TOPICS Todaro dan Smith: Economic Development, 9th edition, Chapters 1-2; 4-10; 12; 14 Sadono Sukirno. Ekonomi Pembangunan: Proses, Masalah dan Dasar Kebijakan Mubyarto. Sistem dan Moral Ekonomi Indonesia Kindleberger, P. et al. Economic Development 4/21/2017

Two Quizzes : 15% Mid-term : 30% Final-Term : 40% Assignment : 15% RULES Two Quizzes : 15% Mid-term : 30% Final-Term : 40% Assignment : 15% 4/21/2017

CONCEPTS AND DEFINITIONS ECONOMIC DEVELOPMENT (Pembangunan Ekonomi): concerted efforts in an economy to improve its economic activities to have , e.g. better infrastructures and technology, more firms/companies, as well as improved education, leading to higher employment opportunities, increased income and better welfare. SOCIAL DEVELOPMENT, POLITICAL DEVELOPMENT, ETC 4/21/2017

CONCEPTS AND DEFINITIONS DEVELOPMENT ECONOMICS (Ekonomi Pembangunan): a branch of economics dealing with development issues in the developing countries and the required policies to obtain economic development LABOR ECONOMICS, POLITICAL ECONOMICS, THEORETICAL ECONOMIC, APPLIED ECONOMICS 4/21/2017

CONCEPTS AND DEFINITIONS ECONOMIC GROWTH (EG) (Pertumbuhan Ekonomi): quantitative measure indicating growth of an economy during a certain period e.g. Indonesia experienced 5% economic growth between 2009-2010 should be in real terms, adjusted by inflation 4/21/2017

CONCEPTS AND DEFINITIONS ECONOMIC GROWTH PER CAPITA EG, may not lead to improvement of people prosperity, need to take into account population growth, thus EG/capita ECONOMIC DEVELOPMENT Growth plus Health, education, technology, infrastructure, etc 4/21/2017

Economics, Institutions and Development Overview Global Differences in Standard of Living Nature of Development Economics What is Development Economics Purpose of Development Economics Values in Development Economics Economies as social systems The Meaning of Development New Economic View of Development 4/21/2017

Economics, Institutions and Development The majority of the 6.4 billion people in the world live in absolute poverty. 4/21/2017

Economics, Institutions and Development Part of the 6.4 billion people in the world live in luxury 4/21/2017

Economics, Institutions and Development Global Differences in Living Standards Differences in: Household Size, Income and Property Educational Attainment and Opportunities Health and Nutrition Access to basic necessities (e.g. clean water) Life Expectancy 4/21/2017

Economics, Institutions and Development 4/21/2017

Economics, Institutions and Development 4/21/2017

Economics, Institutions and Development Global Differences (Cont’d) Employment Opportunities Inequality within Countries/Cities Interdependence: Economic and Environmental interdependence in an ever-shrinking world 4/21/2017

Economics, Institutions and Development 4/21/2017

Economics, Institutions and Development Average living condition, between countries Variable North America Rural Asia Nuclear family 4 persons 8 persons or more Yearly average income USD50,000,- USD 250-300 Levels of living Reasonably good Bad Economy Developed In some parts: Subsistence 4/21/2017

Economics, Institutions and Development Average living condition, within country Variable DKI Papua 4/21/2017

Development Measures by Country Standard Measures Malaysia Brazil Sudan Canada GDP per capita (PPP US$) 9,512 7,790 1,910 30,677 Combined Primary, Secondary, Tertiary Gross Enrolment Ratio (%) 71 91 38 94 Infant Mortality Rate (per 1000 live births) 7 33 63 5 Life Expectancy at birth (years) 73.2 70.5 56.4 80.0 Average Household Size 5.6 2.6 Population Living below $2/day 9.3 22.4 4/21/2017 Source: UNDP Human Development Report, 2005

The Nature of Development Economics Traditional economics (neoclassical economics): concerned with the efficient allocation of scarce productive resources and optimal growth of these resources to achieve sustained growth deals with, e.g.: an advanced capitalist world of perfect markets consumer sovereignty automatic price adjustments assumes: economic rationality a purely materialistic, individualistic, self-interested orientation toward economic decision-making 4/21/2017

The Nature of Development Economics (cont’d) Political economy: analyzes how politics and economics are related; role of power in decision making studies the social and institutional mechanisms through which decisions about the allocation of scarce productive resources are made. 4/21/2017

The Nature of Development Economics (cont’d) Development economics has a broader scope. It deals with: efficient allocation of scarce resources and sustained growth, and the role of economic, social, political and institutional mechanisms in promoting/hindering rapid and large-scale improvements in the well being of the people in LDCs 4/21/2017

The Nature of Development Economics (cont’d) Some characteristics of LDCs (challenges) Market imperfection: most commodity and resource markets are highly imperfect Informational asymmetry: consumers and producers have limited information Structural changes in the society and the economy 4/21/2017

The Nature of Development Economics (cont’d) Some characteristics of LDCs (challenges) Political and social considerations: economic calculations dominated by political and social priorities; family, clan, religious, or tribal considerations may take precedence over private, self-interested utility or profit-maximizing calculations 4/21/2017

The Nature of Development Economics (cont’d) Some characteristics of LDCs (challenges) Requires larger government role, wide scale planning and coordinated efforts 4/21/2017

