Economic DevelopmentEconomic Development

I. I. Measuring DevelopmentMeasuring Development

II.II. Understanding DevelopmentUnderstanding Development

III. III. Managing DevelopmentManaging Development

I. Measuring Economic I. Measuring Economic DevelopmentDevelopment

1. 1. ConceptsConcepts

* * Growth:Growth: an economic phenomenon an economic phenomenon increase of GNP/GDP, income not increase of GNP/GDP, income not necessarily better social welfarenecessarily better social welfare

* * Development:Development: an spatial, social an spatial, social phenomenon relief of poverty, phenomenon relief of poverty, unemployment reduction of income unemployment reduction of income inequalityinequality

* * Modernization:Modernization: a social phenomenon a social phenomenon

2. 2. MeasurementMeasurement

Monetary Measures:Monetary Measures:

use the value of product as indicatorsuse the value of product as indicators

GNP GNP (Gross National Product):(Gross National Product):

measure production that is measure production that is ownedowned by by

residents of the country, no matter it residents of the country, no matter it takes takes

place within the country or abroadplace within the country or abroad

GDP GDP (Gross Domestic Product):(Gross Domestic Product):

measure production that take measure production that take place place withinwithin the country regardless the country regardless of who owns the factoriesof who owns the factories

e.g. USA – GNP > GDPe.g. USA – GNP > GDP

Canada – GDP > GNP Canada – GDP > GNP

China – GDP > GNPChina – GDP > GNP

Hong Kong – GNP > GDPHong Kong – GNP > GDP

GNP = GDP + incomes earned by GNP = GDP + incomes earned by domestic domestic

residents from investment abroad residents from investment abroad – –

incomes earned in domestic incomes earned in domestic marketmarket

by foreigners.by foreigners.

Problems:Problems:

- Official exchange rates may not be realistic- Official exchange rates may not be realistic- Does not reflect unofficial monetary marketDoes not reflect unofficial monetary market- Does not reflect equalityDoes not reflect equality- Indicate national wealth but no individual Indicate national wealth but no individual

disposable incomedisposable income- Foreign own company may not benefit Foreign own company may not benefit

national economy (GDP)national economy (GDP)- Depends on population census (citizenship)Depends on population census (citizenship)

Figure 10.7 Gross National Income per Capita

Figure 10.8 Purchasing Power ParityFigure 10.8 Purchasing Power Parity

Physical – Economic MeasuresPhysical – Economic Measures

i.i. Electricity ConsumptionElectricity Consumptionii.ii. Efficiency: labour productivityEfficiency: labour productivity capital intensity capital intensity iii.iii. Employment in R&DEmployment in R&Div.iv. Economic StructureEconomic Structurev.v. Urbanization Urbanization vi.vi. UnemploymentUnemployment

Figure 10.10 Labour Force in AgricultureFigure 10.10 Labour Force in Agriculture

Social MeasuresSocial Measures

i.i. Life ExpectancyLife Expectancy

ii.ii. Birth/Death Rate and Growth Birth/Death Rate and Growth RateRate

iii.iii. EducationEducation

Figure 10.21 Economically Active Women, 2004Figure 10.21 Economically Active Women, 2004

Figure 10.22 Gender Empowerment MeasureFigure 10.22 Gender Empowerment Measure

Physical - Social MeasuresPhysical - Social Measures

i.i. Telephones per capitaTelephones per capita

ii.ii. Nutrition – dietary intakeNutrition – dietary intake

iii.iii. Social ServicesSocial Services

iv.iv. Crime ratesCrime rates

Combined MeasuresCombined Measures

Rank countries according to Rank countries according to individual measuresindividual measures

Figure 10.3 Comparative Development LevelsFigure 10.3 Comparative Development Levels

Figure 10.18 Country rankings by Human Development IndexFigure 10.18 Country rankings by Human Development Index

II. Understanding Economic II. Understanding Economic DevelopmentDevelopment

Two schools of thought:Two schools of thought:

- Efficient, quick economic growth - Efficient, quick economic growth concentrated top-down approachconcentrated top-down approach

- Equality, Basic-needs- Equality, Basic-needs

dispersed bottom-up approachdispersed bottom-up approach

Export Base TheoryExport Base Theory

A theory of regional development that suggests A theory of regional development that suggests

that the major stimulus generating that the major stimulus generating development development

is external demand for regional resources or is external demand for regional resources or

products.products.

