ECONOMIC

DEVELOPMENT
TTH | 7:00PM-8:30PM
01 What is 05 Macro & Micro
Economics? Economics

02 Nature of 06 Circular Flow

Development Model
Economics
07 History of
03 Core Values of Macroeconomics
Development

04 Subsistence to 08 Macro School of

Development Thoughts
Economics
WHAT IS ECONOMICS
Classical View Neo- Classical View
Adam - The science of wealth. Lionel - The distinction between
Smith - Economics makes inquiries into the Robbins material and non-material
activities.
factors that determine the wealth and
- the use of the word ‘material‘
growth of a nation. narrows down the scope of
- Focuses on the production and economics because there are
expansion of wealth many things in the world
which are immaterial, but are
David The shifted emphasis from wealth
useful for promoting human
Ricardo production to wealth distribution welfare.
- Regards all goods and
J. B Say Economics is the science of production, services which command a
distribution, and consumption of wealth price as economic activity
whether they are material or
J.S. Mills Economics is the law that governs non-material.
mankind in the production of wealth.
The wealth definition means that wealth
was considered to be an end in itself.
 The Nature of Development Economics

Relative Poverty – is the condition in which people lack the minimum

amount of income in order to maintain the average standard of living in the
society in which they live.

Absolute Poverty – refers to a condition where a person does not have the
minimum amount of income needed to meet the minimum requirements
for one or more basic living needs over an extended period of time.

Development – the process of improving the quality of all human lives

and capabilities by raising people’s levels of living, self-esteem, and
freedom.
 The Nature of Development Economics

Economic Development – the study of how economies are transformed

from stagnation to growth and from low-income to high-income status,
and overcome problems of absolute poverty.

Economic Growth – refers to a rise in national or per capital income.

Traditional Economics – an approach to economics that emphasized

utility, profit maximization, market efficiency, and determination of
equilibrium.
 Q1 What is an example of
Relative Poverty?
• Causes of relative poverty
include unemployment, poor
health, and inequalities within
the labor market. An example
of someone in relative poverty
is a person who does not have
a job and relies on government
assistance to maintain.
Q2 What is an example of
absolute poverty?
• Absolute poverty is caused by
debt, world population
increase, natural disasters, and
wars. When an individual goes
below threshold their survival is
threatened. An example of
absolute poverty includes a 12-
year-old boy who has never
been to see a doctor or
Absolute poverty is based on a defined minimum standard attended school.
of living, whereas Relative poverty is based on the level of
living in the culture or community in which a person lives.
 Three Core Values of Development

Sustenance Self-esteem Freedom

the basic goods and the feeling of a situation in which a

services, such as worthiness that a society has at its
food, clothing, and society enjoys when disposal a variety of
shelter that are its social, political, and alternatives from
necessary to sustain economic systems and which to satisfy its
an average human institutions promote wants and individuals
being at the bare human values such as enjoy real choices
minimum level of respect, dignity, according to their
living. integrity, and self- preferences.
determination.
Subsistence
Economy – an
economy in which
production is mainly
for personal
consumption and the
standard of living
yields little more than
basic necessities of
life - food, shelter,
and clothing.
Development –
the process of
improving the
quality of all
human lives and
capabilities by
raising people’s
levels of living,
self-esteem, and
freedom.
It is clear that what people living in poverty need and want extend beyond increased
income to health, education, and—especially for women—empowerment.
Economic Development is more than just creation of jobs, it is a creation of
wealth from which community benefits are realized.

In economics, the study of economic development was borne out of an

extension to traditional economics that focused entirely on national product, or
the aggregate output of goods and services. Economic development was
concerned with the expansion of people's entitlements and their corresponding
capabilities, morbidity, nourishment, literacy, education, and other socio-
economic indicators.

