1. Developmental Economics

2. Types of Countries
Industrially Advanced Countries (IACs; MDC, 1st World)
Developing Countries (DVCs, LDC/NIC, 2nd/3rd World)
1) V. diff. abilities to improve (China vs. Sudan)
2) Absolute income gap widening

3. Obstacles to Development
1) use resources more efficiently: un/underemployment, productive + allocative efficiency
2) Expand available resources

4. Natural Resources Unequal distribution of resources Resource curse
Climate
Primary production greater price variability (boom + bust; carryover effects of recessions)

5. Human Resources 1) Overpopulation 2) Un/underemployment rampant
China + India underpopulated?
2) Un/underemployment rampant
3) Labor productivity low
Standard of living = consumer goods (food) production / population
Higher s of l more population: mortality rate falls + birthrate increases (less infant mortality) lower s of l
Malthusian
“the rich get richer and the poor get children”

6. Population Pressures 1) Reduced saving and investment
2) Productivity lower: large pop requires equally large capital stock
3) Large pop requires food Resource Overuse ( soil erosion/depletion famine)
4) Urban Problems

7. Demographic Transition View
Rising income fewer kids
Marginal benefits vs. marginal costs

8. Capital Accumulation 1) DVCs suffer shortage capital goods
2) Capital stock crucial: unlikely/impossible increase arable land
3) Capital accumulation may be cumulative: capital productivity higher real income greater saving + investment more capital

9. Domestic Capital Formation + Flight
Poverty inability to give up current consumption for investment; even w/high saving rate, large % of small % still small amount
Lack of investors + incentives, infrastructure impedes returns on investments
Instability (pol. + econ) capital flight
“Brain Drain”
Overcome: concerted leadership + group sacrifice

10. Technological Advance
DVCs can adopt some tech from IACs (crop rotation, grain storage bins) at low cost
Capital accumulation w/o more money: transfer investment from less to more productive
Capital-saving tech vs. capital-using tech (expensive metal plows, better fertilizers)

11. Sociocultural and Institutional Factors
“the will to develop”
Sociocultural impediments: 1) Tribal + ethnic allegiance > economic self-interest; 2) caste systems; 3) religious beliefs (capricious universe view)
Institutional obstacles: 1) corruption, education, etc.; 2) Land reform (Guatemala)

12. Vicious Circle
DVC characteristics both causes + consequences poverty

13. Role of Domestic Government
Positive Roles:
Law + Order
Take up entrepreneurial slack
Infrastructure
Forced saving + investment
Social-institution problems
Negative: cronyism, inefficiency, genocide as law + order, counterproductive showpiece projects (Aswan High Dam, Three Gorges Dam)

14. Role of Advanced Nations
Expanding Trade
Foreign Aid: Loans + Grants
World Bank: 1) last resort lending, 2) basic development projects, 3) technical assistance
Private Capital Flows
Microloans, “emerging market hunters”
Foreign Harm?
1) Dependency: aid as welfare
2) Bureaucracy + Centralized Gov’t: aid to gov’t create + maintain bureaucracies to run aid programs more regulation + slower economic growth
3) Corruption + Misuse (Oil-for-Food)

15. DVC Policies for Growth
1) Establish rule of law
2) Free trade
3) Control population
4) Encourage foreign investment
5) Build human capital
6) Peace
7) Independent central banks
8) Realistic exchange-rate policies
9) Privatize state industries

16. IAC policies 1) Direct aid to neediest
2) Reduce tariffs, quotas, + subsidies
3) Provide debt relief
4) Allow temp workers but discourage brain drain
5) Discourage arm sales