INTRODUCTORY LECTURES IN ECONOMIC DEVELOPMENT

RICH VERSUS POOR

Often used in relative sense. A “poor” person has less income, wealth, goods, or
services than “rich” person.

When considering nations, economist often used gross domestic products (GDP)
per capita as an indicator of average well-being within a country. GDP is the total
market value, expressed in dollars, of all final goods and services produced in an
1economy in a given year. In a sense, a country’s GDP is like its yearly income. So,
dividing a particular country’s GDP by its population is an estimate of how much
income, on average, the economy produces per person (per capita) per year. In
other words, GDP per capita is a measure of a nation’s “standard of living”.

Defining Poverty

Poverty is about not having enough money to meet basic needs including food,
clothing and shelter.

World Bank Organizations: “Poverty is hunger. Poverty is lack of shelter. Poverty is

sick and not being able to see a doctor. Poverty is not having access to school and not
knowing how to read. Poverty is not having a job, is fear for the future, living one
day at a time.

A universal theme reflected in these seven quotes is that poverty is more than lack of
income – it is inherently multidimensional, as is Economic Development.

Comprehensive Data on Global Poverty (Last Updated: October 15, 2024)

World Data:

 8.5 percent of the global population - almost 700 million - live today on less than
$2.15 per day, the extreme poverty line relevant for low income countries.
 Three-quarters or all people in extreme poverty live in Sub-Saharan Africa or in
fragile and conflict-affected countries.
 44 percent of the global population - around 3.5 billion people - live today on less
than $6.85 per day, the poverty line relevant for upper-middle-income countries.
The total number of people living under this poverty line has barely changed
since 1990 due to population growth.
 Around one-fifth of the world’s population lives in economies with high
inequality, concentrated mostly in Latin America and Sub-Saharan Africa. Only 7
percent of the global population lives in countries with low inequality.
 Climate change poses a fundamental risk to poverty and inequality reduction.
Nearly 1 in 5 people globally are likely to experience a severe shock in their
lifetime from which they will struggle to recover.

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Poverty Line:

A set amount of income below which it becomes difficult, if not possible, for people
to afford essentials like food and shelter. Each country determines its poverty line by
calculating the cost of meeting minimum needs. Household with income below this
line are considered to be living in poverty.

¹Poverty line is the income level at which people have difficulty affording basic needs
like food and shelter.

Philippines:

 In 2023, the poverty line (or poverty threshold) in the Philippines - the minimum
income required for a family of five to meet the basic food and non-food
requirements - is P13,873 per month, or P92 per day per person to spend on food
and non-food requirements. This amount is the minimum needed to meet basic
food and non-food needs.
 The poverty rate in the Philippines was 15.5% in 2023, down from 18.1% in
2021.
 In the first six months of 2023, 164 of 1,000 families, or 16.4% are considered
poor in the Philippines.
 In December 2024, 25.9% of Filipino families experienced hunger, according to a
Social Weather Station (SWS) survey. (This was the highest hunger rate since
the COVID-19 lockdowns in September 2020)

Multidimenstional Poverty. A poverty not solely about income. Even if their

income is above the poverty line, their family may still not have basis services such as
electricity, access to clean water, sanitation, and education.

WHY ARE SOME COUNTRIES RICH AND OTHERS POOR?

Answer. Differences in the economic growth rate of nations often come down to
differences in inputs (factors of production) and differences in total factors
productivity (TFP) – the productivity of labor and capital resources.

Higher productivity promotes faster economic growth, and faster growth allows a
nation to escape poverty.

FACTORS THAT INCREASE PRODUCTIVY (AND GROWTH)

1. Institutions. Provides incentives for innovation and production.

2. Government. Play an important part in the development of nation’s economy.
3. International Trade. Increasing increase to international trade can provide
markets for the goods produced by less-developed countries. Also increase
productivity by increasing the access to capital resources.