"a process of creating and utilizing physical, human, financial, and social assets
to generate improved and broadly shared economic well-being and quality of life
for a community or region" - Karl Seidman, an economic development consultant and senior
lecturer at MIT's Department of Urban Studies and Planning with expertise in the preparation of economic
development plans and strategies
Economic development is a wider concept and has qualitative
dimensions. It implies economic growth plus progressive changes in
certain important variables which determine well-being of the people
(e.g: health, education)

'Economic development' is a term that practitioners, economists, politicians,

and others have used frequently in the 20th century. The concept, however,
has been in existence in the West for centuries. Modernization, Westernization,
and especially Industrialization are other terms people have used while
discussing economic development. Economic development has a direct
relationship with the environment‟. (University of Iowa's Center for International Finance and
Development)
Economic Development Implementation includes:
1. Developing a strategy that integrates government goals with the needs of all residents
and businesses;
2. Understanding the community’s advantages and disadvantages to create a path to the
future;
3. Identifying goals and metrics of success (e.g increased resources, job retention,
diversifies revenues)
4. Develop policies that positively affect businesses, job and income generation, fiscal
sustainability;
5. Using government revenue to invest in services to increase residents’ quality of life.

Every community is different. A plan is successful when it aligns with the unique vision and
goals of the community. Economic Development is the driving force behind creating the
preferred future for a community and its residents.
APPROACHES TO ECONOMIC DEVELOPMENT
1. Traditional Approach: The traditional approach defines development strictly in
economic terms. The increase in GNP is accompanied by decline in share of
agriculture in output and employment while those of manufacturing and service
sectors increase. It emphasizes the importance of industrialization. It was assumed
that growth in GNP per capita would trickle down to people at the bottom.
2. New Welfare Oriented Approach: During 1970s, economic development was
redefined in terms of reduction of poverty, inequality‘ and unemployment within the
context of a growing economy. In this phase, ‘Redistribution with Growth‘
became the popular slogan.

“Development must, therefore, be conceived as a multidimensional process involving

major changes in social structures, popular attitudes and national institutions as well as
the acceleration of growth, the reduction of inequality and the eradication of absolute
poverty”. - Michael P. Todaro,
STAGES OF ECONOMIC DEVELOPMENT
According to the American University official webpage, most development
economists would agree that the key stages of development are related to three
different transitions:

1. Structural transformation of the economy - refers to a change in the

composition of GDP. Initially, economic activities and jobs are based in the
agricultural sector. With development, the share of agriculture in GDP decreases
as economic activities and jobs shift towards the industrial sector, especially
manufacturing. After some decades of industrialization, the service sector will
slowly overtake the share of industry, while the share of agriculture continues to
decrease. In other words, at the final stage of development, we typically have an
economy in which people earn their livelihood predominantly from the service
sector and a still important but diminished industry sector.
STAGES OF ECONOMIC DEVELOPMENT
According to the American University official webpage, most development
economists would agree that the key stages of development are related to three
different transitions:

2. Demographic transition - is determined mostly by changes in the fertility

rates (i.e., the number of children per woman) and changes in life expectancy.
Initially, fertility rates are high, but due to relatively high death rates (especially
high infant mortality rates), population growth is limited. In the next stage, both
fertility rates and life expectancy are increasing, causing a sharp increase in the
size of population. With continuous development, life expectancy continues to
increase.
STAGES OF ECONOMIC DEVELOPMENT
According to the American University official webpage, most development
economists would agree that the key stages of development are related to three
different transitions:

3. The main factors leading to the process of urbanization is the migration of

people from rural areas seeking jobs in the emerging urban centers, the
transformation of originally semi-urban suburbs into fully urban centers, and
differences in population dynamics between rural and urban areas.
MACRO VS MICRO
ECONOMICS
Two Branches of Economics
1. Macroeconomics focuses on
broad issues such as growth,
unemployment, inflation, and
trade balance.
2. Microeconomics focuses on
actions of particular agents
within the economy, like
households, workers, and
business firms. It deals with the
individual parts of the
economy.
To understand macroeconomic, we
need to understand
microeconomics.

