Academic Interest in Development

Academic interest in mechanics of growth and development is a renewed interest, progress and material well-being of people and nations have traditionally been at the centre of economic writings and enquiry. This being a major focus of classical economists.

The causes and consequences of economic advance (Chapter 4).

What lessons, if any can the present developing countries draw from first-hand observations of the classical writers, or from the development experience of the presently advanced nations.

Much of development economics economics is concerned with the time-scale of development and how to speed up the process of development that is consistent with freedom and democracy.

Population growth and diminishing returns in agriculture have not been uniformly depressive to the extent that Ricardo and Malthus supposed.

Rising productivity and per capita incomes have accompanied the growth of population and the extension of agriculture.

Classical development economics greatly underestimated the beneficial role of technical progress and international trade in the development process. Therefore, progress in developing nations may be much more rapid with the access to superior technology.

There are potential dynamic gains from trade, but the static efficiency gains based on primary production are weak, and the terms of trade in most commodities are worse.

The gains from trade accrue mainly to the rich industrialised countries, notwithstanding the rapid increase that periodically takes place in some commodity prices. 

Classical economists generally opposed to interference with the market mechanism, free play of market forces would maximise social good.

The Soviet Union, after 1918, conducted a swift economic advance through a planned allocation of resources that favoured investment at the expense of consumption.

There can be market as well as government failure. What is required in most developing countries is a judicious mix of public and private enterprise, with the use of markets combined with different types of government involvement, for the maximisation of social welfare. (Chapter 9).

Planning requires a certain amount of model-building, the most common which forms the basis is to calculate the investment requirements necessary to achieve a target rate of growth of per capita income; this is the Harrod-Domar Model (Chapter 4)

Neither the models of Harrod (1939) or Domar (1947) were designed for the purpose they are used for in developing nations. However, their growth equations have proved to be an indispensable component of macroeconomic planning. Chapter 9 explores strengths and weaknesses of using this aggregate model in development planning, and arguments for and against planning in general. The apparent failure of development planning and the slow progress made by many developing nations in the 1970s.

During the 1980's several obituaries were written:

• Hirschmann, 1981

• Little, 1982

• Lal, 1983

Hirschmann argues development economics was originally born out o a rejection of both mono-economics (universality of neoclassical economics) neo-Marxism (asserted that economic relations between developed & less developed nations could only lead to the development of underdevelopment.

Why Mono-economics was rejected:

1. Existence of a massive amount of surplus labour in agriculture developing nations

2. Backwardness (late industrialisation) - requiring active intervention

Policy emphasised strategic themes and pursued the mobilisation of underemployed manpower, rapid capital accumulation and industrialisation, for all of which planning was thought to be necessary.

Hirschmann's Explanations of Alleged Demise:

1. Resurgence of neo-classical orthodoxy and rejection of the view that there is a separate economics applicable to poor nations, distinct from developed. Support for mono-economics has been strengthened through success of apparent free-market developing countries (South Korea, Hong Kong, Taiwan, Singapore), the 'East-Asian Miracle' and the failure of planning in others.

2. The subject has not only been attacked by the neo-classical school, but also neo-Marxists who reject the claim of mutual benefit. "Squeezed from both ends of the politico-economic spectrum".

Amartya Sen (1983) and Syed Naqvi (1996) show that the focus on:

• Mobilising surplus labour

• Capital accumulation

• Industrialisation 

has not been misplaced.

Many high-growth countries have drawn extensively on surplus from the rural sector, that investment and growth are highly correlated across countries, and that the best growth performers are those countries where the share of industrial output in GDP is rising more rapidly.

"It is not conceivable that the majority of developing countries would be better absolutely better off if they were isolated and autarchic." There is of course room for improvement, 'delinking' and strategic protection may be desirable.

Developing countries still differ structurally, although microeconomics assumptions about how people behave are similar. The differences are large, especially with resource allocation and matters relating to long-term growth.

Not accidental that Social Cost-Benefit analysis has been largely developed and refined within the context of developing countries. These countries have also been the 'breeding grounds' for theories of tendencies towards disequilibrium in economic and social systems. Such as Models of Virtuous & Vicious circles and Centre-Periphery models of growth and development.

Arthur Lewis (1984): "the central task of development economics is to provide a general framework for understanding the pace and rhythm of growth and development"

"Development economics is the only branch of economics that attempts to understand and explain the nature of the development process." (Naqvi, 1996)

In the interests of scientific respectability, there is a strong case of thinking of economics as a unified body of theory and doctrine, which gives rise to descriptive labels:

• Monetary Economics

• Labour Economics

• Regional Economics

What seperates them is the area of application and the disttinctive theory. They all develop their own models, adapt and modify existing theory in the light of circumstances, and so on. Any contribution that a sub-discipline makes by way of theoretical development enriches economics as a whole, and may have application elsewhere.

