Economic Development Module 1

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PAMANTASAN NG LUNGSOD NG MUNTINLUPA

MODULE COLLEGE OF BUSINESS ADMINISTRATION
University Road, Poblacion, Muntinlupa City
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Course Title: Economic Development
Issue No. 0 Revision No. 0 Effectivity Date 7 September 2020 Page No. 1
Introduction
This module emphasizes the need for open communication and clarity between the students and
the subject instructor so both can lay out their expectations, clarify areas that needs to be addressed
right from the start. As a conducive environment is brought about, the module also introduces the
students to the nature and importance of the subject, as well as orient them on the elementary topics
of the subject.
Learning Targets
After studying this module, you are expected to
a. To know and understand Economic Development

b. To determine the important role of values in Economic Development
c. To identify what do we mean by Development?
Activity
1. Discussion of course guide and course syllabus.

2. Getting to know each other. Brief introduction of the professor and students, expectations
with the course and to the professor.
3. Presentation of Module Week and Chapter End Activities.
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Discussion
ENGAGE:
Determine the following flag and identify if the country belongs to First, Second or Third World.
2.
3.
4.
5.
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EXPLORE:
Why the US-China Tariff Standoff Hurts American Companies More

Danielle Kost, Harvard Business School 2019
US exporters have been slashing the prices of goods they sell to China to offset higher trade costs, but
Chinese exporters are passing those costs to American companies, research by Alberto F. Cavallo says.
"We are the 'piggy bank' that everyone wants to take advantage of," President Donald Trump told his 61
million Twitter followers in May, days after he hiked tariffs on $200 billion worth of Chinese goods.
"NO MORE!""
But research by Harvard Business School's Alberto F. Cavallo suggests that American companies—and
more recently, consumers—are bearing the brunt of the trade war with China, whose government has
been retaliating with its own import tax increases. US exporters, particularly farmers selling commodities
in competitive global markets, have had to significantly cut their prices, while Chinese exporters have
not reduced the prices of the goods, they sell to US importers.
"This nearly complete pass-through of tariffs to the total price paid by importers suggests the tariff
incidence has fallen largely on the US,” Cavallo and his research colleagues said in the working
paper, Tariff Passthrough at the Border and at the Store: Evidence from US Trade Policy.
The US-China trade tensions, which have been roiling global stock markets, will likely dominate
conversations when leaders from Group of 20 nations gather on Friday for a two-day meeting in Osaka,
Japan. Trump said on Twitter last week that he would have an "extended meeting" with President Xi
Jinping of China at the summit, a welcome development for rattled investors and other world leaders.
Cavallo's research offers more urgency for the US to resume the negotiations that broke down in May.
He teamed with prominent economists to study price data from June 2018—the month before the trade
war began—to early 2019. Their work combines import and export prices at the US border, collected by
the Bureau of Labor Statistics, with retail prices collected by the Billion Prices Project at Harvard
Business School. They found:
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• US importers are bearing most of the tariff increase. The pre-tariff import price of a Chinese item
with a 10 percent levy only fell by 0.6 percent even 10 months after the trade war began, leaving
American companies to pick up the remaining 9.4 percent of the increase post-tariff.
• US exporters dropped their prices to compete. During the two years leading up to Trump's first
round of tariffs, export prices on affected goods had been growing by 4 percent a year, roughly
double the rate of unaffected items. That trend ended in July, when prices of goods affected by
the retaliation tariffs started falling by 5 percent, on average.
• US retailers partially absorbed the tariffs. In-progress analyses of retail prices show more
heterogeneity, with some retailers passing higher import costs to consumers of some goods, such
as washing machines, while accepting lower profit margins for other products, such as those from
China. Overall, Cavallo and his colleagues found little difference between the impact on prices
of affected and unaffected goods. The comparison indicates that many retailers are softening the
blow for consumers—at least, for now.
Questions:
1. Briefly discuss the US, China Phase 1 Trade Deal.
2. What are the impact of the US China Trade War in terms of:
a. Companies in China and US

b. Other Countries like Philippines, Japan and Hongkong
c. Consumers
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EXPLAIN:
1.1 Nature of Development Economics
What is Economic Development?

