Economic

Development:
Rationale, Meaning
and Measures
By
DR. MUHAMMAD
 Rationale for Development
Global Dualism (Inequality):
Division of Globe in 2 Unequal Worlds:

1. Rich World (20% of Global

Population controls 85% of Global
Income)

2. Poor World (80% of Global

Population gets 15% of Global
Income)
 Rationale for Development
Global Dualism
(Inequality):
Rich World Poor World
West (North America) Third World(Asia/Africa)
Nuclear Family (NF) Extended Family (EF)
Only parents work. All members of EF participate in work.
NF Annual Income ≧$30,000 EF Annual Family Income≨ $300
NF has suburban home with garden. EF lives in one -room home in favela.

Enjoys 3 Meals Daily Subsists on 1Meal Daily

Consumes Imported Products Unable to Buy Even Local Goods
NF Children (NFC) are Healthy. EF Children (EFC) are Unhealthy.
High Education ensured for NFC Most of 7 EFC are Illiterate.
 Rationale for Development
Regional Dualism (Inequality):
Coexistence of Extremely Poor and
Extremely Rich Regions within a Particular
Continent or a Country.
National Dualism (Inequality):

Coexistence of a Majority of Extremely Poor

People with a Small Minority of Extremely
Rich People within a Particular Country.
In European countries, upper decile
owns at least 60% of total wealth. In
USA, upper decile claims more than
70% of total wealth. (Piketty, 2014).
 Rationale for Development
Global/Regional/National Inequalities
illustrate poverty amd underdevelopment
of masses of the poor people on
global/refional/national levels. Poverty
Poverty means deprivation (in forms of
unemployment, malnutrition, sickness,
illiteracy, homelessness & unfulmillment of
basic needs of safe water, sanitation and
healthcare) and exclusion of poor people.
Primary Goal/Challenge of development is to
reduce poverty & income/wealth inequality for
ensuring inclusion.
 Economic Development
Masses of the 3rd World naturally aspire to
develop them for both remedying their
multidimensional deprivation/poverty and
achieving ideals of development (modernizat-
tion, gaining modern knowledge, increase in
productivity, social and economic
equalization, improving institutions and a
rationally coordinated system of policy
measures) for removing all obstacles from the
way of development.
Therefore, there are numerous meanings &
dimensions of Economic Development (ED).
 Economic Development
ED is not equivalent to total development of a
society.
ED is just one aspect of total development.
ED focuses on the “nation state” as a unit of
development ⇔ DE focuses on national
development (ND).
ND encompasses at least social/cultural and
political/legal/administrative development as well as
economic development.
Interrelationships among these different types of
development are extremely important for ND.
ED is multidisciplinary study of ND-oriented
interactions among economic and noneconomic
forces of development.
 Development Economics
Development Economics (DE) addresses the
primary goal/challenge of development.
DE is defined as economics of the 3rd
World countries (Todaro & Smith).
DE differs from TE (Traditional Economics
⇔ Classical/Neoclassical Economics
pursuing its prime goals of achieving
efficient (least-cost) allocation as well as
optimal growth of scarce production
resources for producing an ever-expanding
range of goods and services) due to greater
scope of DE than the scope of TE.
 Development Economics
As compared to relatively limited
scope of TE (Neoclassical Economics
only deals with the advanced capitalist
world of perfectly competitive free
markets, consumer sovereignty,
rationality of agents, automatic price
adjustments etc.), there is a vast
(expanded) scope of DE because
development is all-encompassing.
 Development Economics
DE’s scope also includes an
overtime sustained growth of
productive resources & necessary
economic/social/political/instituti-
onal mechanisms in public as well
as private sectors for rapidly
accomplishing large-scale
improvements in levels of living
for poor/illiterate/malnourished
masses of the 3rd World countries.
 Development Economics
For effecting progressive rapid structural and political
transformation of entire societies and economies in
order to ensue that fruits of development are realized
by the broadest possible segments of population, DE
allows a larger governmental role and some degree of
coordination in economic decision making as its
essential components.
DE is positive as well as normative.
There is no one universal DE due to heterogeniety &
uniqueness of societies (Muslim, Christian, Jewish,
Hindu, Budh) & geographies (large/small/resource-
rich/resource-poor/barren) of distinct 3rd World
nations facing a common underdevelopment
problem. Therefore, the study & practice of DE are
responsive to their unique & diverse socioeconomic
needs in the 3rd World.
 Development Economics
DE is eclectic – DE combines relevant
concepts and theories from different
disciplines.
DE emphasizes that in general there are practically
observed merely tendencies of economic
relationships among pertinent variables and that
universally applicable development models and
universial laws/principles conditioning/ensuring
unchangeable regular economic relationships are
quite rare. (Example; While increased consumer
demand tends to cause an increase in supply,
developing countries’ actual conditions can
preclude possibilities of positive supply response.)
 Development Economics
For realizing its primary & ultimate purpose/
goal of development/empowerment of the
poor 80% of global population, multi-
disciplinary DE employs theories/concepts/
models of TE along with new multidisciplin-
ary development models/approaches based
on recent development experiences of Africa,
Asia and Latin America.
Data & theories of DE sometime confirm the
validity of world view/theories/models of TE
and sometimes challenge/reject world view/
theories/models of TE.
 Development Economics
While Adam Smith was the 1st development economist
[his book entitled An Inquiry into Wealth of Nations
(published in 1776) was the 1st treatise on economic
development], the 1st half of the 20th century was the era
of emergence of DE as a new distinct field of systematic
study of the problems and processes of economic
development in the 3rd World [Neither DE is TE (In
contrast to Neoclassical Economics – the economics of
the capitalist developed countries of the 1st world –DE
deals with the 3rd World’s highly imperfect
goods/factors markets because of limited/imperfect
information of economic agents, widespread
disequilibrium situations and continuous structural
changes in society and economy) nor DE is the
economics of the centralized Socialist countries].
 Development Economics
The awarding of the 1979 Nobel
Prize in economics to two
development economists Arthur
Lewis and Theodore Schultz for
their pioneering studies of the
development process confirmed
the status of DE as a separate
field within economics.
 Development Economics
As a social science, DE focuses on realization of
potential of human beings in an ethical values-based
systemic framework in which national economies
are conceived as social systems – a complex system of
interdependent relationships among economic factors
and noneconomic factors (attitudes toward
life/work/authority, public/private bureaucratic,
legal and administrative structures, patterns of
family relationships, religion, cultural traditions,
land ownership/tenure systems, authority &
integrity of agencies of government, degree of
participation of masses in development decisions
and activities, and degrees of rigidity and flexibility
of economic & social classes).
 Development Economics
Ethics/values are integral part of DE because the
desirable universal goals of development and
modernization are themselves value judgments implying
that these goals should be achieved and that
backwardness and underdevelopment should be
eliminated.
For development, there is required to be a consensus of
people of a nation on pertinent values of development in
light of which national decision makers can identify
relevant developmental goals and policies based on
“objective” theoretical and quantitative analysis.
Goulet identified three universal core developmental
values, which are common goals of all individuals and
societies because these three values reflect human
Three Core Values of Development
 Three Objectives of Development
1. Increase in availability and widening of the
distribution of basic life-sustaining goods – food,
clothing, shelter, health and security

