1. DEVELOPMENT FACTORS & DEVELOPMENT THEORIES JUDY M. COMETA

2. Economic ideas and theories PRODUCTS OF EXISTING CONDITIONS;MAY CHANGE OR IMPROVE EXISTING CONDITIONS IDEAS AND THEORIES ARE NOT THE SAME WERE CONSIDERED IMPOSSIBLE DREAMS AND WERE PUBLICLY RIDICULED IN THE PAST

3. IDEAS OF ECONOMIC DEVELOPMENT IDEAS OF ECONOMIC DEVELOPMENT ANCIENT ECONOMIC IDEAS ANCIENT ECONOMIC IDEAS Based on the Holy Scriptures and codes of laws PLATOARISTOTLEXENOPHON - Agriculture is important -In favor of specialization of production -No gap between the rulers and the ruled -Stressed the value of management of agriculture - Disagree with Plato about communal property - In favor of capitalism -In favor of joint-stock companies, specialization and division of labor - Just like other ancient intellectuals, he considered agriculture as the basis of wealth

4. THE ECONOMIC DOCTRINES OF MERCANTILISM THE ECONOMIC DOCTRINES OF MERCANTILISM STATE HAS VITAL ROLE IN ECONOMIC DEVELOPMENT CREATE AND ACCUMULATE WEALTH; WEALTH CAME FROM GOLD AND SILVER Agriculture was no longer appreciated but instead manufacturing was given top priority in order to achieve the objective of mercantilism. THOMAS MUN, AN ENGLISHMAN - CONTRIBUTED THE IDEA OF BALANCE OF PAYMENTS, EXPORTS AND IMPORTS OF GOODS AND SERVICES - HIS WRITINGS DOMINATED THE WHOLE CONCEPT OF MERCANTILISM

5. PHYSIOCRACY – RULE OF NATURE PHYSIOCRACY – RULE OF NATURE During the 18 th century, many significant changes took place in Europe During the 18 th century, many significant changes took place in Europe Dependence on the Greek philosophy and the church dogma began to diminish Dependence on the Greek philosophy and the church dogma began to diminish People started to rationalize human behavior and the existence of institutions. People started to rationalize human behavior and the existence of institutions. According to the thinkers, an economy or society that conforms to such laws would be successful. According to the thinkers, an economy or society that conforms to such laws would be successful.

6. WEALTH CAME FROM THE LAND WEALTH CAME FROM THE LAND ECONOMISTS/ PHYSIOCRATS 1 ST Modern School of Thinkers SUBSCRIBED TO THE CONCEPT OF NATURAL LAW AS BOTH BASIC AND BENEVOLENT CLAIMED THAT ALL WEALTH CAME FROM THE LAND REAL WEALTH OF ANY NATION ARE THE PRODUCTS OF AGRICULTURE

7. THEORIES OF ECONOMIC DEVELOPMENT I. LAISSEZ FAIRE THEORY Introduced by the Physiocrats Introduced by the Physiocrats The government should not intervene in economic affairs rather let the forces of the market interact with one another. The government should not intervene in economic affairs rather let the forces of the market interact with one another. Quesnay, the leader of Physiocrats stated that market prices should be based on the cost of labor. Quesnay, the leader of Physiocrats stated that market prices should be based on the cost of labor.

8. II. THE CLASSICAL THEORIES - founded by Adam Smith, a Scotman - Smith believed that a free market mechanism could provide more benefits to individuals and society than an economy run by the government A. Production is the real wealth -Adam Smith stated that the only source of wealth is production through labor and resources. B. Theory on population - Tomas Malthus, a religious minister stated that population is the root cause of the problems of society.

9. C. The theory or law of Comparative Advantage - developed by David Ricardo, one of the famous classical economists - Nations should export the goods which they enjoy the greatest advantage, and should import the goods which they have the greatest disadvantage. Example: Countries Rice Calculator Countries Rice Calculator Japan 120 days10 days Japan 120 days10 days Philippines 90 days15 days

10. III. THEORY OF KARL MAX - Workers are the real producers of goods and yet the benefits of production go to the capitalists and not to the workers WORKERSCAPITALISTS (+) (-) (+) (-) - Karl Max stated that there is a class conflict between the workers and the capitalists - He developed his theory of scientific evolution that in the beginning when it was still a primitive society, there was social equilibrium SYNTHESIS

11. Linear theory of development by: Rostow Economies can be divided into primary secondary and tertiary sectors. Economies can be divided into primary secondary and tertiary sectors. Implications of Rostow's theory Implications of Rostow's theory 1. Savings and capital formation (accumulation) are central to the process of growth hence development 2. The key to development is to mobilise savings to generate the investment to set in train self generating economic growth. 3. Development can stall at stage 3 for lack of savings – 15-20% of GDP required.