Kopp Carol. (2019). A branch of economics that focuses on improving fiscal, economic, and social
conditions in developing countries. Development economics considers factors such as health, education,
working conditions, domestic and international policies, and market condition with a focus on improving
conditions in the world's poorest countries.
The field also examines both macroeconomic and microeconomic factors relating to the structure of
developing economies, and domestic and international economic growth.
Traditional Economics
An approach to economics that emphasizes utility, profit maximization, market efficiency, and
determination of equilibrium
Political Economy
The attempt to merge economic analysis with practical politics to view economic activity in its political
extent.
Evolution of States and the Development of Economic Systems
A. Tribe
A social division in a traditional society consisting of families or communities linked by social, economic,
religious, or blood ties, with a common culture and dialect, typically having a recognized leader.
The basic social unit was the “tent,” which was basically a nuclear family headed by a man. The division
of labor fell along gender lines. Their political system is egalitarian and informal. The head of the tribe
was nominated by the age and wisdom, so, the aged person was to be the chief or head of the tribe because
of the agedness and experience. Economic relations are usually of subsistence type.
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Subsistence Economy
What is Subsistence?
The action or fact of maintaining or supporting oneself at a minimum level. A condition of just having
enough money or food to stay alive.
Subsistence Economy
A non-monetary economy which relies on natural resources to provide basic needs. Production is mainly
for personal consumption and the standard of living yields little more than necessities of life – food,
shelter, and clothing. Subsistence economies can be found in developing and underdeveloped countries.
B. Barter Trade System

Is an act of trading goods or services between two or more parties without the use of money. In essence,
bartering involves the provision of one good or service by one party in return for another good or service
from another party. In ancient times, this system involved people in the same area, however today
bartering is global.
C. City-state
A political system consisting of an independent city having sovereignty over contiguous territory and
serving as a center and leader of political, economic, and cultural life. The majority of a polis’s population
lived in the city, as it was the center of trade, commerce, culture, and political activity.
D. Nation State and Mercantilism
What is Nation?
It is a large group of people that inhabit a specific territory and are connected by history, culture, or
another commonality.
What is State?
It is a body of government, the rules, the laws, the government officials and their titles, the physical
boundaries.
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Nation State
It is a territorially bounded sovereign polity that is ruled in the name of a community of citizens who
identify themselves as a nation. As a political model, the nation-state fuses two principles: the principle
of state sovereignty, first articulated in the Peace of Westphalia (1648), which recognizes the right of
states to govern their territories without external interference; and the principle of national sovereignty,
which recognizes the right of national communities to govern themselves.
Mercantilism
It is an economic system of trade that spanned from the 16th century to the 18th century. Mercantilism
is based on the principle that the world's wealth was static, and consequently, many European nations
attempted to accumulate the largest possible share of that wealth by maximizing their exports and by
limiting their imports via tariffs and in an effort to collect precious metal like silver and gold.
E. Capitalism
It is an economic and political system in which a country's trade and industry are controlled by private
owners for profit, rather than by the state. The underlying theme of Capitalism is the use of wealth to
create more wealth. The simplest form of this is lending money at interest, reviled in the Middle Ages as
the sin of usury.
F. Modern State
In geographic terms, “the sovereign person having jurisdiction over the people and activities that take
place within its borders.”
Legitimacy of Authority
1. Traditional - The ability and right to rule is passed down, often through heredity.
2. Charismatic - Found in a leader whose mission and vision inspire others.
3. Legal Rational - Derives from a system of institutional procedure, wherein government institutions
establish and enforce law and order in the public interest.
G. Command Economy
Command economy, also known as planned economy, is an economic system wherein factors of
production are controlled by central authority such as Government. They also determine investment and
income. In this system, the central bureaucracy does more of the planning instead of the market, they
answer the key economic questions. In command economy, government sets the price, control production
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and limit or entirely prohibit competition. Private ownership or land, labor, and capital is non-existent to
use in support of the central economic plan.
Characteristics of Command System

1. Government controls the pricing of goods and services.
2. Government makes all decisions for finances in the country.
3. State has absolute power over all resources.
4. There is no competition.
Socialism
It is an economic system where means of production and distribution are owned by the society. Socialism
is based on the assumption that all people naturally want to take active part or cooperate, but are restrained
from doing so by the competitive nature of capitalism thus this system intend that everyone in society
own the factors of production.
Communism
It is an economic system that advocates for a classless society in which all the property and wealth is
owned by public. According to the theory developed by Karl Marx and Friendrich Engels in a 1848 book
entitled “The Communist Manifesto”, pure communist results to a classless society wherein each
individual are equal and there’s no need for money or obtaining individual wealth. Since there is no need
for money, individual is compensated not based on their contribution but rather on their needs. And all
the property serves as a public property, no individual possesses private or personal property.
Difference & Similarities between Communism and Socialism

