Economic Development - Lecture 1663939339

Economic
Development
Prepared by:
MANUEL R. HIDALGO
List down the words or
phrases that you
associate with the term
DEVELOPMENT
Change, consumption, economic
development, economic growth, education,
entitlements, equality, equity, freedom,
gender equity, goals, good governance,
Gross Domestic Product (GDP), health,
human development, human rights,
income, justice, livelihoods
Millennium Development Goals
(MDGs), participation, peace, positive
change, poverty reduction, process of
change, production, progress, reducing
vulnerability, responsibilities, self-
determination, social development, social
inclusion, sustainability, targets, wealth.
Growth
Positive
Change
Physical
Change
Development
A multi-faceted word that has
various connotations. It is a process that
creates growth, progress, positive
change or the addition of physical,
economic, environmental, social and
demographic components.
Development
Its purpose is to rise the level and
quality of life of the population, and
the creation or expansion of local
regional income and employment
opportunities, without damaging the
resources of the environment.
Development
Development
A long process, requiring hard

work and sustained effort of
working and solving economic
problem.
Concepts of Development
Development as a State or Condition
In the conventional sense,
development is considered only as
economic growth. It does not take
into account the qualitative aspect of
development.
Development as a State or Condition
The traditional approach to
development is simply to see economic
growth as a substitute to economic
development. In strictly economic terms, it
is traditionally meant as the capacity of the
national economy to increase production
and income (Villegas, 2011).
Development as a Process or Course of
Change- Dynamic
Development is a process of
improving the quality of all human lives
with three equally important aspects as
follows (Todaro, 2015)
Change
1. Raising peoples’ living levels

• income and consumption
• levels of food, medical services,
• education through relevant growth
processes
Development as a Process or Course of Change
1. Raising peoples’ living levels
Simply stated, if an ordinary family can provide the
necessities (food, clothing, shelter) in life, then more or less,
they are able to enjoy a dignified life. If they are physically
stable, they become productive, find a decent means of
livelihood, send their children to school, and therefore
achieve a better quality of life.
Development as a Process or Course of Change- Dynamic
2. Creating conditions conducive to the growth of peoples’ self-

esteem through the establishment of social, political and economic
systems and institutions which promote human dignity and respect.
Development as a Process or Course of Change- Dynamic
2. According the Maslow’s Hierarchy of Needs, if the basic needs

are satisfied, they develop self-esteem and become more
assertive, such that the more they contribute to the betterment
not only of his family, but the community he belongs and the
country at large
Change- Dynamic
3. Increasing peoples’ freedom to choose
by enlarging the range of their choice
variables, e.g. varieties of goods and
services. This implies that they are able to
enjoy freedom, giving them the chance to
choose from better alternatives.
Change- Dynamic
Hence, they will not settle for less, and so
they aspire more. And in the process of
aspiring for better standard of living, they are
able to contribute more in the national
economy through increasing gross national
product (GNP) and gross domestic product
(GDP)
Concepts of
Development
Development as a Sustained Effort

Sustainable development is likely to achieve
lasting satisfaction of human needs and improvement
of the quality of life. It helps the very poorest who are
left with no option but to destroy their environment to
survive. This concept give birth to the following
assumptions
1. Idea of self-reliant development with
natural resource constraints. It follows that a
genuine development concept is one that
does not decay the natural resources. It
should stand on its own, without sacrificing
equally important aspect of human survival,
the environment.
2. Cost effective development using
different economic criteria to the traditional.
It is assumed that development should not
degrade environment, because if it is, then
the government will have to apportion a big
chunk from the national budget to recover the
degraded environment.
3. Important issues of health control,
appropriate technologies, food self-reliance,
clean water and shelter for all. It is also assumed
that a sustainable development assures the
citizenry of better health standards, thus,
providing everyone with sustainable living.
Lesson 2. Economic
Growth and Economic
Development
Economic growth
The quantity of goods and services