What is Development Economics The economics of the contemporary poor, underdeveloped nations with varying ideological orientations, diverse cultural backgrounds, and very complex yet similar economic problems that usually demand new ideas and novel approaches. Neither the same with economics of advanced capitalist nations nor to centrally planned economies. 4/21/2017

Ultimate Purpose of Development Economics TO HELP US BETTER UNDERSTAND DEVELOPING ECONOMIES IN ORDER TO HELP IMPROVE THE MATERIAL LIVES OF THE MAJORITY OF GLOBAL POPULATION 4/21/2017

Questions asked in Development Economics: Can traditional, low-productivity, subsistence societies be transformed into modern, high-productivity, high-income nations? To what extent are the development goals of developing countries thwarted by the economic activities of developed nations? How is it that extreme inequality can exist not only across continents but within cities and countries? 4/21/2017

What are the primary causes of extreme poverty? More Questions: What lessons can developing countries learn from the historical record of economic progress of developed countries? What are the primary causes of extreme poverty? What strategies have been most successful in eradicating poverty? 4/21/2017

Are deregulation and privatization the answer? Even more questions: What roles do population growth and migration play in the development process? Do the educations systems in developing countries promote development and reduce inequality or do they help to sustain wealth and class structures? Are deregulation and privatization the answer? 4/21/2017

Values in Development Economics The goals of this discipline are derived from subjective value judgments about what is good and desirable. The goals are: Economic and Social Equality Elimination of Poverty Universal Education Higher Living Standards 4/21/2017

Values (cont’d) National independence Institutional Modernization Political and Economic Participation Grassroots democracy Self-reliance Personal Fulfillment 4/21/2017

Economies as Social Systems interdependent relationship between economic and noneconomic factors. Noneconomic factors: attitudes toward life, work, and authority; patterns and kinship and religion; cultural traditions; the authority and integrity of government agencies; levels of political participation; public and private bureaucratic, legal, and administrative structures; systems of land tenure; flexibility/rigidity of economic and social classes. 4/21/2017

The Meaning of Development Traditional Measures The capacity of a once relatively stagnant national economy to generate and sustain significant economic growth Annual increases of 5% or higher in gross national product. Alternative measures include income per capita and real income per capita (‘real’ – accounting for inflation). Changes in the structure of production – shifts from agriculture towards manufacturing and services (i.e. industrialization) 4/21/2017

The Meaning of Development Traditional Measures Trickle down Little attention paid to eradicating poverty, unemployment, inequality, and discrimination 4/21/2017

New Economic View of Development Contemporary Measures Broader: include the reduction of poverty, unemployment and inequality within the context of a growing economy Multidimensional: No longer be just higher incomes, must also include e.g., better education, health and nutrition, equal opportunities, individual rights and freedoms, and clean environment 4/21/2017

Sen’s Capability Approach “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.” -Amartya Sen, Development as Freedom 1998 Nobel Laureate in Economics 4/21/2017

Sen’s Functionings and Capabilities What matters is: what a person is, or can be, and does or can do What matters for well-being is ‘functioning’: not the characteristics of commodities consumed, as in the utility approach, but what use the consumer can and does make of commodities e.g. a book is of little value to an illiterate person (except as cooking fuel or a status symbol) 4/21/2017

Five Sources of Disparity between (measured) real incomes and actual advantages Sen’s Five Sources: Personal heterogeneities Environmental diversities Variations in social climate Differences in relational perspectives Distribution within households Sen argues that changes in functions and capabilities are better measures of development 4/21/2017

Sen’s Functionings and Capabilities “the freedom an individual possesses with respect to choice of functionings, given his/her personal features/traits (conversion of characteristics into functionings) and his command/control over commodities” 4/21/2017

Three Core Values of Development Common goals: 1. Sustenance: the ability to meet basic needs life-sustaining basic needs – food, shelter, health and protection. “absolute underdevelopment” describes the absence or critical supply of these basic needs. Rising per capita incomes, elimination of absolute poverty, greater employment opportunities, and lessening income inequalities, necessary but not sufficient conditions for development 4/21/2017

Three Core Values of Development Common goals: 2. Self-Esteem: to be a person a sense of worth and self-respect (i.e. identity, respect, honor, recognition, dignity). a sense of not being used as a tool by others for their own end ‘development is legitimized as a goal because it is an important, perhaps even an indispensable, way of gaining esteem. 4/21/2017

Three Core Values of Development Common goals: 3. Freedom from Servitude: to be able to choose human freedom; emancipation from alienating material conditions of life and from social servitude to nature, ignorance, other people, misery, institutions, dogmatic beliefs, especially that poverty is predestination. ‘the advantage of economic growth is not that wealth increases happiness, but that it increases the range of human choice” (W.A. Lewis). 4/21/2017

Three Objectives of Development The improvement in the availability and distribution of basic life-sustaining goods The improvement of living standards The expansion of the range of economic and social choices 4/21/2017

United Nations’ Millennium Development Goals Eradicate Extreme Hunger and Poverty Achieve Universal Primary Education Promote Gender Equality and Empower Women Reduce Child Mortality Improve Maternal Health Combat HIV/AIDS, Malaria and other diseases Ensure Environmental Stability Develop a Global Partnership for Development 4/21/2017

Next topic: Comparative Development: Differences and Commonalities among Developing Countries 4/21/2017