The two ideologies namely communism and socialism originate from a desire to limit worker exploitation
and eliminate the influence of economic classes in society. Both arose during the Industrial Revolution.
Similarities
1. Individuals contribute to society based on their own ability.
2. Government plays a large role in economic planning.
3. Both opposing capitalism
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Differences
1. Basic Philosophy
Communism - From each according to his ability, to each according to his needs.
Socialism - From each according to his ability, to each according to his contribution
2. Ownership of Economic Resources

Communism- All resources are publicly owned and controlled by government. Individuals does not hold
personal property.
Socialism - Individuals own personal property but all industrial and production capacity is communally
owned and managed by a democratically elected government.
3. Distribution of Economic Production

Communism - Production intends to meet all basic human needs and is distributed to the people at no
charge.
Socialism- Production intends to meet individual and societal needs and distributed according to
individual ability and contribution.
4. Class Distinction
Communism- Class is abolished. The ability to earn more than other workers is nonexistent.
Socialism - Classes exist but differences are diminished. It is possible for other to earn more than others.
5. Religion
Communism - Religion is abolished.
Socialism - freedom of religion is allowed.
H. Mixed Economy
It is a system that combines aspects of both capitalism and socialism. A mixed economic system protects
private property and allows a level of economic freedom in the use of capital, but also allows for
governments to interfere in economic activities to achieve social aims.
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1.2 Why Study Development Economics
The following are sample questions that will discussed for the coming weeks. These are issues
Faced by almost developing nation and, every development economist.
1. What is the real meaning of development?

2. What are economic institutions, and how do they shape problems of underdevelopment and prospects
for successful development?
3. Why do some countries make rapid progress toward development while many others remain poor?
4. Which are the most influential theories of development, and are they compatible? Is underdevelopment
an internally (domestically) or externally (internationally) induced phenomenon?
5. How can improvements in the role and status of women have an especially beneficial impact on
development prospects?
6. What are the causes of extreme poverty, and what policies have been most effective for improving the
lives of the poorest of the poor?
7. Are free markets and economic privatization the answer to development problems, or do governments
in developing countries still have major roles to play in their economies?
8. Is expanded international trade always desirable from the point of view of the development of poor
nations? Who gains from trade, and how are the advantages distributed among nations?
9. What is meant by globalization, and how is it affecting the developing countries?
10. What is the role of financial and fiscal policy in promoting development?
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1.3 Why Study Development Economic
Economics is a social science. It is concerned with human beings and the social systems by which they
organize their activities to satisfy basic material needs (e.g., food, shelter, clothing) and nonmaterial
wants (e.g., education, knowledge, religious fulfillment). It is necessary to recognize from the outset that
ethical or normative value premises about what is or is not desirable are central features of the economic
discipline in general and of development economics.
Economies as Social Systems: The Need to Go Beyond Simple Economics
Economics and economic systems, especially in the developing world, must be viewed in a broader
perspective than that postulated by traditional economics. They must be analyzed within the context of
the overall social system of a country and, indeed, within an international, global context as well.
Social System
The organizational and institutional structure of a society, including its values, attitudes, power
structure, and traditions.
Values
Principles, standards, or qualities that a society or groups within it considers worthwhile or desirable.
Attitudes
The states of mind or feelings of an individual, group, or society regarding issues such as material gain,
hard work, saving for the future, and sharing wealth.
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Institutions
Norms, rules of conduct, and generally accepted ways of doing things. Economic institutions are
humanly devised constraints that shape human interactions, including both informal and formal “rules
of the game” of economic life in the widely used framework of Douglass North.
1.4 What Do We Mean by Development
Development
Sustenance Freedom for

Self-esteem
ability to meet basic Servitude
to be a person
needs. ability to choose
Development has traditionally meant achieving sustained rates of growth of income per capita to enable
a nation to expand its output at a rate faster than the growth rate of its population. Levels and rates of
growth of “real” per capita gross national income (GNI) (monetary growth of GNI per capita minus the
rate of inflation) are then used to measure the overall economic well-being of a population population—
how much of real goods and services is available to the average citizen for consumption and investment.
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Three Core Values of Development
Sustenance: The Ability to Meet Basic Needs

