intro to economics - development econ

7/31/2019 Intro to Economics - Development Econ

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Development Economics

Dr. Katherine Sauer

A Citizens Guide to Economics

ECO 1040


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Most of the people in the world do not have an acceptable

standard of living.

- access to food

- access to clean water- adequate housing

- job opportunities

- access to health care

- education


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Why should you care?

Countries are linked together by trade, finance, theenvironment, migration, disease, etc


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Poverty

The Cycle of Poverty:

Low

Income

Low

Savings

Low

Investment

Low

Consumption

LowProductivity

Where could the cycle be broken?


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Hunger

Hunger is an extreme manifestation of poverty.

There are about 900 million undernourished people in the

world.

The vast majority live in developing nations.3/4 live in rural areas.

The majority are women.


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hunger

low

availability

of food

low access to

food (economic

or physical)low food

production

low

imports of

food

poverty

interrupted

access to

markets

The Relationship Between Poverty and Hunger:


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Globally, there is more than enough food produced tonourish everyone.

There is an unequal distribution of food within and across

countries.

Most food emergencies are caused by natural disasters,

conflicts, or economic crisis.

Poverty makes people more vulnerable to any emergency.


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What can be done?

Short Run:- public food distribution

- food-for-work programs

Long Run:- irrigation projects (prevent consequences of

drought)

- improve rural roads (improve access to markets)

- government policies to decrease unemployment

- government policies to grant land ownership


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There is no formula for making poor countries rich.

We do have an understanding of some key things that

rich countries have in common.

- stages of economic development- human capital

- health issues

- property rights

- effective government institutions

- openness to trade


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Stages of Economic DevelopmentPre-Industrial

leading sector

production process

consumer products

major factor that

influences

economic growth

- agriculture

- human-nature interaction

- labor and natural resource intensive

- food

- handmade clothing

- natures productivity

(fertile soil, rainfall, etc)


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Industrial

leading sector

production process

consumer products

major factor that

influences

economic growth

- industry

- human-machine interaction

- capital intensive

- manufactured goods

- labor productivity


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Three Broad Objectives of Sustainable Development

Social- full

employment

- equity

- security

- education

- health

Economic- economic

growth

- efficiency

- stability

Environmental- healthy

environment to

live in

- rational use of

non-renewable

resources

- conservation ofrenewable

resources

The challenge is to balance all three at once.


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Foreign Aid: (humanitarian or development)

- 2 types of sources

- government

- private

Government- national government bilateral aid programs

(ex: US Agency for International

Development or the OECDs Development

Assistance Committee)

- international institutions

(ex: World Bank or IMF)


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Private

- charitable organizations

- nongovernment organizations (NGOs)


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2 common types of aid:

official development assistance (ODA)grants or loans

provided on concessional financial terms (with a grant

element of at least 25%) by the official sector withpromotion of economic development and welfare as the

objective

tied aidODA that is used by the donating country tobuild infrastructure or buy goods/services


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2007 ODA

(millions ofUS dollars)

Source: OECD


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In 1970, at the UN General Assembly, rich nations pledged to

spend 0.7% of their Gross National Income on ODA.

2007 ODA

as a share of

GNI

Source: OECD

I 2005 h EU l d d d 0 56% f G N i l I


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Source: OECD

In 2005, the EU pledged to spend 0.56% of Gross National Income

on poverty reduction by 2010 and 0.7% by 2015.

Other OECD countries are targeting 0.35% of GNI.


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Source: OECD


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Does aid make a difference in development?

- 4 views on the link between aid and economic growth

1. It has been argued that aid is needed to break poor

countries out of the poverty trap.

- Developing nations often lack a minimum

amount of capital (infrastructure, human capital,public administration) to support modern

economic activity.

Key to breaking the poverty trap is investment inphysical and human capital.

Funds for investment have to come from external

sources.


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2. There is a positive relationship between economic

growth and aid, but the returns to aid are diminishing.

- limits to absorptive capacity and other constraints- type of aid matters


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3. The effect of aid depends on

- quality ofpolicies and institutions

- country characteristics


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4. There is no effect of aid on growth (or negative effect).

- unproductive projects

- graft / corruption- pressure on currency to appreciate


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What did you learn today?

Please explain 2 concepts from todays class.

intro to economics - development econ

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