Discussion
vennamason
PE-Week4-Developmentrevised.pptxPolitical Economic Approaches to Development
Political Economy Spring 2020
What is Development?
How should we define development?
Quality of Life
Urbanization
Level of Manufacturing
GDP
Energy Consumption
Median Household Income
Education
Level of Technology
Why Does Development Matter
The absolute find themselves in conditions degraded by disease, illiteracy, malnutrition, and squalor denying them the basic human necessities.
Robert McNamara
½ the world population l (3 billion) live on less than $2.50/day
1.3 billion live on less than $1.25/day
5 stages of Development WW. Rostow
Is Development Inevitable?
Does development naturally follow:
Efficiency
Specialization
Surplus/Savings/Investment
Increased Productivity/Innovation
Trade
Consumption
Internal Barriers to Development
Inequality in income/wealth, especially when tied to racial, cultural, or other social divisions
Poor Infrastructure
Roads, Ports, Electricity, Water/Sanitation, Communication/Wireless
Quality of Financial Institutions
Availability of Savings, Credit, Investment
Poor Education System
Lack of Security
Lack of Natural Resources
Lack of Political Freedoms
Corruption/patronage
Market Failures
Geography/Bad Neighbors
External Barriers to Development
Multinational or Transnational Corporations (MNC/TNC) control of resources
Bad Deals
International Division of Labor
International Trade Patterns and Practices
WTO
Regional Trade Blocks
EU
TPP
NAFTA/UMCA
Institutional Change and Development
What institutions are needed to manage economic development?
Legal System
Pubic Works/Infrastructure
Public Health
Birth of new Institutions
Financial Sector
Banks
Stock Markets
Insurance Companies
Regulation
What is the Appropriate
Role of the State?
5 stages of Development WW. Rostow
Varieties of Paths to Development – Washington Consensus
Free Market/Free Trade
Low government borrowing. The idea was to discourage developing economies from having high fiscal deficits relative to their GDP.
Diversion of public spending from subsidies to important long-term growth supporting sectors like primary education, primary healthcare, and infrastructure.
Implementing tax reform policies to broaden the tax base and adopt moderate marginal tax rates.
Selecting interest rates that are determined by the market. These interest rates should be positive after taking inflation into account.
Encouraging competitive exchange rates through freely-floating currency exchange.
Adoption of free trade policies. This would result in the liberalization of imports, removing trade barriers such as tariffs and quotas.
Relaxing rules on foreign direct investment.
The privatization of state enterprises. Typically, in developing countries, these industries include railway, oil, and gas.
The eradication of regulations and policies that restrict competition or add unnecessary barriers to entry.
Development of property rights.
Varieties of Paths to Development – Beijing Consensus
Free Market With Chinese Characteristics
Innovation – the government must actively innovate constantly tinkering with the institutions in the economy to respond to changing situations.
Pursuit of Dynamic Goals/Rejection of Per Capita GDP
Quality of Life (Human Development Index)
Balancing Rural/Urban Development
Balancing Regional Development
Balancing Economic and Social Development
Balancing Development Between Man and Nature
Balancing Domestic Development and Opening to the Outside World
Self Determination
Empowering develop countries to choose there own path to development and resist a one size fits all prescription for development.
Varieties of Paths to Development –
Export Led - Asian Tigers
Economic growth through the production and exports of production in which a county has a comparative advantage.
Diversity of the Economy
Degree of Government involvement in investment, subsidies, protectionism
Import Substitution – Latin America
Focus on developing products for domestic market instead of importing good.
Infant Industry
Denying the Economy the benefit of free trade and comparative advantage
Costly in subsidies and tariffs
High level of government involvement in business decisions
Varieties of Paths to Development –
Foreign Direct Investment
Encourage foreign companies to locate in a country to stimulate economic growth
Often in Extractive Industries
Fish or Teach to Fish Dilemma
Varieties of Paths to Development –
Foreign AId
Less Developed Counties receive economic assistance from more developed countries to grow their economy
Comes with Stings
Corruption
