The New Economic View of Development

1. Historical Background

After World War II and when many countries were gaining independence in the 1950s to 1970s, some
developing nations started getting richer. But even though they were making more money, most people's
lives didn't get much better. This made people question the old way of thinking about development.

2. Traditional Definition of Development

In the earlier period, development was mainly defined in terms of economic growth and increasing per
capita income. The focus was on achieving specific economic targets.

3. Shift in Perspective

In the 1970s, people started looking at development in a new way. They began to think that we need to
focus on problems like poverty, inequality, and unemployment more directly.

4. New Definition of Development

Development started to mean more than just growing the economy. It meant making people's lives
better by reducing poverty, inequality, and unemployment while still making the economy bigger.

5. Dudley Seers' Questions

Dudley Seers posed essential questions to assess development:

What has been happening to poverty?

What has been happening to unemployment?

What has been happening to inequality?

According to Seers, if all three of these issues were declining, it could be considered a period of
development, even if per capita income doubled.

6. Real-world Examples

Some countries in the 1960s and 1970s got richer, but they didn't create enough jobs or improve life for
the poorest 40% of their people. This showed that just making more money wasn't enough for
development.

7. Challenges in the 1980s and 1990s

Explain that in the 1980s and 1990s, many developing countries faced negative GNI (Gross National
Income) growth rates and had to reduce social and economic programs like schools and healthcare
because they owed a lot of money to other countries.

8. Denis Goulet's Perspective

Denis Goulet thinks that underdevelopment isn't only about money. It's also about people living in bad
conditions, getting sick, feeling hopeless, and not being able to do much about it.
9. Multidimensional Nature of Development

Development is more than just making the economy bigger. It's about changing how society works, how
people think, and how the country's institutions (like schools and hospitals) help. The goal is to make life
better for everyone, not just to have more money.

10. Amartya Sen's Contribution

Amartya Sen, a big thinker about development, says that development is about what people want and
need. It's about making their lives better and giving them more choices. It's not just about money, but
about freedom and well-being too

Amartya Sen - Indian economist who was awarded the 1998 Nobel Prize in Economic Sciences for his
contributions to welfare economics and social choice theory

Amartya Sen's capability theory approach is a theoretical framework that involves two core
normative claims. First, the assumption that freedom to achieve well-being is of primary moral
importance. And second, that freedom to achieve well-being must be understood in terms of people
with capabilities.

Amartya Sen's Capability Theory Approach

1. Beyond Income and Wealth

It's Not Just About Money: Imagine you have a lot of money, but you're still not able to live a good life.
Sen says money alone isn't enough to determine if you're poor or not. It's like having a toolbox; having a
toolbox doesn't mean you can build a beautiful house. You need to know how to use the tools
(capabilities).

2. Focus on Capability to Function

Sen's main idea is that what truly matters is not the material possessions or feelings a person has but
what they can be and do in their lives.

3. Commodities and Freedom

According to Sen, the things we make (like toys, food, or houses) are important, but they're only valuable
because they help us have a better life. So, it's like having lots of cool toys; they're fun, but they're even
better when they make your life better.

4. Concept of "Functionings"

Sen uses a big word called "functionings." Think of it as all the cool stuff you can do or be in life because
you have the right tools. Like being healthy, learning, having freedom to choose, and feeling respected by
others.

5. Examples of Literacy and Health

For example, having a book is great, but it's even better if you can read it (being literate). Or having food
is nice, but it's amazing when it keeps you healthy (being well-nourished).

6. Freedom is Key
Sen believes having the freedom to make your choices is super important. It's like being the boss of your
own life. Without this freedom, even having all the tools won't make you happy.

7. Doing and Being Happy

Functionings can be things you do (like playing a sport) or ways you feel (like being happy). Both are
important because they make your life better.

8. Broad Range of Functionings

Functionings are not limited to material well-being but encompass a wide range of human capabilities
and opportunities. This includes aspects like mobility, self-esteem, social participation, and more.

