Development economics

From Wikipedia, the free encyclopedia

Jump to navigationJump to search
This article is about the academic field. For the broader context, see Economic
development.

Part of a series on

Economics

 Index

 Outline

 Category

History

Branches

Classification

[show]

Concepts

Theory

Techniques

[show]

By application[show]

Notable economists[show]

Lists[show]

Glossary[show]

  Business portal

  Money portal

 v
 t
 e

Development economics is a branch of economics which deals with economic aspects

of the development process in low income countries. Its focus is not only on methods of
promoting economic development, economic growth and structural change but also on
 improving the potential for the mass of the population, for example, through health,
education and workplace conditions, whether through public or private channels. [1]
Development economics involves the creation of theories and methods that aid in the
determination of policies and practices and can be implemented at either the domestic
or international level.[2] This may involve restructuring market incentives or using
mathematical methods such as intertemporal optimization for project analysis, or it may
involve a mixture of quantitative and qualitative methods. [3]
Unlike in many other fields of economics, approaches in development economics may
incorporate social and political factors to devise particular plans. [4] Also unlike many
other fields of economics, there is no consensus on what students should know.
[5]
 Different approaches may consider the factors that contribute to
economic convergence or non-convergence across households, regions, and countries.
[6]

Contents

 1Theories of development economics

o 1.1Mercantilism and physiocracy
o 1.2Economic nationalism
o 1.3Post-WWII theories
o 1.4Linear-stages-of-growth model
o 1.5Structural-change theory
o 1.6International dependence theory
o 1.7Neoclassical theory
 2Topics of research
o 2.1Geography and Development
o 2.2Economic development and ethnicity
 2.2.1The role of ethnicity in economic development
 2.2.2Economic development and its impact on ethnic conflict
 2.2.3Recovery from conflict (civil war)
 3Growth indicator controversy
 4Recent developments
 5Notable development economists
 6See also
 7Footnotes
 8Bibliography
 9External links

Theories of development economics[edit]

Mercantilism and physiocracy[edit]
World GDP per capita, from 1400 to 2003 CE

Main article: Mercantilism
The earliest Western theory of development economics was mercantilism, which
developed in the 17th century, paralleling the rise of the nation state. Earlier theories
had given little attention to development. For example, scholasticism, the dominant
school of thought during medieval feudalism, emphasized reconciliation with Christian
theology and ethics, rather than development. The 16th- and 17th-century School of
Salamanca, credited as the earliest modern school of economics, likewise did not
address development specifically.
Major European nations in the 17th and 18th centuries all adopted mercantilist ideals to
varying degrees, the influence only ebbing with the 18th-century development
of physiocrats in France and classical economics in Britain. Mercantilism held that a
nation's prosperity depended on its supply of capital, represented by bullion (gold, silver,
and trade value) held by the state. It emphasised the maintenance of a high positive
trade balance (maximising exports and minimising imports) as a means of accumulating
this bullion. To achieve a positive trade balance, protectionist measures such as tariffs
and subsidies to home industries were advocated. Mercantilist development theory also
advocated colonialism.
Theorists most associated with mercantilism include Philipp von Hörnigk, who in
his Austria Over All, If She Only Will of 1684 gave the only comprehensive statement of
mercantilist theory, emphasizing production and an export-led economy. [7] In France,
mercantilist policy is most associated with 17th-century finance minister Jean-Baptiste
Colbert, whose policies proved influential in later American development.
Mercantilist ideas continue in the theories of economic
nationalism and neomercantilism.
Economic nationalism[edit]
Alexander Hamilton, credited as Father of the National System