produced in an economy as a result
of economic development. These are
the consumer durable and non-
durable goods, like roads and
bridges, buildings, houses, hospitals,
schools, food clothing and others.
Economic growth
When we go to Bonifacio
Global City (BGC), Ayala Alabang,
and other sparkling cities here and
abroad, you will surely be amazed
with the fast phase of economic
development with the sight of high
rise glass buildings.
Growth is measured quantitatively,
like gross national product, gross
domestic product and national
income. Simply, the efficiency of
economic development is determined
by the number of goods and
services it can produced in a given
period of time. This efficiency is
based on different factors: land or
natural resources, labor or manpower
resources and capital or physical
resources.
There is growth when there is
continuous infrastructure projects,
like widening of roads and bridges,
construction of tall buildings and
business establishments, improvement
of the means of transportation and
communication. These are quantifiable
in terms of a particular unit of
measurement. Obviously, if
infrastructures are upgraded,
production of goods and services will
rise, hence, gross national products
But, how about the quality
and standard of living of an
ordinary Filipino family with three
children? Are they able to at
least provide the basic needs of
the family? Are they able to
send their children to school? Do
they feel secured inside their
homes? In a nutshell, when we
say economic growth, we are
only considering economic factors
Economic Development
A progressive process of improving
human conditions, such as reduction or
elimination of poverty, unemployment,
illiteracy, inequality, disease and
exploitation. It involves active interaction
between economic and non-economic
factors.
Economic factors are the factors of production
/factor inputs, (land, labor, capital), while non-
economic factors are government, geography, religion,
education, population, social and political structures,
attitudes and values. Unlike economic growth, non-
economic factors have greater influence on economic
development. Hence, economic development is
measured qualitatively
Stages of Economic Growth
Traditional Society
Agricultural economy is the means of
livelihood. This is the stage where, where people
depend mainly on subsistence farming. They lead a
very simple but happy life, with simple needs and
with simple dreams and aspirations in life.
Economic activities are based on tradition and
culture. They are characterized by a hand-to-
mouth existence and are self-sufficient, which
means to say that they provide everything to
support the family needs. In this stage, economic
growth is out of the picture, because of low labor
productivity. They produced enough for their needs,
hence, little surplus output are left to sell in the
markets. In a nutshell, there seem to be no effort
for economic growth
Pre-Conditions for Take-Off
From the traditional stage of
subsistence farming, agriculture becomes
more mechanized and more outputs are
traded. People are taking-off slowly to
the next level, where they started to save
and invest due to surplus output. The
mechanized farming gradually changed
their lives from being self-sufficient to
simple trading business. During this
stage, they seek external funding for
their investment to expand their
Take- off Stage
From simple business, manufacturing industry
assumes greater importance even with limited
number of industries. People started to produce
in surplus which pave the way to trading
activities. They seek external funding so they
could increase investment level. To meet the
increasing demand for external finance, political
and social institutions were developed. Savings
and investment grow which led to increasing level
of production (GNP). Gradually, agriculture
assumes lesser importance, although majority of
the people are still employed in the farming
sector. Apparently, dual economy started, with
rising productivity and wealth in manufacturing
and other industries as contrasted with low
productivity and real incomes in rural agriculture.
Drive to Maturity Stage
Industry becomes more diverse. In this stage,
growth spread to different parts of the country as the
state of technology improves. The demand for external
finance becomes more intense because they have to
increase investment level. The economy moves from
being dependent on factor inputs towards innovation,
thus increasing real per capita income or income per
head. Interdependence open the door for more
economic activities, Job opportunities are made
available to everyone especially in the industries. During
this stage, international trade gain popularity. Investors
and entrepreneurs become actively engaged in export
and import. And this is a clear indication of an
Age of Mass Consumption
This stage output levels grow that led to
increasing consumption level. It is characterized
by a shift towards tertiary sector activity
becomes evident. This means there is a wide
range of activities from commerce to
administration, transport, financial and real
estate activities, business and personal services,
education, health and social work. People tend
to lead an extravagant way of living with too
much consumerism and materialism. This led to
more innovation and investment.
Theories of Economic
Development
Walt Rostow’s Five Stages Of Economic Growth
Rostow’s stages of economic growth model is
one of the first major theories of economic
development . This theory states that all societies
are one of the 5 stages:
a. traditional
b. pre-conditions for take-off
c. the take –off,
d. the drive to maturity stage,
e. the age of mass consumption.
According to this theory, the key to
progressing through these stages is mobilizing
domestic and foreign savings to generate sufficient
investment.
Development
Arthur Lewi’s Theory of Development
According to Lewi advocated structural
transformations of development. This theory
stresses that the world has two sectors: first,
a traditional, overpopulated rural subsistence
sector with surplus labor; and second, a high-
productivity modern urban industrial sector into
which labor is transferred. The speed with
which this transfer takes depends on the rate
of investment in the urban sector, and this
process of transfer of labor continues until the
rural surplus labor is exhausted.
Development
Neocolonial Dependence Model.
This is advocated by Marxists thinking (Karl
Marx). Based from this model,
underdevelopment is due to the unequal pattern
of ownership of resources between the poor
and rich countries. Poverty in developing
countries is the result of rich country policies,
and elites in developing countries. Dominant
countries are endowed with technological,
commercial, capital and sociopolitical dominance
over dependent countries. The Marxists
preempted that because of the corrupt leaders
of the rich countries, so national governance
will be a great challenge
Development
Market Fundamentalism (Adam Smith)
According to this approach,
underdevelopment is the result of too
much government intervention in
developing countries. Governments should
free up markets by liberalization,
deregulation, and privatization of state-
owned enterprises. An extension of this
model is the theory that governments
can do nothing right because politicians,
bureaucrats, citizens and states use their
power and authority of government for
DYNAMICS OF
ECONOMIC
DEVELOPMENT
Goals of Economic Development
•Growth
• Full employment
•Equity
•Growth
Answering the basic economic
problems: production, distribution
and consumption
• Full employment
A situation in which people who
are willing to work at existing
wages are able to get jobs readily
and quickly move from one job to
another if he wishes to .
• Full employment
According to Keynesian
Theory of Employment, a
situation of full employment is
said to exist if there is no
involuntary unemployment.
Horizontal equity is an economic theory