The basic goods and services, such as food, clothing, and shelter, that are necessary to sustain an average
human being at the bare minimum level of living.
When any of these is absent or in critically short supply, a condition of “absolute underdevelopment”
exists. A basic function of all economic activity, therefore, is to provide as many people as possible with
the means of overcoming the helplessness and misery arising from a lack of food, shelter, health, and
protection.
Self-Esteem: To Be a Person
The feeling of worthiness that a society enjoys when its social, political, and economic systems and
institutions promote human values such as respect, dignity, integrity, and self-determination.
The proliferation of the “modernizing values” of developed nations, many societies in developing
countries that have had a profound sense of their own worth suffer from serious cultural confusion when
they come in contact with economically and technologically advanced societies. This is because national
prosperity has become an almost universal measure of worth. Due to the significance attached to material
values in developed nations, worthiness and esteem are nowadays increasingly conferred only on
countries that possess economic wealth and technological power—those that have “developed.”
Freedom from Servitude: To Be Able to Choose

A situation in which a society has at its disposal a variety of alternatives from which to satisfy its wants
and individuals enjoy real choices according to their preferences.
Amartya Sen writes of “development as freedom.” W. Arthur Lewis stressed the relationship between
economic growth and freedom from servitude when he concluded that “the advantage of economic
growth is not that wealth increases happiness, but that it increases the range of human choice.”24 Wealth
can enable people to gain greater control over nature and the physical environment (e.g., through the
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production of food, clothing, and shelter) than they would have if they remained poor. It also gives them
the freedom to choose greater leisure, to have more goods and services, or to deny
the importance of these material wants and choose to live a life of spiritual contemplation.
The Three Objectives of Development

1. To increase the availability and widen the distribution of basic life-sustaining goods such as food,
shelter, health, and protection.
2. To raise levels of living, including, in addition to higher incomes, the provision of more jobs, better
education, and greater attention to cultural and human values, all of which will serve not only to enhance
material wellbeing but also to generate greater individual and national self-esteem
3. To expand the range of economic and social choices available to individuals and nations by freeing
them from servitude and dependence, not only in relation to other people and nation-states, but also to
the forces of ignorance and human misery.
Assessment
ELABORATE:
1. Why is economics central to an understanding of the problems of development?
2. Choose 1 in the 3 core values of development and explain why is important in every country?
3. Give hypothetical or real examples of situations in which a country may be developing

economically but may still be underdeveloped?
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Exercise
EVALUATE:
I. Identification:
1. __________________ Principles, standards, or qualities that a society or groups within it considers

worthwhile or desirable.
2. __________________ It is an economic system where means of production and distribution are owned
by the society. Socialism is based on the assumption that all people naturally want to take active part or
cooperate, but are restrained from doing so by the competitive nature of capitalism thus this system intend
that everyone in society own the factors of production.
3. __________________ An approach to economics that emphasizes utility, profit maximization,

market efficiency, and determination of equilibrium.
4. __________________ Derives from a system of institutional procedure, wherein government

institutions establish and enforce law and order in the public interest.
5. __________________ A social division in a traditional society consisting of families or communities

linked by social, economic, religious, or blood ties, with a common culture and dialect, typically having
a recognized leader.
References
Todaro, Michael. Smith, Stephen. (2015). Economic Development. 12th edition. Pearson
Kost Danielle (2019). Why the US-China Tariff Standoff Hurts American Companies More.
Retrieved from https://hbswk.hbs.edu/item/why-the-us-china-tariff-standoff-hurts-american-
companies
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LEARNING

PAMANTASAN NG LUNGSOD NG MUNTINLUPA

After studying this module, you are expected to

a. To know and understand Economic Development

1. Discussion of course guide and course syllabus.

Why the US-China Tariff Standoff Hurts American Companies More

1. Briefly discuss the US, China Phase 1 Trade Deal.

a. Companies in China and US

1.1 Nature of Development Economics

What is Economic Development?

Evolution of States and the Development of Economic Systems

B. Barter Trade System

D. Nation State and Mercantilism

Characteristics of Command System

Difference & Similarities between Communism and Socialism

2. Ownership of Economic Resources

3. Distribution of Economic Production

1.2 Why Study Development Economics

1. What is the real meaning of development?

1.3 Why Study Development Economic

Economies as Social Systems: The Need to Go Beyond Simple Economics

1.4 What Do We Mean by Development

Sustenance Freedom for

Three Core Values of Development

Sustenance: The Ability to Meet Basic Needs

Freedom from Servitude: To Be Able to Choose

The Three Objectives of Development

1. Why is economics central to an understanding of the problems of development?

3. Give hypothetical or real examples of situations in which a country may be developing

1. __________________ Principles, standards, or qualities that a society or groups within it considers

3. __________________ An approach to economics that emphasizes utility, profit maximization,

4. __________________ Derives from a system of institutional procedure, wherein government

5. __________________ A social division in a traditional society consisting of families or communities

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