1. Copyright  2005 McGraw-Hill Australia Pty Ltd PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser 27-1 Chapter 27 Economic development The vicious circle? Low savings Low productivity Low investment Low income

2. Copyright  2005 McGraw-Hill Australia Pty Ltd PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser 27-2 Lecture Plan Economic growth and economic development Indicators of economic development – Classification of economies by GNP/head Theories of economic growth Agriculture in development Industrialisation issues Role of trade in development Foreign aid and foreign investment Development planning: pluses and minuses

3. Copyright  2005 McGraw-Hill Australia Pty Ltd PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser 27-3 Economic Development Versus Economic Growth Economic growth: a sustained increase, over time, in the real value of the production of goods and services (GDP growth) Economic development includes not only growth, but also a political, social and cultural transformation of society that contributes to better living standards

4. Copyright  2005 McGraw-Hill Australia Pty Ltd PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser 27-4 Indicators of Economic Development Indicators of economic development: – GNP/capita – Gross National Income (GNI): best indicator of economic development by default  Ignores non-monetary incomes and unpaid production  Ignores income distribution, the amount of effort required to produce output and the costs of growth Other indicators of the level of development include: – Energy consumption per capita – Rural population share – Life expectancy at birth – Access to safe drinking water and sanitation (cont.)

5. Copyright  2005 McGraw-Hill Australia Pty Ltd PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser 27-5 Indicators of Economic Development (cont.) – Percentage of malnourished children – Adult illiteracy – Enrolment ratios (e.g. primary school, secondary school, higher education) – Public expenditure per pupil (e.g. primary education, secondary education, higher education) More detailed development indicators are monitored by the World Bank in its annual World Development Indicators and by the Asian Development Bank ( )

6. Copyright  2005 McGraw-Hill Australia Pty Ltd PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser 27-6 Classification of Countries Acceleration of pace of economic development World Bank classification by GNP/capita – Low-income economies – Lower-middle-income economies – Upper-middle-income economies – High-income economies

7. Copyright  2005 McGraw-Hill Australia Pty Ltd PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser 27-7 General Theories of Development Historical stages of development The vicious circle Lump-sum capital and vent for surplus Balanced versus unbalanced growth

8. Copyright  2005 McGraw-Hill Australia Pty Ltd PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser 27-8 Agriculture in the Development Process Low-income countries are more dependent on agriculture than the newly industrialising countries (see share of agriculture in GDP) Land tenure and reform Agricultural technology and the ‘Green Revolution’ Obstacles to change (e.g. farm technology) ‘The food crisis’

9. Copyright  2005 McGraw-Hill Australia Pty Ltd PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser 27-9 Industrialisation Issues in Development Industrial activity (particularly manufacturing) assumes a greater importance in the economy of a country Selection of type of industry to specialise in (e.g. labour-intensive versus capital-intensive) The newly industrialising countries or NICs

10. Copyright  2005 McGraw-Hill Australia Pty Ltd PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser 27-10 Role of Trade in Development Trade as ‘engine of growth’ Development strategies in developing countries – Stage 1: Exports of natural resources/Imports of manufactures – Stage 2: Import substitution (e.g. India in the 1950s, Indonesia in the 1950s and 1960s) – Stage 3: Export-led growth (e.g. the ‘Asian Tigers’)

11. Copyright  2005 McGraw-Hill Australia Pty Ltd PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser 27-11 Foreign Aid and Foreign Investment Public foreign aid (official development assistance) – Bilateral; tied; project – Loans versus grants – Financial versus aid in kind (e.g. food aid) Official Development assistance (ODA) as a % of GNP of donor countries has generally stagnated (See text Table 27.5, p. 493)

12. Copyright  2005 McGraw-Hill Australia Pty Ltd PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser 27-12 Long-term External Debt of Low and Middle- income Countries, by Region, 1990 and 2001

13. Copyright  2005 McGraw-Hill Australia Pty Ltd PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser 27-13 Development Planning Indonesia: – ‘Repellita’ (5-year plans) – 25-year Development Plan Taiwan – 6-Year National development Plan (1991 to 1996) Malaysia – Two 10-year Outline Perspective Plans (1981 to 1990 and 1991 to 2000) – Six Malaysian plans

14. Copyright  2005 McGraw-Hill Australia Pty Ltd PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser 27-14 Development Planning: Limitations and Advantages Limitations in preparation and implementation – Lack of data and expertise – Inefficient government policies – Lack of education of the population at large Advantages – Exposes unrealistic targets – Identifies inconsistencies and bottlenecks – Assists a more efficient allocation of resources