that states that individuals with similar
income and assets should pay the same
amount in taxes. Horizontal equity should
apply to individuals considered equal
regardless of the tax system in place.
Vertical equity is a method of taxation

wherein the personal income tax liability of
an individual increases as their income
increases. It is based on the principle that
individuals with higher incomes and more
assets must pay a higher income tax than
others.
Barriers of Economic Development
• The Savings Gap
The poorer countries have a limited capacity
to save. This can be attributed to the fact that
their meager income are hardly enough to
support even their basic needs, so the least of
their priority is to save. As a result, zero savings
means zero investment. We know for a fact that
investment creates job opportunities, addressing
unemployment problem
• Capital Flight
Capital flight is a large-scale exodus of financial assets
and capital from a nation due to events such as political or
economic instability, currency devaluation or the imposition of
capital controls.
Foreign investors may take their money out of the country,
hence, capital flight can lead to currency instability. This could
result to business bankruptcy, which could ultimately lead to
business shutdown, thus, aggravating unemployment and
inflationary problems. If members of the labor force are not gainfully
employed, it will mean declining volume of production which can
cause price increase.
• Financial Barriers
According to World Bank, some 2 billion
working-age adults globally do not have access
to formal financial services, like banks and other
financial intermediaries. Most of the world’s
poorest people resort to informal loans, often at a
high interest rates. Although they are aware of
this, they do not have a choice because they
could not secure bank loans for lack of
collaterals to present.
• Infrastructure Gaps
Infrastructure gaps limit growth and human
development. Poor means of transportation could mean
increasing cost of production, which may cause higher
prices, therefore, affecting the real incomes of the
consumers. It also reduces mobility of labor causing higher
structural unemployment or labor market failure. In
addition, it limits export competitiveness and even
regional trade.
• Human Capital
It includes skill knowledge, talent, experience and ability
of workers. Human capital can be improved through investment
in education and training. Poor countries may also suffer brain-
drain of more skilled and qualified workers, because they
prefer to migrate to other countries where chances of good
paying jobs is greater. Poor human capital hits labor
productivity and ability to adapt to new technologies, which
can keep wages down.
• Absence of Property Rights