2. Elevation of levels of living – higher incomes as well

as provision of more jobs/better education/greater
attention to cultural and humanistic values and
culmination of all of these developments in greater
individual and national self-esteem

3. Expansion of the range of economic and social

choices available to individuals and nations by
freeing them from servitude to forces of ignorance
and human misery and from dependence on other
people and nations
 Economic Development
ED⇔ Development‘s narrow view/concepts/measures
in strict economic sense ⇔ED ⇔ Growth
ED is defined as the capacity of an economy to
generate and sustain an increase in real GNP at
rates of 5% to 7% or more for a long period of time.
ED is defined as the capacity of an economy to
generate and sustain a growth rate of real income
per capita in the range of 5% to 7% or more for a
for a long period of time.
Gains in growth in real GNP and real income
per capita are assumed to trickle down to
masses in the form of jobs/increased income
& economic opporunities.
 Computing India’s Growth Rate (g)
2003 Data
Gross National Income 2003 ⇔ GNI2003 = GNI t-1= Rs. 25,000 Billion
Population ⇔ P2003 = Pt-1 = 1067 Million
GNI Per Capita2003 ⇔ Yt-1 =[GNIt-1/ Pt-1] = Rs. 23,430
2004 Data
Gross National Income ⇔ GNI2004 = GNIt =Rs. 31,533 Billion
GNI Price Deflator (GNIPDt) = 110 (reflecting an annual
inflation rate of 10 %)
Real GNIt = [GNIt /GNIPDt] = Rs 26,866 Billion
(at constant prices of 2003)
Population ⇔ P2004 = Pt = 1085.5 Million
Real GNI Per Capita2004 ⇔ Yt =[GNIt /Pt] = Rs. 24,750
g=[△Y/Y] ╳100=[(Y –Y )/Y ]╳100=[(24750 – 23430)/23430]╳ 100
 Economic Development
ED ⇔ Narrow/Old View of Development In
strict economic sense dominated in
1950s/1860s
ED ⇔ Growth (G) ⇔ Industrialization ⇔ Modernization
ED was targeted through rapid
industrialization resulting from the
development strategy of planned
alteration of the structure of production
and employment so that output and
employment shares of agriculture’s
decline and output and employment
shares of manufacturing and service
 Economic Development
New/Broader View of Development

⇕
Dethronement of GNP in 1970s
⇕
Humans-Centered Development (D)
Failure of GNP growth to solve the worsening under-
development problems (unemployment/ poverty/
inflation/ inequality and declining levels of living of
masses) in 1850s/1960s forced growthists to redefine
ED as reduction/elimination of poverty/inequality/
unemployment in the framework of a growing
economy. ⇔ D of people instead of D of things
 G D
Pendulum has been swinging between G & D.
After World War II, scholars & the 3rd
world governments clamored for D.
Later Arthur Lewis (1955) popularized G
in the 1950s/1960s by contributing &
popularizing his narrow view of D:
“our subject matter is G & not distribution.”
 G D
Basic-Needs Approach (BNA) of Early 1970s
BNA focuses on minimization of poverty(instead of output/G maximization).
BNA asserts that only G programs of merely raising
productivity are not adequate without focusing on
directly meeting the basic needs of the poorest 40–50
percent of the population – direct attack on poverty/
underdevelopment (BN include food, education,
health, sanitation, water supply & housing).
High BN attainment is positively related to growth in per capita GNP
– increased life expectancy/literacy & reduced infant mortality are
associated with improved worker health/ productivity.
Rapid output growth usually reduces poverty (Hicks 979).
Attainment of BN uniformly increases i ncomes of the poor.
 G D
BNA of the Early 1970s:Indicators of BN
Food: Calorie supply per head, or calorie
supply as a % of requirements; Protein
Education: Literacy rates, primary enrollment
(as a % of the population aged 5–14)
Health: Life expectancy at birth
Sanitation: Infant mortality (per thousand births), % of
population with access to sanitation facilities
Water Supply: Infant mortality (per thousand births), % of
the population with access to potable water
Housing: No satisfactory indicator
 G D
Development as Freedom & Liberation in the 1970s

⇕
International –Dependence Revolution

⇕
Revolutionary Statist Models of Neocolonial International Dependence (NID)
Latin American radicals/French Marxists/supporters of the socialist
Chinese Cultural Revolution rejected G tied to dependence on the West
(its techniques/capital/ institutions/elite consumer goods) & advocated
their politico-economic autonomy along with satisfaction of BN.
They inspired the 3rd World countries to control their own politico-
economic destiny & free themselves from the Western domination
of the capitalist countries and their elitist allies in the 3 rd world by
following the Chinese models of genuine development.
 G D
Sen’s Capabilities Approach
Instead of achieving & securing freedom from
external domination in light of assertions of
the revolutionary models of NID, Nobel laureate
Amartya Sen emphasized freedom [F (not D)]–
broadening choice – as the ultimate goal of
economic life and as the most efficient means
of achieving general welfare.
He argues that income/wealth/G/D are only
instruments (not goals in themselves) for
enriching lives and freedoms of humans.
 G D
Central part of development is its capability (ability/freedom)
of enabling all humans to actually overcome
deprivations – unfreedoms like hunger/
famine/ignorance/an unsustainable economic
life/unemployment/premature death/
violations of political freedom & basic
liberty/ barriers in ways of achievement of
economic aspirations & goals of women and
minorities/ threats to the environment/little
access to health, sanitation and clean water.
 G D
Sen asserts that “capability to function” is
the real determinant of status of humans as
rich or poor persons – for understanding
human well-being & poverty, we need to
think beyond the availability of goods and
consider the capability of their owner to use
them (for example, an illiterate owner of books
remains poor in spite of owning book because
S/he can not use/read it for gaining knowledge
for human development and, therefore, her/his
book is valueless from the point of her/his
development due to nonfunctioning of her/his
 G D
Sen defines “functioning” of a person as
an achievement [his success in doing
with (optimally utilizing) his available
goods & personal characteristics
(strengths and potentialities)].
Sen defines “capability” as the freedom
possessed by a person to make choice of
functionings given his personal
characteristics and command over
available commodities.
 G D
Neoclassical Counterrevolution in the 1980s
⇕
Underdevelopment (U) of the 3rd World is not due to
the predatory policies of the 1st World & its institutions.
U of the 3rd World is due to the heavy hand of
government /corruption/ inefficiency/lack of economic
incentives.