Escaping Poverty

People
Lies in rising levels of income

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Countries

Increasing the amount of output (per person) that their economy produces. In short,
economic growth enables countries to escape poverty.

How Do Economies Grow?

Economic growth is a sustained rise over time in a nation’s production of goods and
services.

How can a country increase its production?

An economy’s production is a function of its inputs, or factors of production (natural

resources, labor resources, and capital resources), and the productivity of those factors
(specifically the productivity of labor and capital resources), which is called total
factor productivity (TFP).

How to Increase TFP to Escape Poverty

While there are many factors to consider, two stand out: institution and trade.

1. Institution
Economists suggest that institution such as property rights, free and open markets, and
the rule of the law provide the best incentives and opportunities for individuals to
produce goods and services.

2. Trade
Poorer nations use trade to access capital goods (advanced technology, equipment,
etc.) to increase their TFP, resulting in a higher rate of economic growth. Trade also
provides a broader market for a country to sell the goods and services it produces.
Removal of trade barriers could close the income gap between the rich and poor
countries by 50 percent.

WHAT IS ECONOMIC DEVELOPMENT?

ECONOMIC + DEVELOPMENT

ECONOMICS
is a branch of Social Science that deals with the study of the allocation of limited
resources for production, distribution, and consumption of goods and services to
satisfy the unlimited needs and wants of people.

Economics is the study of choice.

Because of limited time resources, you are forced to make a decision or choice.
Because there is a scarce of time resources, you have to trade-off. But in your
decision or choice, there are consequences.

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DEVELOPMENT

is the process expanding human freedom. It is “the enhancement of freedoms that

allow people to lead lives that they have reason to live”. Hence “development requires
the removal of major sources of unfreedom: poverty as well as tyranny, poor
economic opportunities as well as systematic social deprivation, neglect of public
facilities as well as intolerance or overactivity of repressive states”. –Sen 1998

Example: Father, construction worker. Family always eats sardines. Study under
TESDA. Welder. Income increases. Level up. Instead of sardines, now eat chicken
due to increased income. From sardines, now pork or chicken. That’s progress.
Development.

ECONOMIC DEVELOPMENT

Add or connect Economic to Development. Not just choosing goods and services, but
the totality of choosing. How are we going to choose to progress? To level up?
Through the use of economic theories, principles, approaches, etc. and it would be a
good help in attaining progress.

ECONOMIC DEVELOPMENT OR DEVELOPMENT ECONOMIC

For our class, we will use them as synonymous. The subject is Development
Economics and the its goal or target is Economic Development.

Definition

The branch of economics that focuses on improving fiscal, economic, and social
conditions in developing countries. Development economics considers factors such
as health, education, working condition with a focus on improving conditions in the
world’s poorest countries.

WHAT IS ECONOMIC DEVELOPMENT?

You most likely help fund economic development every time you purchase something
at the store and pay local or state sales tax. That cup of coffee, those new shoes you
bought, or the real estate taxes you may pay, all usually have a percentage of the sales
going towards economic development projects or initiatives.

In general, economic development is usually the focus of federal, state, and local
governments to improve our standard of living through the creation of jobs, the
support of innovation and new ideas, the creation of higher wealth, and the creation of
an overall better quality of life.

Economic development is often defined by others based on what it is trying to

accomplish. Many times these objectives include:

1. Building or improving infrastructure such as roads, bridges, etc.;

2. Improving our education system through new schools;

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3. Enhancing our public safety through fire and police service; or
4. Incentivizing new businesses to open a location in a community.

Economic development often is categorized into the following three major areas:

1. Governments working on big economic objectives such as creating jobs or

growing an economy. These initiatives can be accomplished through written
laws, industries' regulations, and tax incentives or collections.
2. Programs that provide infrastructure and services such as bigger highways,
community parks, new school programs and facilities, public libraries or
swimming pools, new hospitals, and crime prevention initiatives.
3. Job creation and business retention through workforce development programs
to help people get the needed skills and education they need. This also includes
small business development programs that are geared to help entrepreneurs get
financing or network with other small businesses.

