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Development

1. Normative Judgment.
2. Broad Improvement in Living Standards.
3. Development is a wider Concept than Growth.
4. Growth can occur without development.

Measurement of growth and development:

1. Economic growth is measured through GNP or GDP and or per capita. This measurement has advantages like the fact that it’s used universally and disadvantages because many of the things that would lead to an increase in GDP like military spending aren’t an index of quality of life.
2. Development is measured through the HDI index as developed by the UN (1990( which includes statistics concerning income levels, education as measured through adult literacy and health aspects as measured through life expectancy and infant mortality rates. Later they enriched the education indicator by measuring average years of schooling. The scale is from 0-100 with countries scoring over 80 being considered to have high human development. Countries with a score 50-79 are considered to have average human development and countries with below 50 low.
3. The UN has developed other indexes like the human suffering index or gender related development index. In economics we have also the measurement of economic welfare where basically we add and subtract meaningful values like forest fires and transportation.

1. First World (US, EU, Australia, Japan, Canada)
2. Second World Countries (Eastern European Countries with Command Economies). This measurement was abolished after the end of the Cold War.
3. Third World Countries: low development, rich in resources, demonstrate rapid levels of growth nit necessarily development and are classified as emerging economies. In the same group of countries in Asia we have the Asian tigers like Thailand, Malaysia, Korea and countries all over the world which demonstrate rapid industrialization and in economics are also referred to as Newly Industrialized Countries (NIC).
4. Fourth world countries are less economically developed countries without prospects and natural resources like Bangladesh also called basket cases.

1. Multinationals are greater in size than trans-nationals.
2. In 2004 more than 35000 multinationals and trans-nationals were counted.
3. 25-30% of global trade is performed from multinationals and trans-national companies some of them having greater income than the GDP of some countries.
4. Definition: it’s a business organization that operates in several countries and takes advantage of the difference in factor inputs and government regulation. It has the ability to shift activities between countries and can “cherry pick” the location of operations something that creates a great disadvantage to smaller local companies. It has the ability to produce and sell its products anywhere in the world and sends all its profits back to headquarters. It has the ability of price transferring by transferring production from one country to another so as to avoid high taxes.

Globalization:

1. Peter J defines it as the growing integration of the world’s economy or the ability of large firms to produce any goods or services anywhere in the world using raw materials, components, capital and technology from anywhere, sell the resulting output anywhere and place the profits anywhere.
2. Its most likely causes include new communication technologies, trade liberalization, money and capital markets liberalization, increasing global income, increasing global population and consumers, desire to achieve economies of scale and minimum efficient scale of production, managers and shareholders of multinationals want larger profits generated from greater economies of scale created “if everyone in the world were to drive the same motorcar, eat the same hamburger or wear the same sport shoes”.
3. Advantages:
1. An increase of national income in several countrie
2. Increase in investments
3. Increase in savings which could trigger investment
4. Economies of scale are achieved especially in the secondary sector
5. Improvement of supply-side bottlenecks
6. Improvement in transfer of technology
7. Investment in management and human skills
8. Improvement of infrastructure
9. Increase exports and therefore injections
10. Generates jobs
4. Disadvantages:
1. Increase of income and wealth inequalities and responsible for “duality” where globalization is responsible in some countries for a modern high wage urban sector next to a traditional low wage rural sector.
2. Globalization is responsible for marketing of multinationals of inappropriate and sophisticated products for elite groups and multinationals through advertisement create demand for these products.
3. Widens rural to urban divide encouraging rural to urban migration.
4. Through globalization and economies of scale multinationals use inappropriate technology because of their engineering bias for instance they use capital instead of labor intensive technologies in markets where there is a surplus of labor.
5. Globalizations is responsible for corruption especially in LDC’s through the power of multinationals.
6. Globalisation and intensification of economic activities is responsible for negative externalities like pollution and depletion of non-renewable resources.
7. Reduces prospects for growth and development of local enterprises.

Rostow:

1. Stage 1: “traditional society” the allocation of resources is based on tradition with high social stratification and low output per head.
2. Stage 2: “preconditions for take off” with new technology there is development of infrastructure and growth of exports (cash-crops, natural resources) with the emergence of a new social and political elite and with increases in savings which result in capital accumulation.
3. Stage 3: “take off” political, social and institutional changes generate new investment from previous investments with investment representing more than 10% of GNP. Manufacturing and industry experience high growth rates.
4. Stage 4: “drive to maturity” decreasing social inequality with economic growth being trickled down and a reduction in reliance on imports followed by an increase in exports.
5. Stage 5: “high mass consumption” dominance of durable consumer industries (TV, cars etc) and growth of the tertiary sector.

Fischer-Clark theory: sectoral change thesis, it basically supports that economies throughout their development move from primary to secondary to tertiary sectors.

Todaro: In rural areas people are rational decision makers and thus would migrate if:

Harrod-Domar: the more an economy can save the more the economy could invest and thus the greater the GDP growth.

Advantages:

1. Macroeconomic effects: achieve internal and external economies of scale which leads to productive efficiency. Increased competition between foreign and domestic firms leads to low prices, consumer sovereignty and greater choice for consumers in LDC’s. Increased allocative efficiency (providing competition operates in the LDC market) leads to better use of resources.
2. Macroeconomic effects (Internal): ISI is responsible for economic growth (definition) as measured through GNP and/or GDP per capita. ISI could also reduce poverty both absolute and relative (assuming that the benefits of ISI are trickled down to all segments of the population). Thus if ISI is successful it will reduce income inequality as measured through the Lawrence curve. If LDC’s use labor intensive production could employ more people in the labor market (see diagram) and reduce equilibrium and disequilibrium unemployment (see diagram). Such reduction could in turn reduce underemployment (definition) and disguised unemployment (definition) both of them being major expressions of unemployment in LDC’s. ISI could also lead to an increase in aggregate supply and drive the price index down with the majority of consumers no longer being affected by high inflation. Citizens of LDC’s with low inflation levels could among others…(reverse argument of impact of inflation)
3. Macroeconomic effects (External): ISI leads to an increase in industrial production which could lead to an increase in exports which in turn could lead to an improvement in the ER or the LDC (ER diagram). The result will be that the terms of trade of the LDC will improve. Increased industrial production in LDC’s is expected to effectively reduce import levels something that would improve the trade balance in the LDC’s current account balance.

Disadvantages:

1. ISI means protectionism and the question is for how long could the country practice protectionism in a highly competitive international environment where the WTO promotes trade liberalization all over the world (infant or senile industry argument)
2. ISI is translated into low interest rates for industrial investments therefore there are no financial sources left for agricultural investments in LDC’s (neglect of agriculture)
3. ISI is usually established close to urban areas with urban wages bigger that rural wages something that triggers dramatic internal migration with the emergence of dualism (really rich and really poor people living in the same city)
4. ISI means protectionism (ER diagram) which leads to an increase in the ER which means less exports especially of agricultural goods (neglect of agriculture)
5. Given that ISI is supported by MN’s, LDC’s increase their dependency on the monopoly power of MN’s
6. ISI is supported and developed by the upper class and the urban elite of the LDC. They get all the benefits from ISI and there is no trickle down effect. In other words since this class has a high marginal propensity to import for luxury goods which will worsen the Bop account.
7. ISI is usually associated with environmental costs in LDC’s (pollution of land air and water) as well as depletion of non-renewable natural resources so ISI is usually not translated into sustainable development.
8. ISI is responsible for the transfer of new technology, usually capital intensive which creates unemployment and socio-cultural problems from introducing high technologies and cultural practices for which people aren’t ready.