⇕
No Rationale/Need for Marxist Revolution in the 3rd World

⇕
 Economic Development
D is a not itself a goal.

D is means to achieve the ultimate

humanitarian goal of development/
empowerment of all humans.

⇕
D is an upward movement of the
entire social system.
 Economic Development
Means:
Economic Growth (G)

⇗ ⇘
Conditions enabling G Conditions enabling human D
Qualified labor Health services
Technological innovation Education
services Sound management Employment
opportunities Political leadership
Democracy Institutional development
Environmental Protection

⇖ Goal: ⇙
 Human Development (HD)
The United Nations Human Development Index (HDI)
HDI – a geometric mean of three indices
of Health (H implying Life Expectancy
Index (LEI) as an indicator of goal of
longevity), Education (E) and Income (I),
ranks all countries on a scale of 0
(lowest HD) to 1 (highest HD) [that is,
low HD (0.0 to 0.499), Medium HD (0.50
to 0.799), High HD (0.8 to 0.9), Very
High HD (0.90 to 1.0)].
HDI= H1/3 ╳ E1/3 ╳I1/3
 Human Development (HD)
Calculation of HDI for China
H=LEI= [(73.5 – 20)/(83.2 – 20)] = 0.847
Mean Years of Schooling Index = [(7.5 – 0)/(13.2–0)]
= 0.568
Expected Years of Schooling Index=[(11.4–0)/(20.6–0)]
= 0.553
E=[(0.568 ╳0.553)½ – 0]/[0.951– 0]=0.589
I ={[ln(7,263)–ln(163)]/[ln(108,2111)-ln(163)]}
I= 0.584
HDI= [0.847╳0.589 ╳0.584]1/3 = 0.663
 Development
D signifies a whole gamut of changes by which
an entire social system, which aims at
satisfaction of the diverse needs and desires
of individuals and society, moves away from a
generally perceived undesirable and
unsatisfactory condition of life to a generally
perceived desirable and satisfactory condition
of life. ⇔ D is Redistribution with G.

D G+∆ =
 Development
D is the sustained elevation of
the entire society and social
system toward a “better” or
more “humane” living standard.
D is positive qualitative change &
restructuring in a country’s
economy & society in tandem with
technological & social progress.
Sustainable Development (SD)
SD accomplishes humans-centered
development in harmony with natural
environment.
SD has no uniform interpretation/definition
because of continuous revision and expansion
of its scope – economic + social/cultural +
political + ethical + ecological + environmental
+ agricultural + technological + ….
Classical Definition
SD is defined as a development process, which
enables an economy to meet needs of present
generation without compromising the ability of
future generations to meet their needs.
 Sustaibable Development (SD)
SD is defined as a development process, which
increases the wealth of present generation without
decreasing the wealth of future generations.
SD is defined as a continuous balanced and
equitable development process, which balances
interests of different groups/generations of people in
interrelated economic, social and environmental
realms.
SD refers to maintaining the productivity of natural,
produced, and human assets (or wealth) over time.
SD is defined as a process of managing a portfolio of
assets – physical/human/social/natural capital (forests,
lakes, oil deposits) – to preserve & enhance the (range
& levels of) opportunities available for people.
 Sustaibable Development (SD)
SD’s most critical problems are extreme
poverty – a result of extreme income
inequality –, which blocks the way of
achieving most of other developmental goals
and war, which destroys economy, society,
infrastructure & environment.
Therefore, SD is defined as a humanity-
focused process of long-term balanced
development involving the creation of long-
term conditions, which create/maintain/
promote harmony of healthy &productive
lives of humans with nature and, thereby,
ensure multidimensional bliss of humanity.
 Sustainable Development (SD)
Economic Goals:
Growth
Efficiency
Stability

⇗⇙ ⇘⇖
Social Goals: ⇒ ⇐ Environmental Goals:
Full employment Healthy environment for humans
Equity
Rational renewable natural resource use

Security Conservation of nonrenewable resources

Education
Health
Participation
 Growth (G) – Development (D) Nexus
G is quantitative change – expansion –
in a country’s economy.
G results from intensive economic
growth – an increase in per capita
income and improvement in
people’s standard of living resulting
from more productive/efficient use
of all resources – and G inevitably
requires economic development (D)
– human development.
 Growth (G) – Development (D) Nexus
In other words, fruits of human development
(higher qualified workers having capabilities of both
accomplishing technological & managerial
innovations as well as more and better opportunities
for their efficient employment/better conditions for
the growth of new businesses/greater democracy at
all levels of decision making) must be continuously
nourishing G.⇒Virtuous circle of human D
Slow human development puts an end to fast G.
During 1960-1992, not a single country succeeded in
moving away from lopsided D with slow human D &
rapid G to a virtuous circle of human D.⇒Dead End G
Hitorically slower human D has always been followed
by slower G. & this pattern of G is called Dead End G.
SD: Two Narratives of Sustainability
The long-lived controversies over sustainability are
centered around the nature of substitutability of
natural capital & manufactured – physical – capital.
Ecological economist (Daly etc.) emphasize strong
sustainability – natural capital & manufactured
capital are complements, with former being
essential for production, consumption and welfare.
Flag-bearers of neoclassical economic growth theory
emphasize weak sustainability – manufactured capital &
natural capital are substitutes (According to Hartwick &
Solow, decreases in natural capital will not be problematic
if balanced by increases in physical capital).
Unilateral pursuit of G brings not only wealth for
humans but also environmental calamity &
destruction for earth.
SD: Two Narratives of Sustainability
Pearce & Atkinson’s Condition for Weak Sustainability:
Z≥0 on the basis of the following assumptions:
Total capital stock depends on national saving rate.
[Savings/GDP] ≥ [(Dm + Dn )/GDP ]
Z ={[Savings/GDP]–[(Dm + Dn )/GDP]} ≥ 0
GDP ⇔ Gross Domestic Product
Dm ⇔ Depreciation of manufactured capital
Dn ⇔ Depreciation of environmental capital
Pearce & Atkinson’s Condition for Stromg Sustainability:
[Dn/GDP] ≤ 0
 Indicaors of Sustainable Development