Main article: Economic nationalism

Following mercantilism was the related theory of economic nationalism, promulgated in
the 19th century related to the development and industrialization of the United States
and Germany, notably in the policies of the American System in America and
the Zollverein (customs union) in Germany. A significant difference from mercantilism
was the de-emphasis on colonies, in favor of a focus on domestic production.
The names most associated with 19th-century economic nationalism are the first United
States Secretary of the Treasury Alexander Hamilton, the German-American Friedrich
List, and the American economist Henry Clay. Hamilton's 1791 Report on
Manufactures, his magnum opus, is the founding text of the American System, and
drew from the mercantilist economies of Britain under Elizabeth I and France under
Colbert. List's 1841 Das Nationale System der Politischen Ökonomie (translated into
English as The National System of Political Economy), which emphasized stages of
growth. Hamilton professed that developing an industrialized economy was impossible
without protectionism because import duties are necessary to shelter domestic "infant
industries" until they could achieve economies of scale.[8] Such theories proved
influential in the United States, with much higher American average tariff rates on
manufactured products between 1824 and the WWII period than most other countries,
[9]
 Nationalist policies, including protectionism, were pursued by American politician
Henry Clay, and later by Abraham Lincoln, under the influence of economist Henry
Charles Carey.
Forms of economic nationalism and neomercantilism have also been key in Japan's
development in the 19th and 20th centuries, and the more recent development of
the Four Asian Tigers (Hong Kong, South Korea, Taiwan, and Singapore), and, most
significantly, China.
Following Brexit and the 2016 United States presidential election, some experts have
argued a new kind of "self-seeking capitalism" popularly known as Trumponomics could
have a considerable impact on cross-border investment flows and long-term capital
allocation[10][11]
Post-WWII theories[edit]
See also: Industrial development and Ragnar Nurkse's balanced growth theory
The origins of modern development economics are often traced to the need for, and
likely problems with the industrialization of eastern Europe in the aftermath of World
War II.[12] The key authors are Paul Rosenstein-Rodan,[13] Kurt Mandelbaum,[14] Ragnar
Nurkse,[15] and Sir Hans Wolfgang Singer. Only after the war did economists turn their
concerns towards Asia, Africa and Latin America. At the heart of these studies, by
authors such as Simon Kuznets and W. Arthur Lewis[16] was an analysis of not only
economic growth but also structural transformation.[17]
Linear-stages-of-growth model[edit]
An early theory of development economics, the linear-stages-of-growth model was first
formulated in the 1950s by W. W. Rostow in The Stages of Growth: A Non-Communist
Manifesto, following work of Marx and List. This theory modifies Marx's stages theory of
development and focuses on the accelerated accumulation of capital, through the
utilization of both domestic and international savings as a means of spurring investment,
as the primary means of promoting economic growth and, thus, development. [4] The
linear-stages-of-growth model posits that there are a series of five consecutive stages of
development that all countries must go through during the process of development.
These stages are "the traditional society, the pre-conditions for take-off, the take-off, the
drive to maturity, and the age of high mass-consumption" [18] Simple versions of
the Harrod–Domar model provide a mathematical illustration of the argument that
improved capital investment leads to greater economic growth. [4]
Such theories have been criticized for not recognizing that, while necessary, capital
accumulation is not a sufficient condition for development. That is to say that this early
and simplistic theory failed to account for political, social and institutional obstacles to
development. Furthermore, this theory was developed in the early years of the Cold
War and was largely derived from the successes of the Marshall Plan. This has led to
the major criticism that the theory assumes that the conditions found in developing
countries are the same as those found in post-WWII Europe. [4]
Structural-change theory[edit]
Structural-change theory deals with policies focused on changing the economic
structures of developing countries from being composed primarily of subsistence
agricultural practices to being a "more modern, more urbanized, and more industrially
diverse manufacturing and service economy." There are two major forms of structural-
change theory: W. Lewis' two-sector surplus model, which views agrarian societies as
consisting of large amounts of surplus labor which can be utilized to spur the
development of an urbanized industrial sector, and Hollis Chenery's patterns of
development approach, which holds that different countries become wealthy via
different trajectories. The pattern that a particular country will follow, in this framework,
depends on its size and resources, and potentially other factors including its current
income level and comparative advantages relative to other nations. [19][20] Empirical
analysis in this framework studies the "sequential process through which the economic,
industrial and institutional structure of an underdeveloped economy is transformed over
time to permit new industries to replace traditional agriculture as the engine of economic
growth."[4]
Structural-change approaches to development economics have faced criticism for their
emphasis on urban development at the expense of rural development which can lead to
a substantial rise in inequality between internal regions of a country. The two-sector
surplus model, which was developed in the 1950s, has been further criticized for its
underlying assumption that predominantly agrarian societies suffer from a surplus of
labor. Actual empirical studies have shown that such labor surpluses are only seasonal
and drawing such labor to urban areas can result in a collapse of the agricultural sector.
The patterns of development approach has been criticized for lacking a theoretical
framework.[4][citation needed]
International dependence theory[edit]
International dependence theories gained prominence in the 1970s as a reaction to the
failure of earlier theories to lead to widespread successes in international development.
Unlike earlier theories, international dependence theories have their origins in
developing countries and view obstacles to development as being primarily external in
nature, rather than internal. These theories view developing countries as being
economically and politically dependent on more powerful, developed countries that have
an interest in maintaining their dominant position. There are three different, major
formulations of international dependence theory: neocolonial dependence theory, the
false-paradigm model, and the dualistic-dependence model. The first formulation of
international dependence theory, neocolonial dependence theory, has its origins
in Marxism and views the failure of many developing nations to undergo successful
development as being the result of the historical development of the international
capitalist system.[4]
Neoclassical theory[edit]
First gaining prominence with the rise of several conservative governments in the
developed world during the 1980s, neoclassical theories represent a radical shift away
from International Dependence Theories. Neoclassical theories argue that governments
should not intervene in the economy; in other words, these theories are claiming that an
unobstructed free market is the best means of inducing rapid and successful
development. Competitive free markets unrestrained by excessive government
regulation are seen as being able to naturally ensure that the allocation of resources
occurs with the greatest efficiency possible and the economic growth is raised and
stabilized.[4][citation needed]
It is important to note that there are several different approaches within the realm of
neoclassical theory, each with subtle, but important, differences in their views regarding
the extent to which the market should be left unregulated. These different takes on
neoclassical theory are the free market approach, public-choice theory, and the market-
friendly approach. Of the three, both the free-market approach and public-choice theory
contend that the market should be totally free, meaning that any intervention by the
government is necessarily bad. Public-choice theory is arguably the more radical of the
two with its view, closely associated with libertarianism, that governments themselves
are rarely good and therefore should be as minimal as possible. [4]
Academic economists have given varied policy advice to governments of developing
countries. See for example, Economy of Chile (Arnold Harberger), Economic history of
Taiwan (Sho-Chieh Tsiang). Anne Krueger noted in 1996 that success and failure of
policy recommendations worldwide had not consistently been incorporated into
prevailing academic writings on trade and development. [4]
The market-friendly approach, unlike the other two, is a more recent development and is
often associated with the World Bank. This approach still advocates free markets but
recognizes that there are many imperfections in the markets of many developing
nations and thus argues that some government intervention is an effective means of
fixing such imperfections.[4]