Development and Happiness

1. Happiness is Part of Well-being

Happiness is a part of human well-being, and experiencing greater happiness can expand an individual's
capability to function. According to Amartya Sen, a person may consider happiness an important aspect
of their well-being.

2. Relationship Between Income and Happiness

According to the recent research by economists that studied how having more money relates to
happiness. They found that, on average, when a country makes more money, more people tend to be
happy. So, money can make a lot of people feel good.

3. Happiness Has Limits

But here's the catch – once a country reaches a certain point of having enough money for everyone's
basic needs, having even more money doesn't always make people happier. It's like having a delicious
cake; after a slice or two, more cake doesn't make you enjoy it extra.

4. Factors Affecting Happiness

Happiness isn't only about money. These factors include family relationships, financial situation, work,
community and friends, health, personal freedom, and personal values. Aside from being financially
secure, factors like employment, marital status, trust in others, government quality, and religious faith
also play a role in happiness.

5. Variations in Happiness Among Developing Countries

Even in countries with similar money levels, people might not all be equally happy. For example, in one
country, people could be less happy because they don't trust each other or because they're not satisfied
with their government.

6. The Bhutanese Model of "Gross National Happiness"

Bhutan measures success not just by money but also by how happy people are. They are measuring
development progress using "gross national happiness" instead of gross national income. Bhutan's
indicators, inspired by Amartya Sen's work, go beyond traditional notions of happiness and include
capabilities such as health, education, and freedom.

7. Multidimensional Meaning of Development

Happiness is just one dimension of subjective well-being, and it should be measured along with other
aspects like cognitive evaluations of life and emotional experiences. So, when we talk about development,
it's not just about money or even happiness. It's about making sure everyone has the chance to enjoy their
life.

This discusses the relationship between income, happiness, and development, highlighting the
importance of considering various dimensions of well-being beyond economic growth.

Three Core Values of Development

1. Sustenance: The Ability to Meet Basic Needs
You need to live a decent life, like food, a place to live, good health, and protection from harm.
These are like the absolute must-haves to stay alive and well.
2. Self-Esteem: To Be a Person
Feeling like a valuable person and not just someone others can push around. They might call it different
names like respect, honor, or recognition, but it's about feeling good about themselves.

3. Freedom from Servitude: To Be Able to Choose

You can choose where you want to live, what kind of job you want, and what you want to do with
your time. That's what we call "freedom."
In some places, people don't have many choices. They might be forced to do certain jobs, or they
might not have a say in how their country is run. They feel like they're not really free.
Development is also about giving people more choices and making sure they're not held back by
things like poverty, unfair rules, or being told what to do by others. It's about letting them decide
how they want to live their lives.

The Central Role of Women

Around the world, women often face tougher challenges than men. They might not have as much
money, good health, or education. They might not even have the freedom to choose what they
want to do.

The Three Objectives of Development

1. Make Sure Everyone Has the Basics:
The first goal is to make sure that everybody has the really important stuff they need to live, like
food, a safe place to live, good health, and protection from bad things.
2. Improve the Quality of Life:
The second goal is to make life better in many ways. This means having more money, more jobs,
better education, and paying attention to things that make life nice, like art, culture, and being
proud of who you are.
3. Give People More Choices:
The third goal is to give people more choices. This means they can do what they want without
being controlled by others or by bad things like not knowing enough. It's about having the
freedom to decide for yourself.

The Future of the Millennium

Millennium Development Goals (MDGs):
Back in 2000, the United Nations set eight big goals to make the world a better place. These goals
were called the Millennium Development Goals or MDGs. They were like a promise from 189
countries to fight against poverty and make life better for everyone by 2015. These goals weren't
just about making more money; they were also about improving education, health, and many
other important things.
Eight MDGs:
1. End extreme poverty and hunger.
2. Make sure all kids go to school.
3. Promote gender equality and empower women.
4. Reduce child deaths.
5. Improve health for moms.
6. Fight diseases like HIV/AIDS and malaria.
7. Protect the environment.
8. Work together as a global team.

But, achieving all these goals wasn't easy, and some goals, like reducing hunger and child deaths,
were harder to reach than others.