NNP = GNP – Dm – Dn
*

NNP* ⇔ Sustainable Net National Product

GNP ⇔ Gross National Product
Dm ⇔ Depreciation of manufactured capital assets

Dn ⇔ Depreciation of environmental capital

NNP = GNP – Dm – Dn – R – A
*

R ⇔ Expenditure for restoring environmental capital

A ⇔ Expenditure needed for averting the destruction

of environmental capital
NNW= GDP + Nonmarket Output – Externality Csts – Dm – Dn – R – A
 Indicaors of Sustainable Development
Genuine Saving Rate ⇔ GSR
Increase in Physical Capital ⇔ IIPK

Decrease in Natural Capital ⇔ DINK

Increase in Human Capital ⇔ IIHK
Gross National Product ⇔ GNP

GSR = [{ IIPK – DINK + IIHK }/GNP ] ╳ 100

Environmental Sustainability (ES)-Focused Indices of Global SD

Throughput (T) ⇔ Total volume of

material resources flowing through the
human production and consumption cycle.
 ES-Focused Indices of Global SD
T is an indicator of total stress put by humans
on their natural environment.
Therefore, ES and SD inevitably require a
global program of limiting T to a tolerable
level of T [called “the Environmental Space
(NS) shared by humanity”] for nature.
NS
NS is that particular T level. which can be
tolerated by the nature without occurrence of
serious damage to nature’s capacities of
resource-regeneration, pollution-absorption
and performing other natural functions.
Development as Happiness (H)
H is the core goal of D.
Measure/Indicator of Happiness-Oriented D:
Gross National Happiness (GNH)
GNH is defined as a harmonious balance
between material wellbeing and the spiritual/
emotional/cultural needs of the society.
9-Dimemsional GNH is a composite measure of
psychological wellbeing, time use, community
vitality, cultural diversity, environmental diversity,
good governance, material living standard (GNI),
health and education.
4 Pillars of Sustainable Development
1. Elimination of Extreme Poverty
2. Environmental sustainability
3. Social Inclusion ⇔ Happiness for All