IPR promotes investments in knowledge creation and
business innovation by establishing exclusive rights to use
and sell newly developed technologies, goods, and
services. Without such rights, economically valuable
information could be appropriated without compensation
by competitive rivals. Intellectual property protection
promotes widespread dissemination of new knowledge.
• Corruption
Corruption has a huge effect on the country’s economic
growth and development potential. High incidence of
corruption and bureaucratic delay can harm economic growth
by inhibiting internal investment. It is likely that businessmen will
invest abroad than in their own country with high level of
corruption. According to the United Nations, “Corruption
undermines human development and democracy. It reduces
access to public services by diverting public resources for
private gain." In short, the higher incidence of corruption, the
lesser is the opportunity of economic development
THE PHILIPPINE DEVELOPMENT PLAN
• This Philippine Development Plan 2017-2022 was published by
National Economic Development Authority (NEDA). The PDP outlines
its goals as follows:
• a) enhancing social fabric (MALASAKIT);
• b) inequality-reducing transformation (PAGBABAGO);
• c) increasing growth-potential (PATULOY NA PAGUNLAD), enabling
and supporting economic environment.
It also discussed the foundations for sustainable, and finally,
exposes how to implement and monitor their plan of action
• This Philippine Development Plan 2017-2022 was published by
National Economic Development Authority (NEDA). The PDP outlines
its goals as follows:
a) enhancing social fabric (MALASAKIT);
• Ensuring People-Centered, Clean, and Efficient Governance
• Pursuing Fair and Swift Administration of Justice
• Promoting Philippine Culture and Value
• This Philippine Development Plan 2017-2022 was published by National
Economic Development Authority (NEDA). The PDP outlines its goals as
follows:
b) inequality-reducing transformation (PAGBABAGO);
• Expanding economic opportunities in agriculture, forestry, and fisheries (AFF
• Expanding economic opportunities in industry and services through Trabaho
and Negosyo.
• Reducing Vulnerability of Individuals and Families
• Building Safe and Secure Communities
• Accelerating Human Capital Development
• This Philippine Development Plan 2017-2022 was published by National
Economic Development Authority (NEDA). The PDP outlines its goals as
follows:
c) increasing growth-potential (PATULOY NA PAGUNLAD), enabling and
supporting economic environment.
• Reaching for the Demographic Dividend
• Vigorously Advancing Science, Technology, and Innovation
• Enabling and Supportive Economic Environment.
• Leveling the Playing Field through a National Competition Policy
The Philippine Development Plan
2023-2028 (PDP 2023-2028) shall provide
a roadmap towards unlocking sustained
and inclusive growth for the Philippine
economy despite the challenges brought
by health, geopolitical, and other
economic shocks.
Areas for strategic policies,
programs, and projects
•Building a prosperous, predominantly
middle-class society where no one is
poor
•Promoting a long and healthy life
•Becoming smarter and more

innovative
•Building a high-trust society

Factors Considered in the Formulation
of the Philippine Development
•Economic trends
An economic trend is the long-term direction
of an economy. The trend can go up, down, or
sideways. An upward trend means the economy
is growing and wages are rising. A downward
trend means the economy is shrinking and
unemployment is increasing. A sideways trend
means the economy is neither growing nor
shrinking.
•Political Trends
Political factors include government
regulations in the industry or economy,
as well as risks, barriers, and incentives
when doing business in other countries.
•Social and Demographic Trends
Societal changes drive public policy.
These shifts include an aging
population; the growth of high tech and
service sector jobs; evolving views on
race, ethnicity, and immigration; and
changes in family structure.
• Environmental Trends
The environment provides
other services that enable
economic activity
Gross Domestic Product (GDP)
Gross domestic product is a
measure of economic activity in
a country. It is the total amount
of goods and services produced
in the country regardless of who
owns the factor inputs . It is
calculated by adding the total
value of a country’s annual
output of goods and services
Gross
Domestic
Product (GDP)
Approaches in calculating GDP
Expenditure approach - The
expenditure approach to calculating
gross domestic product (GDP) takes into
account the sum of all final goods and
services purchased in an economy over
a set period of time. That includes all
consumer spending, government
spending, business investment spending,
and net exports. Quantitatively, the
resulting GDP is the same as aggregate
demand because they use the same
Approaches in calculating
GDP
Expenditure is a reference to
spending. Another word for
consumer spending is demand.
The total consumer spending, or
demand, in the economy is
known as aggregate demand.
This is why the GDP formula is
the same as the formula for
calculating aggregate demand.
Because of this, aggregate
demand and expenditure GDP
must fall or rise together
GDP
The income approach to measuring
gross domestic product (GDP) is based
on the accounting reality that all
expenditures in an economy should
equal to the total income generated by
the production of all economic goods
and services.
GDP
It also assumes that there are four major
factors of production in an economy and that
all revenues must go to one of these four
sources. Therefore, by adding all of the sources
of income together, a quick estimate can be
made of the total productive value of economic
activity over a period. Adjustments must then
be made for taxes, depreciation, and foreign
factor payments
Economic development indicators
Gross National Income (GNI)