Models, Concepts, Ideas Invented by Development Economics:

• Concepts of the low-level equilibrium trap

• Theory of the "big push"

• Dynamic externalities

• Models of dualism

• Theory of circular and cumulative causation

• Concept of Dependency

• Growth Pole Analysis

• Models of Population & Growth

• Models of rural-urban migration

• Refinements to social cost - benefit analysis

• Notion of Immiserising growth

• Models of structural inflation

• Concept of dual-gap analysis

• Theory of missing markets

• Study of rent-seeking, and so on

None of these innovations have been borrowed from but have been borrowed by other branches of economics: 

• International Economics is no longer taught within the limits of equilibrium economics.

• Labour Economics has taken on board the concepts of dualism and dual labour markets 

• Macroeconomics have incorporated the terms of structural inflation and dual-gap analysis

Bardhan (1993): "While the problems of the world's poor remain as overwhelming as ever, studying them has generated enough analytical ideas and thrown up enough challenges to the dominant paradigm to make all of us in the profession somewhat wiser, and at least somewhat more conscious of the possibilities and limitations of our existing methods of analysis"

Hirschmann (1981): the developing countries were expected to perform like wind-up toys and "lumber through" the various stages of development single-mindedly, these countries were perceived to have only interest and no passions.

More likely as to come as a result of unrealistic expectations than with deficiences in the theory and practice of development economics. Suggested to come as economics in general losing their historical sense and perspective.

Rostow's Traditional Stage of Development took 200 years from economic development to economic maturity and high mass consumption for the current developed countries.

Arthur Lewis (1984) suggests that historical economics is necessary, having the 1950's development economists guided by Gerschenkron & Rostow provided history for enlightenment on the process of development.

The resurgence of academic interest in the growth and development process has been brought by the 'new' endogenous growth theory and increased availability of large datasets that facilitate interesting and rigorous econometric work on the major determinants of inter-country growth performance.

Paul Krugman (1992) described the 1950s/60s as the years of 'high development theory', but being improved by more skilled theoreticians as they were originally disregarded by the neo-classical counter-revolution. Krugman believes that the following still remain valid:

• External Economies

• Increasing Returns

• Complementarity between sectors and linkages

Per capita income differences in the world economy seem to be as persistent as ever when conventional neoclassical growth theory predicts convergence. 

New Growth Theory provides an answer which is that there are many externalities that prevent the marginal product of capital from falling as countries grow richer, so that the level of investment matters for growth, and growth is endoegnous in this sense, not simply determined by an exogenously given rate of technical progress, common to all countries. Technical progress is largely endogenous, determined by education, development and research.

The roots of development economic development lie in the performance of the rural economy and agriculture (Chapter 5).

The New Empirical Development Economics

The use of empirical work through software and large data-sets has caused debate (Kanbur, 2005). Main justification for debate is that empirics rely on "measurement without theory", however modern empirical work in development economics is to test theoretical hypothesis about decision-making and economic behaviour at the micro-level, and relationships between variables at the macro-level.

Randomised Control Trials (Banerjee & Duflo, 2011) have become popular but difficult in deducing causation from correlations when most variables in the economic system are endogenous (dependent on each other). However RCT's overcome econometric problems associated with regression and correlation analysis relating to causation, endogeneity and identification.

Mookherjee in (Kanbur, 2005) argues that there is now too much empirics and not enough theory, although both theory and empirics are required for an understanding of the social sciences. A four stage approach to the future is suggested by Mookherjee:

1. Empirical description of the relevant phenomenon.

2. Formulation of a relevant theory that might explain the phenomenon.

3. Testing and estimation of theory, maybe leading to a modication or replacement of previous theories.

4. Use of 'best' theory for purposes of prediction and policy evaluation.

A New International Economic Order

Through rising development expecttaions and increased awareness of inferior economic and political status in the world, a desire for material improvement and greater political recognition has ensued through the means of economic strength in these developing nations.

Development is required to provide people with the basic necessities of life, and create a degree of self-esteem and freedom for people which is precluded by poverty. Wealth and material possessions doesn't necessarily provide greater happiness but widen's individual's choices, an important aspect of freedom and welfare.

The official call for a new international economic order was made during the Sixth Special Session of the United Nations General Assembly in 1974. The UN pledged itself:

"to work urgently for the establishment of a new international economic order based on equity, sovereign equality, common interest, and cooperation among all states, irrespective of their economic and social systems, which shall correct inequalities and redress existing injustices, make it possible to eliminate the widening gap between the developed and the developing countries and ensure steadily accelerating economic and social development and peace and justice for present and future generations."

Programme of Action caled for:

• Improved terms of trade for the exports of poor countries

• Greater access to the markets of developed countries for manufactured goods

• Greater financial assistance and the alleviation of past debt

• Reform of the IMF and a greater say in decision-making on international bodies concerned with trade and development issues

• International Food Programme

• Greater technical cooperation

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