“when interests rates go down,

how would GDP change?” (Macro)

“how will a consumer respond to

an interest rate drop? (Micro) Will
consumers start saving less?
(Micro) How will a firm respond to
an interest rate drop? (Micro) Will
firms start investing more?“ (Micro)

once we understand the behaviors

of individual agents, we can then
understand the economy as a
whole.
 The idea of circular flow was first
CIRCULAR FLOW MODEL introduced by economist Richard
Cantillon in the 18th century. It is one
of the most basic concepts in
macroeconomics. It demonstrates
how money moves through society.
Money flows from producers to
workers as wages and flows back to
producers as payment for products.
In short, an economy is an endless
circular flow of money.

Green – Movement of money

Blue/Red – what is being bought
or sold; flow of inputs and outputs.

Firms are the producers of goods

and services and household are
the suppliers of factors of
production.
START OF MACROECONOMICS (HISTORY)
● In 19th-20th century, during the explosion of Capitalist Market, Laissez-faire economics
really ruled the day with very little government intervention in the economy regardless
of the market forces that were happening. Other than tweaking the issues of monopoly,
the government fairly really stays off.
● The Great Depression (1929-1939) however changed everything. All of he sudden, 1 of
4 persons were loosing their jobs and the traditional way of thinking just wasn’t able to
solve the problem.
● Money is what drives a capitalistic economy. People should have money and people
should be spending that money. Through government action, recessions can be
minimized while maintaining steady economic growth.
● Herbert Hoover still believes that Free Market Principles would rule the day and
eventually the market would correct itself…but it didn’t.
● Pres. Roosevelt won a massive feat during the elections, campaigning “the new deal”
spending massive to put people back to work, basically using the Keynesian Theory.
START OF MACROECONOMICS (HISTORY)
● Keynesian Economics aims to answer huge question on how do we get ourselves out on an
economic recession.
● John Meynard Keynes believed that the answer lays in the government fiscal policies in
order to affect the business cycle. When going through a recession, the government should
spend money in order to get money flowing in the economy.
● This could be government infra projects creating jobs or other forms of financial stimulus
including putting directly cash in peoples hands. But if more money is put in circulation,
won’t this lead to inflation? Yes it will but to curb this, Keynes suggests higher taxes during
boom times, to slow down inflation and to make up for the deficit spending and also to
create buffer that the government could use for future recessions. This will lead to an overall
smoothing of a business cycle while still leading to economic growth.

Keynesian Economics proposes a path out of economic recessions: government spending

to 'prime the pump'. Keynes believed that stimulating demand during tough times will lead to
economic improvement as people will have jobs and money to spend in the economy.
WORLD ECONOMIC GROWTH: THEN AND NOW

Save Here

Spend Here

https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?end=2022&start=1961
MACRO SCHOOL OF THOUGHTS
• Adam Smith – founder of modern economics. Published the book The Wealth of Nations
(1776). He advocated Free Trade (Capitalism). Smith introduced the concept that free
trade would benefit individuals and society as a whole. He believed that governments
should not impose policies that interfered with free trade, domestically and abroad.
• David Ricardo – expanded Smith’s ideas by introducing the theory of comparative
advantage. The idea that 2 people or countries can both benefit from trade even if one
of them can produce more of everything. The theory suggests that nations should
concentrate resources only in industries where they have the greatest efficiency of
production relative to their own alternative uses of resources. “When both focus on what
they’re best at, then trade benefits everyone.”
• Karl Marx and Friedrich Engels - in 1848,they argued that history was explained by the
conflict between workers and property owners (Capitalist). This lead workers to
overthrow their bosses, paving a new system called Communism. Marx followed this
with his book Das Kapital which argues that an economic system based on private profit
is inherently unstable. Workers are exploited by factory owners and don't own the
products of their labor, making them little better than machines

Despite Marx’s challenge, market based economic theory continue to dominate through
the end of the 19th century.
Activity #2
Write a Reflective Essay about
this acrticle posted by the
World Bank.
END OF
LESSON 1
ECONOMIC
DEVELOPMENT
TTH | 7:00PM-8:30PM

Thank you! 