1 Economic Development

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ECONOMICECONOMICDEVELOPMENTDEVELOPMENT

ECONOMICECONOMICDEVELOPMENTDEVELOPMENT

Jerrold P. ElloJerrold P. Ello

Instructor IIInstructor IIMSUMSU--IIT Integrated Developmental SchoolIIT Integrated Developmental School


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What is development?


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Economic Development Development can be defined as

the improvement of economicwealth of countries or regionsfor the well-being of its people


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Factors of Development3. Political and Economic Institutions

-Laws that can protect property rights

-Stable Financial institutions

4. Human Resources- skilled,knowledgeable, and disciplined labor

force contribute to progress


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Theories of Economic

Development1. The Harrod-Domar theory

delineates a functional economic

relationship in which the growth rateof gross domestic product dependsdirectly on the national saving ratio

and inversely on the nationalcapital/output ratio

GNP = Savings/Capital


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Development2. The Exogenous Growth theory (orNeoclassical Growth Model) of

Robert Solow and others placesemphasis on the role of technologicalchange.


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Development3. The Harris-Todaro (H-T) theory of rural-

urban migration is usually studied in the

context of employment and unemploymentin developing countries.


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Development4. Walt Rostows Theory

This is a linear theory of development. Economiescan be divided into primary secondary andtertiary sectors. The history of developedcountries suggests a common pattern ofstructural change: traditional society,transitional, take- off, drive to maturity, age of

high mass consumption


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Development5. Dependency theory -refers to over reliance on

another nation. Dependency theory uses politicaland economic theory to explain how the process

of international trade and domestic developmentmakes some LDC's ever more economicallydependent on developed countries ("DC's").


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Development6.The Lewis structural model is a structural change

model that explains how labor transfers in a dualeconomy. For Lewis growth of the industrial

sector drives economic growth.


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Development7. Balanced growth involves the simultaneous

expansion of a large number of industries in allsectors and regions of the economy. Balanced

growth (or the big push) theory argues that as alarge number of industries develop simultaneously,each generates a market for one another.


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Development8.Unbalanced Growth Theory

Unbalanced growth theorists argue that sufficient resourcescannot be mobilized by government to promote widespread,coordinated investments in all industries.

A country lacks resources to finance balanced growth. Resourcesare therefore concentrated on strategic industries with:

- Significant forward linkages ie firms creating essential inputs forother key firms in the economy

- Significant backward linkages ie key firms buy industrial inputs from

a large number of domestic firms- Import substitution. Developing domestic industries replaces

imports and so improves the balance of payments.


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Development9. Absolute advantage occurs when a

country or region can create more of a

product with the same factor inputs.10. Comparative advantage exists when acountry has lower opportunity cost in theproduction of a good or service

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1 Economic Development