Sustainable Development Goals (SDGs):

The MDGs expired in 2015, so the United Nations came up with a new plan called the Sustainable
Development Goals or SDGs. This time, it's not just about poor countries; every country, rich and
poor, has to work together to make the world a better place. There are five big ideas behind these
goals:
 1. Don't leave anyone behind: Make sure everyone, no matter where they live, has a good life.
2. Put sustainable development at the core: Balance the needs of people, the economy, and the
environment.
3. Transform economies for jobs and growth: Create good jobs and make sure everyone can share
in the wealth.
4. Build peace and strong institutions: Make sure countries have good leaders and fair laws to keep
the peace.
5. Create a global partnership: Work together as a team to achieve these goals.

Comparative Economic Development

1. What is Comparative Economic Development?
Comparative economic development is like comparing how different countries are doing when it comes
to money, health, education, and other important things.

2. Big Differences Between Countries:

Some countries are super rich, like the United States, and some are not so rich, like India or the
Democratic Republic of Congo (DRC). The differences in how well off people are in these places can be
really big.

3. Why Are These Differences There?

We might wonder why these differences exist, especially when people and information can move around
the world so easily. It's a bit like asking why some people have more toys than others.

4. Things We Look At:

To understand this, we look at many things like how much money people make, how long they live, if
they can read, and how healthy they are. These things help us measure how well a country is doing.

5. Things Most Developing Countries Have:

Many countries that are not as rich have some things in common. For example, they often have lower
income, not as many educated people, and more inequality where some are super rich, and others are
very poor.

6. Historical Reasons:
Sometimes, things that happened in the past, like when some countries were ruled by other countries,
can still affect how well they are doing today. It's a bit like the past leaving its mark on the present.

7. Trying to Get Better:

Developing countries want to get better, just like people want to do better in school or sports. They can
do this by making good rules, like having good schools and hospitals, and by helping everyone have a fair
chance.

8. Learning from Success:

We can also learn from countries that have done well despite facing challenges. For example, we can
study countries like Bangladesh and Pakistan to see how different choices can lead to different
outcomes.
9. What Can We Do?:
As future leaders, we can think about what we can do to help these countries develop and make the
world a more equal and better place for everyone.

These are the things that we often see in developing countries, on average:
1. People in these countries may not have as much money or things.
2. They may not have as many educated or smart people.
3. Some people might have a lot, and others might have very little.
4. More babies are born in these countries.
5. People in these countries might have different backgrounds and beliefs.
6. Many people live in the countryside, but some are moving to cities quickly.
7. There may not be many big factories or industries.
8. The geography (like mountains or deserts) can make things difficult.
9. Things like banks and markets may not be very developed.
10. The history, like being ruled by other countries in the past, can still affect them today.

Defining the Developing World

1. Classifying Countries: There's a common way to group countries, and it's based on how much
money they have per person. This helps us understand which countries are more developed and
which are still working to improve.

2. World Bank's Classification: The World Bank, a big organization, does this classification for 213
countries. They look at how much money each person in a country makes, on average. Based on
this, countries are divided into four groups:

• Low-income countries (LICs): People here make $1,025 or less per year.

• Lower-middle-income countries (LMCs): People here make between $1,026 and $4,035
per year.

• Upper-middle-income countries (UMCs): People here make between $4,036 and

$12,475 per year.

• High-income countries: People here make $12,476 or more per year.

3. Variations and Exceptions: Sometimes, there are exceptions. Even some rich countries might still
have parts of their population struggling with things like education and healthcare. So, they can
be seen as developing in certain ways. For example, some countries rich in oil or tourism may
still face development challenges.

4. Other Classifications: Besides the World Bank, there are other ways to classify countries. It can
be based on things like how much a country owes to others, how well its people are doing in
terms of health and education, or if it's a "least developed country."

5. "Emerging Markets": Some people use the term "emerging markets" to describe countries that
are making good progress. However, it's not always used consistently, so it can be a bit
confusing.
 6. The Big Divide: Often, we divide the world into two broad groups:

• Developed Countries: These are the richer and more advanced countries, like those in
Europe, North America, and Japan.