⇕
Ensuring universal access of all to
benefits of technological/economic progress
& good governance
4. Good Governance
SD signifies ever-growing human H-oriented D
characterized by permanent promotion of
human wellbeing, good governance, social
inclusion and environmental sustainability.
 SD in the Anthropocene
⇕
SD in New Age Dating Back to the Time of Commencement of
Significant Human Impact on Earth’s Geology & Ecosystem
D of world economy – a culmination of soaring
heights of productivity growth resulting from
advancement of technologies and organization of
unimaginable sophistication – has been
accompanied by both the extreme hunger
(suffering & unhappiness) of billions of people &
the destruction of natural environment.
Humanity is the major driver of climate
change in the Earth’s physical system.
 SD in the Anthropocene
The USA (the World’s economic
superpower) achieved striking economic
& technological progress over the past
half century without gains in the self-
reported happiness of the citizenry
because socioeconomic uncertainties/
anxieties/alienation are high, socioecono-
mic inequalities have widened
considerably, social trust is declining &
confidence in government is at its unpre-
cedented lowest level in history of USA.
SD in the Anthropocene
Road to Dead-end/Unsustainable Economic G/D
Several decades-old process of continuity
of our senseless dangerous journey along
the current trajectory of economic growth
has been increasing the risk (danger) of
weakening the Earth’s life support systems
of food supplies/clean water/stable climate
– prerequisites for human survival/health
– and, thereby, creating life-threatening
conditions for humans in fragile regions of
the world – drylands of the Horn of Africa and
certain parts of Central Asia.
 SD in the Anthropocene
While lifestyles of the rich imperil/endanger the
survival of the poor, rich populations are living too far
from the imperiled poor populations to morally and
practically recognize/acknowledge the negative
externalities of their extravagant/superfluous
luxurious life styles on the poor populations.
Additional manifestations of unsustainable
development of the rich are illustrated by facts that
the affluence-driven extravagant/superfluous
luxurious life styles of the rich have threatened/
endangered their own lives by having self-imposed
fatal health hazards of obesity – its culmination in
diabetes/heart attacks/psychological disorders/
alienation &addiction to medicines/drugs/tobacco/
TV/internet/shopping/gambling.
SD in the Anthropocene
As an alternative to current trajectory of
unsustainable/dead-end economic G/D,
SD signifies sustained improvements in
the quality of human life on global level
by adopting human bliss (prefect happiness)-
oriented environment-friendly lifestyles
& technologies while simultaneously
ensuring both the minimization of human
damage to the environment and the
protection/preservation/improvements in
the physical system of the earth.
 SD in the Anthropocene
SD is a normative/ethical concept enjoining all
societies to balance their economic, social and
environmental objectives of development in a
holistic manner.
When countries pursue D in a lopsided manner, by
forgetting social and environmental objectives, the
results can be adverse t for human well-bring.
Many countries achieved G at the cost of sharply
rising income inequalities and great damage to
natural environment.
Therefore, SD Solutions (SDSs) are designed to help
countries to achieve economic/social/environmental
goals in harmony, thereby leading to high levels of
well-being for present and future generations.
 SD in the Anthropocene
Transforming Our World:
Pillars of the 2016-2030
Agenda for SD
People (Global Humanity)
Planet (Universe)
Prosperity (Global)
Peace (Global)
Partnership (Global)
 SD in the Anthropocene
Pillars of 2016-2030 Agenda for SD
People ⇒ To end poverty/hunger of all
forms/dimensions for all humans and ensure
realization of their potential with sense of
dignity & equality in a healthy environment.
Planet (Universe) ⇒ to protect earth
from degradation through sustainable
consumption/production by sustainably
managing its natural resources &, taking
urgent action on climate change for meeting
the needs of present and future generations.
 SD in the Anthropocene
Pillars of 2016-2030 Agenda for SD
Prosperity⇒To ensure that all humans
can enjoy prosperous/fulfilling lives &
that economic/social/technological
progress occurs in harmony with nature.
Peace⇒to foster peaceful, just and
inclusive societies by freeing them
from fear/violence because neither it is
possible to have SD without peace nor
it is possible to have peace without
 SD in the Anthropocene
Pillars of 2016-2030 Agenda for SD
Partnership ⇒ to mobilize the means
required for implementing 2016-2030
Agenda for SD by revitalizing global
partnership/participation of all
countries/stakeholders/people for their
SD based on a spirit of strengthened
global solidarity. The integrated nature
of pillars of SD and SDGs is critically
important for fully realizing both 2016-
2030 Agenda for SD & our ambitions.
Sustainable Development Goals (SDGs) as SDSs
1. End Poverty’s All Forms Everywhere
2. End Hunger and Achieve Food
Security/Improved Nutrition and
Promote Sustainable Agriculture
3. Ensure Healthy Lives & Promote
Wellbeing for All at All Ages
4. Ensure Inclusive & Equitable Quality
Education & Promote Lifelong
Learning Opportunities for All
5. Achieve Gender Equality & Empower
All Women and Girls
 Sustainable Development Goals (SDGs) as SDSs
6. Ensure Sustainable Availability/
Management of Water and Sanitation
for All
7. Ensure Access to Affordable/Reliable/
Sustainable Modern Energy for All
8. Promote Sustained/Inclusive/
Sustainable Economic G and Full/
Productive/Decent Employment for All
9. Build Resilient Infrastructure, Promote
Inclusive/Sustainable Industrialization
and Innovation
Sustainable Development Goals (SDGs) as SDSs
10. Reduce Inequality Within and Among
Countries
11. Make Cities & Human Settlements
Inclusive/Safe/Resilient/Sustainable
12. Ensure Sustainable Consumption and
Production Patterns
13. Take Urgent Action to Combat
Climate Change and Its impacts
14. Conserve and Sustainably Use the
Oceans/Seas/Marine Resources for
SD
Sustainable Development Goals (SDGs) as SDSs
15. Protect/Restore/Promote Sustainable
Use of Terrestrial Ecosystems,
Sustainably Manage Forests, Combat
Desertification and Halt/Reverse Land
Degradation & Biodiversity Loss
16. Promote Peaceful & Inclusive Societies
for SD, Provide Access to Justice for
All and Build Effective/Accountable/
Inclusive Institutions at all levels
17. Strengthen the Means of Implement-
ataion and Revitalize the Global
Partnership for SD
Social Capital (SC) as the Most Critical Means of SD
The most critical factor in any society’s development is SC
SC is the strength of systemic framework of people’s
Interaction, Cooperation and Conflict Resolution
(PICCR), which is absolutely inevitable for Social
Sustainability/Socially SD/SD in general amidst the
widespread presence of negative anti-SC factors –
unemployment, income inequality and poverty.
As measurements of PICCR are extremely difficult &
problematic, there is lack of unifying concept of SC and
there is lack of consensus on the definition of SC pointing
to possibilities of existence of variety of definitions of SC.
Therefore, SC is miscellaneously defined as organizations,
associations, norms/values and relationships in forms of
laws/traditions/personal networks.
SC is the glue which holds the people/society
together &, thereby, ensures social coesion.
Social Capital (SC) as an Elevator of Well-being
Empirical Findings:
SC is extent of quality of interpersonal relations in
forms of trust (conditioned by humanitarian
feelings of fellowship/ community/sincerity/
affection/cooperation & integrity/reliability)/
honesty/mutual support/social support networks/
pro-sociality (altruism) in society, which increase
mental and physical well-being.
Societies differ systematically in different
dimensions of SC.
Different dimensions of SC tend to be correlated
across countries.
Societies with high SC outperform societies having
low SC in Well-being & ED.
Social Capital (SC) as an Elevator of H &Well-being
SC raises well-being through its
intrinsic benefits – fellow feeling/
affection/sympathy/friendship/
community/convergence of interests –
and instrumental benefits in the
form of improved economic
performance (higher productivity &
higher tax collections), social insur-
ance, greater resilience to natural
hazards & greater mutual care.
Social Capital (SC) as an Elevator of H &Well-being
While possibilities of businesspersons’
involvement in theft/fraud/violence can be
partly controlled/reduced by legal contracts,
which are either highly costly or impossible to
be enforced/ implemented in certain
circumstances, their SC (in its forms of
mutual trust/confidence that the opposite
party will behave honestly/morally/
transparently) can practically ensure the
possibility of negotiating & sustaining business
contacts. Similarly, high SC inspires citizens to
become ready to pay more taxes.
 Sustainable Development in Islam
Sustainable development in Islam is a humanity-
centered naturally progressive universal
phenomenon involving all mutually harmonious
positive Islamic socioeconomic/environmental/
political/strategic activities which ensure
simultaneous protection as well as scientific
advancement, both in quantitative and
qualitative contexts, of all the fundamental
objects of the Islamic system namely, human life,
religion (Islam as a complete code of life),
intellect, offspring, wealth, socioeconomic and
political justice, peace, and universal environment
in the right direction towards perfection and
felicity” (Muhammad Iqbal Anjum 1995/2017)
 Sustainable Development in Islam
Islamic SD paradigm is the flag-bearer of Falah
(Lasting human felicity/success in achieving the ultimate
objective of seeking the pleasure of Allah and hence the
comprehensive prosperity in this world and in world hereafter).
It enables humans to achieve Falah by operationalizing
the Islamic values. On one hand, the Islamic values
acknowledge dignity of labor, encourage economic
enterprise and initiative, promote ‘Adl (justice &
behavioral equilibrium), Iqtisad (economizing behavior),
Zakat, Infaq (voluntary spending in the way of Allah),
Ihsan (socioeconomic, political &environmental
benevolence), al-Qarad al-Hassan (interest-free benevolent
loan) and Ta’awun (cooperation). On the other hand,
Islamic values prohibit Zulm (injustice), Fasad (behavioral
disequilibri-um disorder), interest & interest-based
transactions, Israf (spendthriftness) and Bukhl
 Sustainable Development in Islam
These complementary Islamic measures culminate in an
extremely suitable local and global environment for the
spiritual and material development as well as
empowerment of all humans on a global level within the
Islamic institutional framework of a dynamic constructive,
progressive partnership among public, private and
voluntary sectors of the Islamic universal economy.
Islam has fully eliminated possibilities of emergence of
debt crisis and the related socio-economic problems of
excessive taxation, recession, stagflation and poverty as
well as manmade environmental crisis by prohibiting all
forms of interest/interest-based transactions and by
enforcing the system of Zakat & Sadaqaat (compulsory &
voluntary resource transfers and tree plantation
initiatives according to the Divine Will of Allah).
Sustainable Development in Islam