12. Harrod-Domar model developed in the l930s suggests savings provide the funds which are borrowed for investment purposes. developed in the l930s suggests savings provide the funds which are borrowed for investment purposes. Implications of the Harrod Domar Model Economic growth requires policies that encourage saving and/or generate technological advances, which lower capital-output ratio.

13. The Lewis model The Lewis model is structural change model that explains how labour transfers in a dual economy. The Lewis model is structural change model that explains how labour transfers in a dual economy. For Lewis growth of the industrial sector drives economic growth. For Lewis growth of the industrial sector drives economic growth. The Lewis Model argues economic growth requires structural change in the economy whereby surplus labour in traditional agricultural sector with low or zero marginal product, migrate to the modern industrial sector where high rising marginal product. The Lewis Model argues economic growth requires structural change in the economy whereby surplus labour in traditional agricultural sector with low or zero marginal product, migrate to the modern industrial sector where high rising marginal product.

14. Dependency theory refers to over reliance on another nation. refers to over reliance on another nation. Dependency theory uses political and economic theory to explain how the process of international trade and domestic development makes some LDC's ever more economically dependent on developed countries ("DC's"). Dependency theory uses political and economic theory to explain how the process of international trade and domestic development makes some LDC's ever more economically dependent on developed countries ("DC's"). refers to relationships and links between developed and developing economies and regions. refers to relationships and links between developed and developing economies and regions.

15. Cont. Dependency theory In this model under development is externally induced (ie DC not LDC’s fault) and only a break up of the world capitalist system and a redistribution of assets (eg elimination of world debt) will ‘free’ LDC's In this model under development is externally induced (ie DC not LDC’s fault) and only a break up of the world capitalist system and a redistribution of assets (eg elimination of world debt) will ‘free’ LDC's

16. Balanced Growth Theory involves the simultaneous expansion of a large number of industries in all sectors and regions of the economy. involves the simultaneous expansion of a large number of industries in all sectors and regions of the economy. Called as the big push theory argues that as a large number of industries develop simultaneously, each generates a market for one another. Called as the big push theory argues that as a large number of industries develop simultaneously, each generates a market for one another. Balanced growth theory is an extension of Say’s Law the demand for one product is generated by the production of others Balanced growth theory is an extension of Say’s Law the demand for one product is generated by the production of others

17. It is argued that free markets are unable to deliver balanced growth because entrepreneurs: Do not expect a market for additional output. Do not expect a market for additional output. Employers cannot ‘internalise their positive externalities. Employers cannot ‘internalise their positive externalities. Do not anticipate the positive externalities generated by the investment of other firms engaged in expansion. Do not anticipate the positive externalities generated by the investment of other firms engaged in expansion. Are unable to raise finance for projects Are unable to raise finance for projects

18. PROMOTION OF HUMAN VALUES - Jean Sismondi, a noted Italian writer stated that wealth should not be measured in terms of material things but in terms of human welfare - Sismondi asserted that the state should interfere to prevent the unfair distribution of wealth spawned by unrestrained capitalism - The main contention of Sismondi is focused on the welfare of the poor.

19. FACTORS OF ECONOMIC DEVELOPMENT According to Friedrich List, the progress of a nation is great not in proportion to the accumulation of wealth but in proportion to the development of the productive forces. According to Friedrich List, the progress of a nation is great not in proportion to the accumulation of wealth but in proportion to the development of the productive forces. List proposed that a nation should protect its industries by means of tariffs. List proposed that a nation should protect its industries by means of tariffs.

20. FOR GOVERNMENT This requires state planning and intervention to: -Train labour - Plan and organize the large-scale investment programme - Mobilise the necessary finance - Nationalise strategic industries and undertake infrastructure investments eg build roads - Protect infant industries through tariff (tax on imports) and quota (limit on quantity of imports) policies