• Developing Countries: These are the countries that are still working on improving their
economies and living standards. They're mostly found in regions like Africa, Asia, and
Latin America.

7. Remember the Differences: It's important to know that even within developing countries, there
can be significant differences. Some developing countries are much richer and more developed
than others, so we shouldn't generalize too much.

In a nutshell, we use different criteria, like income and development levels, to understand how well-off a
country is. It helps us see which countries need more help and which ones are doing well.

WORLD BANK

-The World Bank was created in July 1944 during the Bretton Woods Conference, which was held in
Bretton Woods, New Hampshire, USA. The primary reasons for its establishment were:

Reconstruction after World War II

Promotion of Economic Stability
Post-War Development
Addressing Poverty

The World Bank's official name is the International Bank for Reconstruction and Development (IBRD),
and it is part of the larger World Bank Group. The organization has since evolved and expanded its scope,
but its core purpose remains the promotion of global economic development, particularly in low- and
middle-income countries, and the reduction of poverty worldwide.

Understanding Development with Three Aspects:

Income: How much money people make on average.

Health: Measures like life expectancy, child mortality (how many children survive), and
undernourishment (getting enough food).

Education: This includes literacy (being able to read and write) and how much schooling people get.

Purchasing Power Parity (PPP): To figure out how well-off a country is, we often use a number called
Gross National Income (GNI) per person. It's like a summary of how much money each person in a
country makes. But there's a tricky part: when we compare different countries, we need to be fair. So, we
use something called "Purchasing Power Parity" (PPP) to make it fair.

Why PPP Matters: When we compare the income of people in different countries, we can't just use their
own money. We need to convert it into a common currency, like U.S. dollars. But using regular exchange
rates can be misleading because they don't consider how far your money goes in each country. For
example, $100 in one country might buy a lot less than $100 in another. So, PPP makes sure we compare
fairly.

Big Differences: In 2011, all the money made in the world was over $66 trillion. But most of it, about $47
trillion, came from the rich and developed countries. Even though there are more people in less
developed countries, they made only about $19 trillion. To show the big gap, Norway, a rich country, had
240 times the income per person of Ethiopia, and 63 times that of India.

Exchange Rates Matter: When we compare income between rich and poor countries, we need to use
PPP because regular exchange rates can make the differences look even bigger.

Simple Division for Understanding: Sometimes, it's helpful to divide the world into two groups -
developed and developing countries. This simplifies things, but it's important to remember that there
can be big differences even among developing countries. For example, some developing countries can be
much richer and more advanced than others.

Basic Indicators of Development: Real Income, Health,

and Education
Purchasing Power Parity (PPP):

1. Gross National Income (GNI): This is like a big measure of how well-off people are in a country. It
includes all the money made by a country's residents, both inside and outside the country.

2. Gross Domestic Product (GDP): This measures the total value of goods and services produced in
a country.

3. Why PPP Matters: When we compare the money people make in different countries, we need to
be fair. If we use regular exchange rates (like turning other currencies into U.S. dollars), it can be
misleading. People in different countries can buy different amounts with the same money. So,
we use something called "Purchasing Power Parity" (PPP) to compare fairly.

4. How PPP Works: PPP uses a common set of international prices for goods and services. It's like
asking, "How much stuff can you buy with $1 in different countries?" If you can buy a lot in one
country and less in another, PPP makes the comparisons fair.

5. Effect on Income Comparisons: When we use regular exchange rates, it can make the income
gaps between rich and poor countries look much bigger. But with PPP, the gaps seem smaller
because it considers how far your money goes in each country.

Examples:

• Exchange Rates: Using regular exchange rates, it might seem like a person in the United States
makes 242 times more money than someone in the Democratic Republic of the Congo (DRC).
But this isn't accurate because living costs are different.
 • PPP Rates: Using PPP rates, it's more like a person in the United States makes 135 times more
than someone in the DRC. It's still a big difference, but a more realistic one.

Other Indicators: Besides income, we also look at health and education when understanding how
developed a country is. We check things like life expectancy, child mortality, undernourishment, and
education levels.