Basic Activities: export goods and services to Basic Activities: export goods and services to outside areasoutside areas

Non-basic Activities: provide services to the Non-basic Activities: provide services to the local economylocal economy

Multiplier: A cumulative change in the total regionalMultiplier: A cumulative change in the total regionalincome/ employment as a result of a change in externalincome/ employment as a result of a change in externaloriented productionoriented production

Total employment (basic + non-basic)Total employment (basic + non-basic) Employment in basic activitiesEmployment in basic activities

e.g. Basic Workers = 2000e.g. Basic Workers = 2000 Non-basic workers = 2000Non-basic workers = 2000

2000 + 2000 2000 + 2000 20002000 A new factory hires 2000 workersA new factory hires 2000 workers ΔΔB = 2000B = 2000 Total Employment created Total Employment created ΔΔTT ΔΔT = T = ΔΔB × K = 2000 × 2 = 4000B × K = 2000 × 2 = 4000

K = = 2

K =

Polarized Growth and Core-Polarized Growth and Core-peripheral Relationsperipheral Relations

The Multiplier EffectThe Multiplier Effect

Perroux’s Growth Pole TheoryPerroux’s Growth Pole Theory

Growth Pole: an economic conceptGrowth Pole: an economic concept

a vector of economic forces from which a vector of economic forces from which centrifugalcentrifugal

forces emanate and to which centripetal forces forces emanate and to which centripetal forces areare

attractedattracted

e.g. leading industries, firmse.g. leading industries, firms

Polarization: rapid growth of the leading industries Polarization: rapid growth of the leading industries which induce the polarization of other economic which induce the polarization of other economic activities into the pole of growthactivities into the pole of growth

e.g. flow of resources, capital, migration, etc.e.g. flow of resources, capital, migration, etc.

Boudeville’s Regional Growth Pole:Boudeville’s Regional Growth Pole:

A set of expanding industries located in an A set of expanding industries located in an

urban area and inducing further urban area and inducing further developmentdevelopment

of economic activity throughout its zone ofof economic activity throughout its zone of

influenceinfluence

Myrdal: Cumulative Upward Myrdal: Cumulative Upward CausationCausation

Backwash Effects:Backwash Effects: negative effects caused by negative effects caused by prosperous regions on less prosperous prosperous regions on less prosperous regions. e.g. concentration of resources in regions. e.g. concentration of resources in the core at the cost of periphery, growing the core at the cost of periphery, growing spatial inequalityspatial inequality

Spread Effects:Spread Effects: beneficial impact of the beneficial impact of the prosperous regions on less prosperous prosperous regions on less prosperous regions. e.g. increased demand, capital regions. e.g. increased demand, capital investment, technology transferinvestment, technology transfer

Polarization Backwash Effect Spread Effects

Convergence

Ineq

uali

ty

Time1979 19851980 2000

Hirschman: Polarization/Trickle Hirschman: Polarization/Trickle DownDown

Polarization EffectPolarization Effect: growth centers : growth centers attract or “drain” regional resourcesattract or “drain” regional resources

Trickle Down EffectTrickle Down Effect: diffusion of growth : diffusion of growth and innovation from the growth and innovation from the growth center to the peripherycenter to the periphery

Myrdal VS. HirschmanMyrdal VS. Hirschman

John Friedmann plannerJohn Friedmann planner

Reasons for polarization:Reasons for polarization:- High demand in the centerHigh demand in the center- Good facilities & infrastructureGood facilities & infrastructure- Psychological effectPsychological effect- Tax revenue for further expansionTax revenue for further expansion

Reasons for spread effectReasons for spread effect::

- Increased demand for agricultural Increased demand for agricultural products & raw materialsproducts & raw materials

- Diffusion of advanced technologyDiffusion of advanced technology- Diseconomies of scale in the center Diseconomies of scale in the center

(high labour cost, congestion)(high labour cost, congestion)- Government intervention for politicGovernment intervention for politic

al considerationsal considerations

Core-Periphery/Heartland-HinterlandCore-Periphery/Heartland-Hinterland

Core/heartland:Core/heartland: centers of innovative changes centers of innovative changes

Common Features:Common Features:- Favourable physical environmentFavourable physical environment- Accessible to marketsAccessible to markets- Diversified economyDiversified economy- Urbanized populationUrbanized population- Integrated urban systemIntegrated urban system- Capable of innovationCapable of innovation- Decision-making at the national levelDecision-making at the national level

III. Managing Development:III. Managing Development:----Measure to counter spatial ----Measure to counter spatial

polarizationpolarization

- British ApproachBritish Approach

e.g. London: 13 new townse.g. London: 13 new towns- French ApproachFrench Approach

e.g. Paris: 8 regional centerse.g. Paris: 8 regional centers- TaiwanTaiwan- KoreaKorea- Hong KongHong Kong