SD I

= ◯T +
Structural/Institutional Characteristics & Problems
of the 3rd World Countries
In 1990, 36% of the world population was extremely
poor – 1.9 billion people earned less than $1.25 a day.
The Word Bank expected 12% of the world population
to be extremely poor in 2015 – two-thirds reduction.
Now at least 450 million African people (especially in
Sub-Saharan Africa) wake up in poverty every day.
World Bank aims at achieving its goal of shared
prosperity of all humans by reducing extreme
inequalities through implementation of four strategies;
building human capital, constructing well-designed
/implemented social safety nets, offering incentives for
the private sector to create jobs and implementing
fiscally and environmentally sustainable policies.
Structural/Institutional Characteristics & Problems
of the 3rd World’s Countries
Varying Income Inequality (I)
I frequently follows ∩-shaped curve (an
invert-ed U-shaped) – I first increases (as we
move from cases of low-income countries to
cases of middle-income countries) and then
decreases (as we move from cases of middle-
income countries to cases of high-income
countries).
Varying Political Systems
Freedom House (2002) ranked only 34 of 137
LDCs (that is, Less Developed Countries) –
one-fourth of all LDCs – as free.
Structural/Institutional Characteristics & Problems
of the 3rd World Countries
Free ⇒ People are enjoying political
rights & civil liberties.
⇕
Political rights encompass a
formal electoral procedure and
an opportunity for the voter to
make a free choice among
candidates independently of state.
 Civil liberties imply rights to
practice the written constitutional
guarntees of human rights.
Structural/Institutional Characteristics & Problems
of the 3rd World Countries
On the basis of the assumption that the free
countries are democracies, these free
countries’ democratic populations consist of
about 40 percent of LDCs’ 5 billion people.
Set of democratic LDCs includes Belize,
Bolivia, Bulgaria, Cyprus, Dominican
Republic, El Salvador, Ghana, Jamaica,
Korea (South), Mali, Malta, Mauritius,
Mexico, Mongolia, Panama, Peru, Namibia,
Romania, South Africa, Suriname, Taiwan,
Thailand, Uruguay, and the 3 Baltic States.
Structural/Institutional Characteristics & Problems
of the 3rd World Countries
1. A Small Political Elite
Political control in LDCs is held by few
powerful individuals constituting a
small political elite consisting of political
leaders/princes/tribal chiefs/ senior
military & civil officers/chief executive
officers in public corporations/large
landowners/ business people/leading
professionals with support of foreign
powers.
.
Structural/Institutional Characteristics & Problems
of the 3rd World Countries
2. Low Levels of Political Institutionalization (LLOPI)
Defining development as economic modernization (M)
often poses a dilemma for the small ruling elite
(RE) – while achievement of goal of modernity
breeds stability (M enhances the governing ability
of RE to maintain order/ resolve disputes/select
leaders & promote political community), the
process of M breeds instability (explosion of mass
participation in politics (relative to the limited
institutional capacity to accommodate new
activists) resulting from urbanizat-ion/educational
expansion politically activates the previously
inactive anti-RE religious/ ethnic/economic groups
to disempower RE). Thus for perpetuating its
Structural/Institutional Characteristics & Problems
of the 3rd World Countries
Experience of Western Domination
Most of Africa & Asia were Western
colonies. Even Afghanistan & Thailand, which
were never Western colonies, experienced
Western penetration and hegemony.
Most of Latin America, which became free in
the 19th century, has been subject to
UK’s/US’s economic & political suzerainty
since then. During a century or two of
rapid economic G in the Western countries,
most LDCs did not have political freedom
essential for economic modernization.
Structural/Institutional Characteristics & Problems
of the 3rd World Countries
Extended Family (EF) – Common Institution in LDCs
EF includes 2 or more nuclear families
of parent(s) & children, Scholars regard
EF as obstacle to ED – one EF member
earns higher income & saves, others
demand/claim a share in savings, divert
funds from investment and, thereby,
hinder ED. Author says if EF members
get education/training & jobs or start a
business, then EF may pool risks to help
them financially & contribute to ED.
Structural/Institutional Characteristics & Problems of the
3rd World Countries
Rapid Population (P) Growth (G)
82% (5.3 billion people) of the world P (6.5 billion
people in 2004) live in the 3rd world, which has pop-
ulation density (PD) of 500/arable square kilometer
(63/square kilometer) implying a myth that the 3rd
world people are jostling/pushing each other for
space compared to 263/arable square kilometer
(23/square kilometer) in the 1st world. India, with
625/arable square kilometer, is more densely popu-
lated than Canada (67)/US (156) & is less densely
populated than Germany (714)/Britain (1,000)/
Japan (2,500). PD of Holland/Bangladesh is 1667 ⇒
LDCs’ problem is not P & PD but low productivity/ low
levels of technology &capital per worker with rapid PG.
Structural/Institutional Characteristics & Problems of
the 3rd World Countries
In period 1945-2004, rapid PG in the 3rd world has
been caused by both continuing high fertility – birth
– rates, which led to greater 1.9 LF growth rate in
2004 than the less than 1% LF growth rate in the
industrialized Europe in the 19th century & decline in
death rates (amounting to more than 66%) due to
better public health/nutrition/preventive medicine &
reduced frequency of food shortages due to improved
means of transport & communications. Against 0.1%
PG rate of industrialized countries in 2004, LDCs’
PG rate was 1.6% implying doubling of their P in 44
years. So, industrial labor demand growth lags
behind LF growth and, thus, unemployment
continues to rise in 3rd World specially in urban areas.
Structural/Institutional Characteristics & Problems
of the 3rd World Countries
Peasant Agricultural Societies
LDCs are mostly peasant agricultural societies.
Peasants are rural cultivators. They do not run
large commercial farms as do American
farmers, rather, a household whose main
concern is survival.
While land ownership/tenure/concentration
patterns vary considerably, most of the land in
these societies is tilled by landless workers,
sharecroppers, renters and smallholders.
In Afro-Asia, the average farm size is usually
less than 5 hectares or 12 acres.
Structural/Institutional Characteristics & Problems of the
3rd World Countries
Inadequate Technology and Capital
Output per worker in LDCs is low because capital
per worker is low. Lack of equipment, machinery,
and other such capital & low levels of technology,
throughout most of the economy, hinder production .
Although output per unit of capital in LDCs compares
favorably to that of rich countries, it is spread over
many more workers.
Production methods in most sectors are traditional.
Many agricultural techniques in LICs date from
biblical times. Wooden plows are used. Seed is sown
by hand. Oxen thresh the grain by walking over it.
Water is carried in jugs on the head, and the wind is
used to separate wheat from straw.
Structural/Institutional Characteristics & Problems of the
3rd World Countries
Inadequate Technology and Capital
Generally, most manufacturing employment,
although not output, is in the informal sector

These may be one-person enterprises, or at

most, units with less than 10 workers, many of
whom are apprentices or family workers.

Production is labor-intensive.