Diverse Low-Income Countries: Even among low-income countries, there are big differences. For
example, Bangladesh and India are both low-income countries, but they have different incomes, child
malnutrition rates, and life expectancies. So, it's important to remember that income doesn't tell the
whole story about development.

**We use PPP to compare incomes fairly between countries. It helps us understand the real differences
in living standards. And besides income, we also look at health and education to get a complete picture
of a country's development.

The New Human Development Index (NHDI):

1. What Is It?: The NHDI is a way to measure and compare how well countries are doing in terms of
the well-being of their people.

2. Three Goals: It focuses on three main goals or areas of development:

• A long and healthy life, measured by life expectancy at birth.

• Knowledge, measured by factors like how long people go to school.

• A decent standard of living, measured by income adjusted for how far the money goes in
different countries.

3. How It's Calculated: To calculate the NHDI, there are two main steps:

• First, they create three "dimension indices" for health, education, and income.

• Second, they combine these indices into an overall NHDI.

4. Health Index: For health, they use life expectancy at birth. The index ranges from 0 (the worst)
to 1 (the best). For example, if a country's life expectancy is 70 years, they'd score close to 1.

5. Education Index: Education is measured by looking at the years of schooling adults have
completed and the expected years of schooling for kids entering school. They compare these to
global standards. For example, if a country's average schooling is 10 years, and the global
standard is 12, they'd score around 0.83 (because they're about 83% of the way to the global
standard).

6. Income Index: This considers the country's income, but it adjusts for how far that income goes in
different places. If a country's income is close to the global standard, they'd score higher.
 7. Geometric Mean: Instead of just adding these three indexes and dividing by 3, which would
treat these areas as equal, they use a geometric mean. This means that if a country lags in any
area, it has a bigger impact on the overall NHDI.

8. What It Tells Us: The NHDI helps us understand how well-rounded a country's development is
across health, education, and income. It doesn't just focus on one area; it looks at the bigger
picture.

9. Inequality and Other Measures: The UNDP (United Nations Development Programme) also
looks at other factors like inequality and gender disparities. This helps to understand if
development is benefiting everyone in a country, or if some groups are left behind.

10. Overall Significance: The NHDI, along with the traditional HDI, helps us get a better
understanding of development, how different countries are doing, and if development is
reaching all parts of society.

Characteristics of the Developing World: Diversity

within Commonality
Lower Levels of Living and Productivity:

• Some countries, like the United States, have high incomes and high productivity, while others,
like India and the Democratic Republic of the Congo (DRC), have low incomes and productivity.

• Even among developing countries, there's a wide range of incomes, and most of the world's
people live in these lower-income countries.

• Countries with very low incomes may get trapped in a cycle of low investment in education,
health, and infrastructure, leading to stagnation. But it's possible to break free from this cycle
with the right policies.

Lower Levels of Human Capital:

• Human capital means health, education, and skills, which are crucial for economic growth.

• Developing countries generally have lower levels of nutrition, health, and education compared
to developed countries.

• In places with good health and education, people tend to live longer and have better job
opportunities.

Higher Levels of Inequality and Absolute Poverty:

• There's a big gap between rich and poor people in the world. The poorest 20% get very little of
the world's income.

• Over a billion people live in extreme poverty, making less than $1.25 per day. This is a severe
problem and a top priority for development.
 • Even within countries, some people are very rich, while others are very poor, and this inequality
can lead to slower economic growth.

Higher Population Growth Rates:

• The world's population has grown rapidly, especially in developing countries.

• High birth rates in low-income countries mean there are many more young people to support,
which can be challenging.

• The population dynamics vary among developing countries, with some still experiencing rapid
population growth.

Greater Social Fractionalization:

• Some low-income countries have many different ethnic, linguistic, and religious groups. This
diversity can sometimes lead to conflicts and political instability.

• In some successful countries like South Korea or Singapore, cultural homogeneity has been a
factor in development.

• Discrimination against certain groups, like indigenous people, can lead to inequality in health,
education, and economic status.

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