Economics
Goes beyond traditional economics by looking into social and institutional processes trough which certain groups of economic and political elites influence the allocation of resources.
Basic Material Needs
Food, shelter, clothing
Nonmaterial Wants
Education, knowledge, spiritual fulfilment
Economies as Social Systems
The need to go beyond simple economics
Social System
The organizational and institutional structure of a society, including its values, attitudes, power and traditions.
Values
Principles, standards, or qualities that a society or groups within it considers worthwhile or desirable
Attitudes
States of mind or feelings of an individual, group, or society regarding issues such as material gain, hard work, saving for the future, and sharing wealth
Institutions
Norms, rules of conduct, and generally accepted ways of doing things. Economic institutions are humanly devised constraints that shape human interactions including both informal and formal “rules of the game” of economic life.
Development
Has been preoccupied with achieving sustained rates of growth of income per capita to enable a nation to expand its output at a rate faster than the growth rate of its population.
CCT to Families
Who do you target the mother or father?
Relational Perspectives
Capabilities
The freedom that a person has in terms of choice of functions, given his personal features (conversion of characteristics into functioning’s) and his command over commodities.
Self-Esteem
A sense of worth and self-respect, of not being used as a tool by others for their own ends.
Newly Industrializing Countries
Ones that have achieved an advanced manufacturing sector
Indebtedness (World Bank)
Severely / Moderately / Less indebted
Human Development (UNDP)
Based on health and education attainment
Basic Indicators of Development
Real income, health, and education
Purchasing Power Parity
Calculation of GNI (gross national income) using common set of international prices for all goods and services, to provide more accurate comparisons of living standards.
Gross National Income
Total domestic and foreign output claimed by residents of a country. Consists of GDP plus factor incomes earned by foreign resident minus income earned in the domestic economy by nonresidents.
Indicators of Health and Education
The following variables are used because they reflect ‘core capabilities’
Life Expectancy
Average number of years newborn children would live if subjected to the mortality risks prevailing for their cohort at the time of their birth
Undernourishment
Consuming too little food to maintain normal levels of activity
High Fertility
(Can be both a cause and a consequence of underdevelopment) so Birth Rate is reported
Literacy
Fraction of adult males and females reported or estimated to have basic abilities to read and write
Longevity
Life expectancy
Knowledge
1. Adult literacy, 2. Gross school enrollment
Standard of Living
Real per capita gross domestic product
Human Capital
Productive investments in people such as skills, values, and health resulting from expenditures
Characteristics of the Developing World
Diversity within Commonality
Absolute Poverty
Specific mínimum level of income needed to satsfy the basic physical needs of clothing, and shelter in order to survive.
Dependency Burden
The proportion of the total population aged 0-15 and 65+ which is considered economically unproductive and therefore not counted in the labor force.
Population Graphics
Imperfect Markets
Markets are blurred by the existence of for example a small number of buyers and sellers, barriers to entry, and incomplete information
Incomplete Information
Lack of necessary information needed to make efficient decisions, leading / resulting in underperforming markets
The False-Paradigm Model
The proposition that developing countries have failed to develop because their development strategies (usually given by Western economists) have been based on an incorrect model of development, one that, for example, overstressed capital accumulation or market liberalization without giving due consideration to needed social and institutional change.
Rationality
Refers to how people make decisions
Efficiency
Refers to the nature of economics arrangements that result
Argument 1
Pollution should be in lowest cost countries
Argument 2
LDC’s (lesser developed countries) are under- polluted
Argument 3
Demand for clean the environments has a high income elasticity
Income Elasticity
How much more you want of something relative to the increase of your inco
Developed Countries are Seeing Declining Pollution and Continued Economic Growth
New technology, growing incomes, and greater concern for the environment
Promoted
What matters? What normative things really matter?
Solution from an Economic Perspective
Export pollution to LDC’s to minimize the cost
Economic Decision
Export pollution to LDCs for highest net benefit
Market Liberalization Policy Involves Three Components
1. Removing social and economic restrictions on markets
2. Generally promoting free markets and competition
3. Generally discouraging government regulation of the economy
Deep’ Policy [What is Behind Market Liberalization Policy]
1. Should be no interference in society’s wealth distribution
Economics Claims to Know Nothing on Normative Questions of Fairness and Distributive Justice
Social Tolerance
Since people are drivers in regard to what principles are important to them, tolerance towards differences, both in terms of individuals and social groups, is necessary
Promotion of Democracy
Since democratic societies are ‘bottom-up’ they tend to reinforce social diversity – if individual rights are emphasized
Moral Limits of Markets
There is an ethical domain that is independent of other domains that need to be defended both in terms of boundaries and encourage social interaction drive by moral principles.
Human Capital
Is the stock of knowledge, habits, social and personality attributes, including creativity, embodied in the ability to perform labor so as to produce economic value (Claudia Goldin, Department of Economics Harvard University and National Bureau of Economic Research. “Human Capital”)
Human Capital Accumulation, Physical Capital Accumulation and Technology
All contribute to the process to increase the productivity of the labor force