Simple tools are used & there is no mechanical

power.
Structural/Institutional Characteristics & Problems
of the 3rd World Countries
A High Proportion of the Labor Force (LF) in Agriculture
Low Income Countries (LICs) have
45–70% of LF in agriculture/forestry/
hunting/fishing (56% in India &50% in Banglaesh),
10–25% in industry (manufacturing/
mining/ construction/public utilities) &
15–35% in services. Average agricultural
family produces a surplus large enough only to
supply a small nonagricultural population. 50%-
66% of LF produces food. In contrast high income
countries have less than 5%–10% of LF in agricult-
ure, 20–30% in industry and 60–75% in services.
Structural/Institutional Characteristics & Problems
of the 3rd World Countries

A High Proportion of Output in Agriculture

GDP share of agriculture is 56% in Congo.

GDP share of agriculture is 52% in Ethiopia.

GDP share of agriculture is 45% in Tanzania.

Structural/Institutional Characteristics & Problems
of the 3rd World Countries
Agriculture’s share of LF in LICs, which was
almost 90% one generation ago or two
generations ago, has been gradually declining
over time (for example, agriculture’s share of LF
in USA gradually declined from around 90% in
the late 18th century to 3% in 2001).
Consequently agriculture’s output share in LICs
has been declining like the case of decline of
USA’s agriculture’s output share to 2% in 2001.
Asian/African least-developed nations & LICs
are in early part of LF change & Middle Income
Countries (MICs) of Latin America/East Asia/
Middle East are in a later part of LF change.
Structural/Institutional Characteristics & Problems of the
3rd World Countries
Conclusion: As nations develop, agriculture’s
output/LF share decline and output/LF shares of
industry & services increase.
Correlation of increased output/LF shares of
industry & services with economic growth is
closely related to shifts in economic activity from
rural to urban areas due to potential economies
of location/agglomeration in cities.
Shift in labor force shares from agriculture to
industry lags behind shifts in production shares.
due to an unprecedented growth of population/
labor & industry’s advanced technology and
greater capital intensity.
 Structural/Institutional Characteristics &
Problems of the 3rd World Countries
In high-income countries, the rising output /LF
shares of services leads first to stability & then an
eventual decline in shares of industry – a
phenomenon called “deindustrialization.”
Positive correlations of relative sizes of nonagri-
cultural sectors with per capita income do not
mean that industrialization creates prosperity.
Industrialization may be a result of shifts in the
composition of aggregate demand caused by
higher per capita incomes. At the lowest levels of
per capita income, almost 50% of total demand
is for food, and relatively large shares are for
shelter and clothing.
 Structural/Institutional Characteristics &
Problems of the 3rd World Countries
Correlations of increased shares of
industry & services in output/employment
with economic growth are closely related
to shifts in economic activity from rural to
urban areas.
Growth of urban centers is spurred by the
increases in modern nonagricultural
activities as these modern activities benefit
greatly from economies of agglomeration/
location and increase their shares in output
and employment.
Structural/Institutional Characteristics & Problems
of the 3rd World Countries
Lower Output Share of Agriculture
than LF Share of Agriculture
In LICs, agriculture’s 20–35%
output share is lower than its LF
share (45–70% LF share of
agriculture, forestry, hunting &
fishing) {16%<47% in Indonesia
& 23% < 50% in Bangladesh &
25% < 44% in Pakistan}
Structural/Institutional Characteristics & Problems
of the 3rd World Countries
Higher Output Share of Industry than
LF Share of Industry
In LICs, industry’s 20–40% output
share is higher than its LF share:.
47% > 17% (47% of LF employed in
agriculture contributes only 16% of
GDP) in Indonesia & 25% > 13% in
Bangladesh & 23% > 20% in Pakistan.
Industrial sector’s productivity/output
growth are higher than agriculture’s
productivity/output growth.
Structural/Institutional Characteristics & Problems
of the 3rd World Countries
Low Saving Rates
Adjusted net savings as a % of GNI in 2001
was 6.6% for LICs, 9.3% for middle-income
countries & 13.7% for high-income
countries.
A country’s capital stock is sum of previous
gross capital (including human capital)
investments minus physical capital
depreciation, natural capital depletion &
environmental capital damage.
Consistently low adjusted net savings means
that capital stock in LICs remains low.
 Structural/Institutional Characteristics & Problems of the
3rd World Countries
A Dual Economy
All LICs/many MICs are dual economies having traditional/
peasant/agricultural sector producing mainly for family/
village subsistence with little or no capital/outdated
traditional technologies/low marginal product of labor,
which is less than subsistence wage. This labor intensive/
subsistence agriculture (along with semi-subsistence
agriculture/petty trade/cottage industry) coexists with a
capital-intensive enclave of modern manufacturing/
processing operations/mineral extraction/ plantation
agriculture. Modern sector produces for market/uses
reproducible capital/new technology/commercially hires
labor where marginal product is equal to at least wage).
According to Lewis, dual economy grows only when
modern sector’s output share increases relative to output
share of the traditional sector.
Structural/Institutional Characteristics & Problems
of the 3rd World Countries
In the 1950s and 1960s, the modern sector
tended to be foreign owned and managed.