Topics of research[edit]
Development economics also includes topics such as third world debt, and the functions
of such organisations as the International Monetary Fund and World Bank. In fact, the
majority of development economists are employed by, do consulting with, or receive
funding from institutions like the IMF and the World Bank. [21] Many such economists are
interested in ways of promoting stable and sustainable growth in poor countries and
areas, by promoting domestic self-reliance and education in some of the lowest income
countries in the world. Where economic issues merge with social and political ones, it is
referred to as development studies.
Geography and Development[edit]
Economists Jeffrey D. Sachs, Andrew Mellinger, and John Gallup argue that a nation's
geographical location and topography are key determinants and predictors of its
economic prosperity.[22] Areas developed along the coast and near "navigable
waterways" are far wealthier and more densely populated than those further inland.
Furthermore, countries outside the tropic zones, which have more temperate climates,
have also developed considerably more than those located within the Tropic of
Cancer and the Tropic of Capricorn. These climates outside the tropic zones, described
as "temperate-near," hold roughly a quarter of the world's population and produce more
than half of the world's GNP, yet account for only 8.4% of the world's inhabited area.
[22]
 Understanding of these different geographies and climates is imperative, they argue,
because future aid programs and policies to facilitate must account for these
differences.
Economic development and ethnicity[edit]
A growing body of research has been emerging among development economists since
the very late 20th century focusing on interactions between ethnic diversity and
economic development, particularly at the level of the nation-state. While most research
looks at empirical economics at both the macro and the micro level, this field of study
has a particularly heavy sociological approach. The more conservative branch of
research focuses on tests for causality in the relationship between different levels of
ethnic diversity and economic performance, while a smaller and more radical branch
argues for the role of neoliberal economics in enhancing or causing ethnic conflict.
Moreover, comparing these two theoretical approaches brings the issue
of endogeneity (endogenicity) into questions. This remains a highly contested and
uncertain field of research, as well as politically sensitive, largely due to its possible
policy implications.
The role of ethnicity in economic development[edit]
Much discussion among researchers centers around defining and measuring two key
but related variables: ethnicity and diversity. It is debated whether ethnicity should be
defined by culture, language, or religion. While conflicts in Rwanda were largely along
tribal lines, Nigeria's string of conflicts is thought to be – at least to some degree –
religiously based.[23] Some have proposed that, as the saliency of these different ethnic
variables tends to vary over time and across geography, research methodologies
should vary according to the context.[24] Somalia provides an interesting example. Due to
the fact that about 85% of its population defined themselves as Somali, Somalia was
considered to be a rather ethnically-homogeneous nation. [24] However, civil war caused
ethnicity (or ethnic affiliation) to be redefined according to clan groups.[24]
There is also much discussion in academia concerning the creation of an index for
"ethnic heterogeneity". Several indices have been proposed in order to model ethnic
diversity (with regards to conflict). Easterly and Levine have proposed an ethno-
linguistic fractionalization index defined as FRAC or ELF defined by: