Lecture 1: Thinking Development

Question 1

Economic growth vs. economic development

Answer 1

Economic growth is a relatively objective measure, such as GDP, which looks into aggregate value without taking other circumstances into account.
Economic development, on the other hand, requires methods of measuring economic performance across countries, hence this is a more normative concept that also looks into concepts such as human development indexes.
Achieving economic growth is “just” adding value to the economy, while achieving economic development involves questions of distribution and strategies to reach specific development targets.

Question 2

Amartya Sen and his capability approach when defining economic development

Answer 2

Sen’s capability approach is about functioning, beings and doings

3 core values of development:
- Self-esteem: to be a person
- Freedom from servitude: to be able to choose
- Sustenance: the ability to meet basic needs

3 main objectives of development
- Increase availability of life-sustaining goods
- Raise level of living (culture based / biased)
- Expand range of economic and social choices

Some important capabilities: (all proxied by income however)
- Being able to live long
- Being well nourished
- Being healthy
- Being literate
- Being well clothed
- Being mobile

Question 3

Instrumental roles of freedom

Answer 3

Some “freedoms” are not part of the core values, but they are instrumental for the core values. Instrumental freedoms directly enhance the capabilities but also supplement and reinforce each other.

The “main freedoms”:
- Political freedom
- Economic facilities
- Social opportunities
- Transparency guarantees
- Protective security

Question 4

Measuring development: Sustainable Development Goals (SDG)

Answer 4

17 SDGs:
- No poverty
- No hunger
- Good health and well being
- Quality education
- Gender equality
- Clean water and sanitation
- Afordable and clean energy
- Decent work and economic growth
- Industri innovation and infrastructure
- Reduced inequalities
- Sustainable cities and communities
- Responsible consumption and production
- Climate action
- Life below water
- Life on land
- Peace, justice, and strong institutions
- Partnerships forthe goals

Note: Hoewever no countries in Sub-Saharan africa will reach the goals (no matter the amount of resources)
- More distribution is needed to reach the goals.

Question 5

Economic Development

Answer 5

Issues of concern: living standards, well-being, misery and poverty, or the quality of life.

There is a link between economic development and economic growth, although the relation between GDP (or GNI) growth and the quality of life is not simple: GDP growth is not sufficient for improving mass living standards

Income distribution very important for development economics

Note: we see declining inequality between countries, but increasing within

Question 6

GDP and GNI as measures of development

Answer 6

GDP and GNI do not really cover ‘development’, more used for policy making.

Measurement and conceptual issues.

Question 7

Purchasing Power Parity (PPP) and International Comparison Program (ICP)

Answer 7

Exchange rate does not measure purchasing power –> in comes PPP.

A PPP is defined as the number of currency units required to purchase the amount of goods and services equivalent to what can be bought with one unit of the currency of the base country

ICP:
- Produces purchasing power parities (PPPs) and comparable price level indexes (PLIs) for participating economies
- Converts volume and per capita measures of GDP and its expenditure components into a common currency using PPPs

Question 8

Washington Consensus

Answer 8

Shorthand list of reforms/conditions to ensure a positive economic growth (for developing countries).

Conclusion of WC: market liberalization will lead to higher rates of growth and lower poverty. Reforms might impose short-term pain, but in the long term, reformers would achieve sustained growth and development.
- In reality, the “white paper” was actually more intended as a security policy than development policy.

Problems with WC
- Prescriptions did not emerge out of a record of what had been shown to work. More based on “basic” economic theory (neoclassical economics)
- Focused on the “market”
- Prescriptions are couched as valid for countries at all stages of development

WC was not about economic theory, but just a policy paradigm
- consider WC a projection of US power.

Baker plan: indebt other governments/economies