measures the total economic
output of a country, including
earnings from foreign investments.
Other Economic Indicators of
• Real GDP per capita is a
measurement of the total
economic output of a country
divided by the number of people
and adjusted for inflation. It's
used to compare the standard
of living between countries over
time.
GDP at purchasing power
parity (PPP) considers the local
purchasing power of the
currency and is a better guide
to actual living standards .This
has something to do with the
total amount of production
based from the purchasing
power of the accepted currency
There is development if the
increase in the level of
production is accompanied by an
increase in the purchasing power
of currency. Otherwise, even if
there are a great number of
goods and services available for
consumption, but the amount
that can be purchased by a
cent is very minimal, then
Non-economic Indicators of
• Levels of absolute poverty.
Development exists if the
population with income less than
minimum meets necessities in
life. The poverty threshold of an
ordinary family for food item
only is Php 10,481, hence, a
family earning below this amount
belongs to poverty line
• Malnutrition levels
Percentage of population with
insufficient food – levels of
malnutrition. This is considered
as an indicator because the
productivity of human capital is
much dependent on the physical
condition of the people.
• Literacy rate
The percentage of a
population that can read and
write. Also consider gender
discrepancy. The higher the
literacy rate , the higher the
development rate will be.
Non-economic
Indicators of
Economic
Development
Non-economic
Indicators of
Economic
Development
• Average life expectancy.
Life expectancy generally rises
with economic development. It
indicates that individuals born in
wealthier countries, on the
average, can expect to live
longer than those born in poor
countries
129 Phils. 71.66 75.92 67.67
• Openness of economy to
international trade.
Also, levels of foreign direct
investment. International trade
expands consumption possibilities
because a wide array of
commodities are made available
for consumption that will pave
the way to economic
development.
• Quality of nation’s infrastructure
– quantity and quality of roads,
railways and airports. It indicates
that infrastructure investment
can boost economic growth by
increasing the potential supply
capacity of an economy.
• Share of agriculture in the
economy.
Over 90% of agricultural share
in the economy indicates an
undeveloped economy, while less
than 10% of economy in
agriculture suggests more
developed economy.
• Political stability and security.
Countries with more stable
and secured political system have
greater chances of developing.
Characteristics of Less
Developed Countries
• Predominance of agriculture.
Majority of the developing
countries are agricultural rather
than industrial. Most people love
in rural areas and a large part
of the national income is
generated from agricultural.
Agricultural productivity is very
low
Developed Countries
• Income is inequitably distributed.
While majority of the people
are poor, only a few percent
owns the nation’s income and
wealth. The wide disparity in
income and wealth in developing
nations are often the cause of
social and political tensions.
Developed Countries
• Low per capita income and
widespread poverty.
The most important indicator of
economic backwardness is per
capita income. Per capita GNP of
LDCs is very low. That is why most
people in such countries live under
severe hardships. They do not get
sufficient food to eat, adequate
medical care and minimum
educational opportunities
Developed Countries
• Shortage of capital.
There is shortage of not only
private capital like structure,
factories, steel mills, etc., but also
shortage of social overhead capital
such as roads, highways, railroads,
hospitals, schools, etc. This is
largely due to low per capita
income and widespread poverty.
Developed Countries
• Population explosion and high
dependency ratio.
This is another major
characteristics of a less developed
nation. According Malthusian Theory,
population grows geometrically, while
production grows arithmetically,
which only means to say that the
increase in population is faster than
the increase in production volume.
Developed Countries
Massive unemployment.
Traditional agricultural sector cannot cope
with the rising population. As a result, the
magnitude of disguised unemployment is
mounting in these countries. Finding no
alternative employment opportunities, rural
people flock to the urban areas in order to
survive. But, the rate of industrial growth is
not encouraging to absorb rural masses. In
addition to this, a large number of educated
youth do not find employment in these
Developed Countries
• Unproductive investment.
Due to massive poverty, people have very
little power to save, hence these countries are
not capable of engaging in investment. If ever
they have savings, some of them used it in
hoarding, black marketing and other unsocial
activities, like buying jewelry, cellphones, ipad,
and other gadgets. This sort of unproductive
investments cannot promote economic growth.
Developed Countries
• Low levels of productivity.
The factors of production like land, labor
and capital have very low productivity level. The
land cannot yield good harvest because they
lack technology. Human capital or labor likewise
are not productive due to high illiteracy rate,
unskilled and lacks technical know-how.
Moreover, they do not have complementary
resources such as land and capital to work
with. In short, low productivity of labor is both
a cause and an effect of the low levels of
overall productivity and living in these countries.
Low levels of living and low productivity go
hand in hand. It is really difficult, in practice,
to identify the cause and the effect.

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Economic

A long process, requiring hard

1. Raising peoples’ living levels

Development as a Process or Course of Change- Dynamic

2. Creating conditions conducive to the growth of peoples’ self-

Development as a Process or Course of Change- Dynamic

2. According the Maslow’s Hierarchy of Needs, if the basic needs

Development as a Sustained Effort

The quantity of goods and services

Horizontal equity is an economic theory

Vertical equity is a method of taxation

• Absence of Property Rights

•Becoming smarter and more

•Building a high-trust society

Gross National Income (GNI)

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