The funding of development is mainly acquired by means of:

1. taxes on personal property, local sales, and real estate.

2. In free market economies, investment from the private sector is key to
development and growth, whereas, in command economies (generally
communist), government investment is the deciding factor.
3. Economic development focuses on the advancement of income, jobs, and quality
of life. One can measure this advancement by looking at the average income of
families, state or local unemployment rates, and life expectancy or average
hospital stay length.
Examples of economic development relate to new businesses, infrastructure,
education, and policies.

HOW DO WE KNOW IF ECONOMIC DEVELOPMENT IS WORKING?

There are hundreds of ways to measure things for the hundreds of different economic
development objectives that communities may have. We can measure many of the
above things through:

1. improvements in average income of families,

2. local unemployment rates,
3. standardized testing and literacy results in children,
4. leisure time and changes in life expectancy, or hospital stays.

Economic development refers to economic growth accompanied by changes in

output distribution¹ and economic structure². These changes include:

1. Improvement in the material well-being of the poorer half of the population

2. A decline in the agriculture’s share of GNP
3. Corresponding increase in the GNP share of industry and services
4. Increase in the education and skills of the labor force
5. Substantial technical advances originating within the country

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Frequently Asked Questions

What is meant by the economic development?

Economic development ties closely to growth. It centers around how the economy
advances to subsequently become wealthier and benefit citizens.

What is an economic development example?

Government spending presents an economic development example. When a
government makes work of building a new railway, consumers, and especially
companies in the private sector, will benefit tremendously. This captures the essence
of economic development.

What is economic development and why is it important?

Economic development refers to how an economy advances. It's importance lies in
how it enables producers and consumers to operate more efficiently and live
wealthier.

GROWTH AND DEVELOPMENT

The major goal of poor countries is economic development or economic growth.

The two terms are not identical. Growth may be necessary but not sufficient for
development.

Economic growth refers to increase in a country’s production or income per capital.

Production is usually measured by gross national product (GNP) or gross national
income (GNI).

Classification of Countries

Before:
1. Low-income countries Developing, Under-developed and Less-developed
countries or the South
2. Lower-middle-income
countries
3. Upper-middle-income
countries
4. High-income countries Developed countries or the North

Now:
1. First World High-income capitalist countries, where capital and land are owned
by private countries
2. Second Socialist, or centrally directed countries, where the government
World owns the means of production.
3. Third Low-and-middle income economies of the developing world
World

Better Measure of Economic Development

1. The Physical Quality of Life Index (PQLI)

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2. The Human Development Index (HDI)
3. Weighted Indexes for GNP Growth

Costs and Benefits of Economic Development

Welfare Economics

Welfare economics is that branch of economics, which primarily deals with taking of
poverty, famine and distribution of wealth in an economy. This is also called
Development Economics. The central focus of welfare economics is to assess how
well things are going for the members of the society. If certain things have gone
terribly bad in some situation, it is necessary to explain why things have gone wrong.
Prof. Amartya Sen was awarded the Nobel Prize in Economics in 1998 in recognition
of his contributions to welfare economics. Prof. Sen gained recognition for his studies
of the 1974 famine in Bangladesh. His work has challenged the common view that
food shortage is the major cause of famine.

In the words of Prof. Sen, famines can occur even when the food supply is high but
people cannot buy the food because they don’t have money. There has never been a
famine in a democratic country because leaders of those nations are spurred into
action by politics and free media. In undemocratic countries, the rulers are unaffected
by famine and there is no one to hold them accountable, even when millions die.

Welfare economics takes care of what managerial economics tends to ignore. In other
words, the growth for an economic growth with societal upliftment is countered
productive. In times of crisis, what comes to the rescue of people is their won literacy,
public health facilities, a system of food distribution, stable democracy, social safety,
(that is, systems or policies that take care of people when things go wrong for one
reason or other).