Introductory Development Economics Rasmus Heltberg Lektor, Institute of Economics University of Copenhagen Course homepage: Lecture 1 Introduction: The meaning of development 1

What is development economics? Use of economic analysis, methods and tools to understand the problems, constraints and opportunities facing developing countries Causes of poverty Roads to escape poverty Development and growth over time Theoretical and empirical work We study the economic, social, political and institutional mechanisms that lead to development and transformation of the economies 2

What is development economics? continued How do people achieve material opportunities to live an acceptable life? (and what is acceptable anyway?) We discuss broad tendencies and stylized facts, that depend on the context of each country. We have no (or few) universal laws…. We want to Achieve a better understanding of the problems of poor countries Achieve a better understanding of how to apply economics Answer policy questions Policy relevance Empirical anchoring! 3

Development economics at KU Finn Tarp Henrik Hansen Rasmus Heltberg Others, including an active Ph.D programme Many external links High research activity Africa, Asia, cross country growth work Most of our work is empirical, using econometrics and modelling 4

History of thought……… A. Smith (1776) T. Malthus (1798) A. Marshall (1890) J.M. Keynes (1936) J. Schumpeter (1911/ 1934) Radical political economy K. Marx (1848) D. Ricardo (ca. 1820) Neoclassical economcis Macroeconomics, development economics J.S. Mill (1848) 5

The basic question…. Why are they (still) so poor????? ”Radical” explanations Exploitation dependence ”Colonial” / historical explanations Climate Overpopulation Lack of motivation They are happy enough.. Constraints Savings and capital Forex Human capital Barriers Natural resources Bad institutions, Law and order Wrong policies Policy recommendations… 6

The vicious circle of poverty Investors Small markets Low incomes ”savers” Little incentive to invest Slow accumulation of capital Low productivity Slow accumulation of capital Low savings Low productivity Note: A ’vicious circle’ or’poverty trap’ is any equilibrium condition where economic development does not take place 7

What is development? Economic development Economic growthIndustrialisation Economic independence More trade and investment Then what is development? A process of growth and structural change where per capita incomes increase over a longer period, and where normative goals are achieved Conditions of living are changing…. 8

Why study development economics? 1.Moral and ethical reasons Poverty is unfair Inequality is unfair (at least at current levels) Development is human right 2. Our own welfare Global interactions Trade and investment 3. Private interests Job prospects Perspectives on economics, common allround knowledge (”dannelse”) 4. Intellectuel curiosity What causes inequality and poverty and what can be done? Why do some countries grow and others don’t? 9

Values and norms (ours) ”It is so difficult and all to no avail anyway ” is development possible? is development desirable? ”why dont they just......” Economics and interdisplinary approaches Sympathies (‘bias’) Poverty should be reduced (without damaging the environment) 10

What I expect Active participation and debate Inputs from you Intellectual curiosity Preparation would be good… EXAM: 4 hour closed books. 4 questions. Essays. In return I offer To do my best at giving you a rewarding experience, in particular that Economics has a lot to offer poor countries Economics can be very interesting to study 11