Stage Theories of Stage Theories of Economic DevelopmentEconomic Development

* * Marx’s Theory of Revolutionary Marx’s Theory of Revolutionary Social ChangeSocial Change

* Rostow’s Theory of Evolutionary * Rostow’s Theory of Evolutionary Economic GrowthEconomic Growth

Marx: Forces of Production Marx: Forces of Production VS. Relation of VS. Relation of ProductionProduction

1.1. Primitive CommunismPrimitive Communism- Equal relation of production, no classEqual relation of production, no class- Common ownershipCommon ownership- Simple division of labour: sex divisionSimple division of labour: sex division

surplussurplus

exploitationexploitationcommon ownership

equal relation

privateownership

unequal relation

Domestication

1st division of labourdemandslaveclass

2.2. SlaverySlavery

* Slave-owner exploits slave* Slave-owner exploits slave

* Private ownership* Private ownership

* Labour more specialized* Labour more specialized

* State emerged* State emerged

* Financial/ legal institutions* Financial/ legal institutions

in-built crisis: growing tension between in-built crisis: growing tension between slave and slave-ownerslave and slave-owner

3. Feudalism3. Feudalism* landlord exploits peasant* landlord exploits peasant merchant exploits serf merchant exploits serf * landlord owned the land* landlord owned the land* peasant was tied to the land but had certain f* peasant was tied to the land but had certain f

reedom as compared with slavereedom as compared with slave* 2* 2ndnd division of labour town/city emerged division of labour town/city emerged * exchange flourished* exchange flourished

in-built crisis: growing tension between slave anin-built crisis: growing tension between slave and slave-ownerd slave-owner

4.4. CapitalismCapitalism

* Capitalist exploits worker* Capitalist exploits worker* Bourgeoisie exploits proletariat* Bourgeoisie exploits proletariat* Capitalist own the means and instruments * Capitalist own the means and instruments * Workers sell labour for wage* Workers sell labour for wage* Intensive division of labour* Intensive division of labour* 3* 3rdrd division of labour division of labour* Monopoly, colonialism, income inequality, urban/* Monopoly, colonialism, income inequality, urban/ rural disparityrural disparity

in-built crisis: growing tension between capitalist anin-built crisis: growing tension between capitalist and worker; bourgeoisie and proletariatd worker; bourgeoisie and proletariat

5. Socialism5. Socialism

* Proletariat become master of the * Proletariat become master of the societysociety

* Public ownership* Public ownership

* Centrally planned economy* Centrally planned economy

* Participation in decision-making by * Participation in decision-making by the general massthe general mass

6. Communism6. Communism

* No class struggle, no conflict* No class struggle, no conflict

* Common ownership* Common ownership

* High productivity* High productivity

* Equal income distribution* Equal income distribution

* No state, no family, no war* No state, no family, no war

Critiques:Critiques:

* mechanic/ inflexible* mechanic/ inflexible

* Production deterministic* Production deterministic

* Communist men not realistic* Communist men not realistic

utopianutopian

Rostow’s Theory of the stage Rostow’s Theory of the stage of of

Economic GrowthEconomic Growth

Rostow, 1960. Rostow, 1960. The Stages of Economic The Stages of Economic Growth: An non-Communist Growth: An non-Communist ManifestoManifesto

1. Traditional Society1. Traditional Society

- Low productivity, poor Low productivity, poor technologytechnology

- Low urbanization, agricultureLow urbanization, agriculture- Centralized political powerCentralized political power- Conservative societyConservative society

2. Precondition for take-off2. Precondition for take-off

- Infrastructure developmentInfrastructure development- Secondary/ tertiary sectorSecondary/ tertiary sector- Ready for innovationReady for innovation

3. Take-off3. Take-off

- TechnologyTechnology- Saving/investment rate 5~10% Saving/investment rate 5~10%

of incomeof income- ““leading industries” create leading industries” create

multiplier effectmultiplier effect

4. Drive to Maturity4. Drive to Maturity

- Join the world economyJoin the world economy- Leading sector expand to all Leading sector expand to all

sectorssectors- High rate of reinvestment High rate of reinvestment

10~20% of income10~20% of income- Technology capable to produce Technology capable to produce

anythinganything

5. High Mass-Consumption5. High Mass-Consumption

- Production of durable goodsProduction of durable goods- High per capita incomeHigh per capita income- Tertiary/ quaternary economiesTertiary/ quaternary economies- WelfareWelfare- High urbanization, life expectancyHigh urbanization, life expectancy

Critiques:Critiques:- Development ContinuumDevelopment Continuum- Colonialism as an acceleratorColonialism as an accelerator