Today, modern sector is increasingly

owned domestically by either government or
private capitalists and sometimes jointly with
foreign capital.
Structural/Institutional Characteristics & Problems of the
3rd World Countries
An Unskilled LF & a Small Middle Class (SMC)
In developing countries, the unskilled workers –
peasants/manual workers of the population lower
class – constitute a large share of LF. ⇒ SMC
In 1960, only 12% of the LF in LICs (having
per capita GNP less than $700) were in white-
collar jobs (professional/technical/executive/
administrative/managerial/clerical/sales)
compared to 21% in MICs (having per capita
GNP ranging from $700 to $1,500) & 31% in
HICs (having per capita GNP greater than
$1,500).
Structural/Institutional Characteristics & Problems
of the 3rd World Countries
An Unskilled LF & a Small Middle Class (SMC)
LDCs’ white-collar worker shares increased by
more than one-third during 1960 -1980 [like the
United States’ white-collar workers share rose from
17% in 1900 to 45% in 1960 & the United States’
share of manual laborers declined sharply from
71% to 45% (Squire 1981, Kuznets 1966)].
As economic development occurs, the structure
of LF changes such that capital and skilled labor
are substituted for unskilled labor as well as the
social structure becomes more fluid such that the
size of middle class (consisting of business
people/rofessionals/civil servants) increases.
Structural/Institutional Characteristics & Problems
of the 3rd World Countries
Low Literacy/School Enrollment Rates
Adult literacy rate is 61% in LICs (compared
to 90% in MICs and 100% in HICs.
Although LDCs literacy rates are low
compared to those of DCs, LDCs literacy rates
have increased substantially since 1900 and
increased steadily since 1950, when a majority of
third-world adults were illiterate. Primary
enrollment of children aged 6–11 was 95% in LICs &
virtually 100% in MICs – 86% in sub-Saharan
Africa/98% in South/Southeast Asia/95% in Middle
East/virtually 100% in Latin America, East Asia &DCs.
Structural/Institutional Characteristics & Problems
of the 3rd World Countries
Direction of Causation in Eduction –Development
Nexus?
It is difficult to determine whether education is a
cause (of ED) or an effect/result of ED.
A well-educated citizenry contributes to higher
income and productivity, which in turn lead to
greater investment in primary education and adult
literacy.
Literacy/enrollment rates are not highly correlated
to GNP per head because there is little correlation at
upper-income levels – most countries attained
virtually universal primary education (UPE) & nearly
100 percent literacy by the time average yearly income
reaches $5,000–10,000 (PPP$15,000–20,000).
Structural/Institutional Characteristics & Problems
of the 3rd World Countries
Second, 91% Literacy Rate (LR) of Kerala (in India),
92% LR of Sri Lanka and 93% LR of Vietnam are due
to these countries’ efforts to meet basic educational and
other needs for even the poorest population [higher
than their expected lower LRs corresponding to their low
annual per capita GNP amounting to $400-800 or less].
Third, 75% or lower adult LRs of Saudi Arabia, the
United Arab Emirates, Iran, and Oman are lower
than their expected higher LRs corresponding to
their high annual per capita GNP resulting from their
sudden oil-created affluence of the 1970s.
Many LDCs discriminate against women’s education/
employment. LRs for women in LICs are 75% &
enrollment rates are 80-90% of rates for men.
Structural/Institutional Characteristics & Problems of the
3rd World Countries
LDC s’ primary enrollment rates doubled in 1960-2000.
Secondary enrollment rates of children aged 12–
17 were 44% in LICs, 70% in MICs – 27% in
sub-Saharan Africa, 48% in South/Southeast
Asia, 61% in East Asia, 76% in the Middle East,
86% in Latin America & almost 100% in HICs.
Tertiary (postsecondary/university) enrollment
rates were 8% in LICs, 17% in MICs – 4% in
sub-Saharan Africa, 9% in East Asia, 10% in
South/Southeast Asia, 21% in % in Eastern
Europe/Central Asia – and 62% in HICs.
Structural/Institutional Characteristics & Problems
of the 3rd World Countries
Varying Dependence on International Trade (IT)
IT/GNP ratio varies with population size (IT/GNP
ratio does not vary with income per capita) as implied
by the fact of highly populated India/USA having low
IT/GNP ratio & their GNP is less dependent on IT.
Several developing countries are highly dependent on
their international trade & volatile export earnings.
Many LICs/oil-exporting countries’ exports depend
mainly on a few primary commodities/countries. In
1992, primary commodity export concentration ratios –
exports of 3 leading primary goods (food/raw materials/
minerals/organic oils/fats) as a % of total merchandise
exports – were high for many ICs/LDCs – Nigeria 96%/
Iran 94%/Ethiopia & Saudi Arabia 87% /Pakistan
Structural/Institutional Characteristics & Problems of the
3rd World Countries
Varying IT Dependence of Developing & Developed Countries
76 % of exports of DCs is to other
DCs. Only 24% of exports of DCs are to
LDCs;
75% of LDC trade is with DCs.
Only 25% of LDC trade is with other LDCs.
Small volume of trade between rich & poor states –
very important to developing countries – is not nearly
so essential to DCs. For example, in the 1980s, one-
third of Ghana’s exports was cocoa to Britain
constituting only a fraction of 1% of British imports.
One-third of 1% of an English firm’s sales comprised
Structural/Institutional Characteristics & Problems
of the 3rd World Countries
Insecure Property Rights
While major institutions of society’s
laws/customs/conventions are prerequisite for
development, most potential capital assets are dead
capital (informal capital) because these capital assets
are, unusable under the legal property system and
inaccessible as collateral for loans or to secure bonds.
Therefore, formal credit market formal credit markets
do not exist for most LDC business owners/residents.
De Soto estimates dead capital in the five-sixths of the
world without well-established property rights as being
equal to $9.34 trillion – about $4100 for every LDC citizen.
$3.6 trillion of the dead capital could be “unlocked” by
clear property rights.
Structural/Institutional Characteristics & Problems
of the 3rd World Countries
Rent Seeking and Corruption in Developing Countries
[Economic rent is the payment above the minimum
essential to attract the resource to the market.
Rents “include not monopoly profits, subsidies and
transfers organized through the political mechanism,
illegal transfers organized by private mafias, short-term
super-profits made by innovators before competitor
imitate their innovations, etc.” (Khan/Sundaram 2000).]
Rent seeking is unproductive activity to obtain private
benefit from public action and resources. This activity
ranges from legal activity (lobbying and advertising ) to
illegal bribes or coercion. The waste to society includes
resource misallocation & the costs of working to get the
monopoly, special privilege which constitute a substan-
tial proportion of national income in many LDCs.
Structural/Institutional Characteristics & Problems
of the 3rd World Countries
Rent Seeking and Corruption in Developing Countries
All societies are subject to illegal and corrupt behavior.
Western polities encounter companies contributing money
& favors to skew policies, use of the state to favor power-
ful economic interests or destroy political opponents,
efforts to cover up illicit use of public resources. Pervasive
rent seeking occurs where the state is weak, decaying, venal,
and lacking rule of law, primarily among low- and middle-
income economies. Weak & decaying does not imply a
benevolent ruler with a small military force. Political power
backed by military coercion is usually a key resource for
access to substantial rent seeking. Weak/soft LDCs are often
authoritarian states – authorities make policies but rarely
enforce them & only reluctantly place duties on people –which
depend on buying political support through concessions to po-
werful groups.“Why hire a lawyer when you can buy a judge.”
Structural/Institutional Characteristics & Problems
of the 3rd World Countries
Rent Seeking and Corruption in Developing Countries
In 1994, Nigeria’s military government and its
civilian allies expropriated “more than a thousand
million dollars annually – equaling 15% of
government revenues.
Many LDC ruling elites may not benefit from
avoiding political decay through nurturing free entry
&rule of law/reducing corruption & exploitation.
Instead, political leaders may gain more from
extensive unproductive, profit-seeking activities in a
political system they control than from long-term
efforts to build a well-functioning state in which
economic progress and democratic institutions
flourish.
Structural/Institutional Characteristics & Problems
of the 3rd World Countries
Clientelism/patrimonialism (dominant pattern
LDCs) is a personalized relationship between
patron and clients, commanding unequal wealth,
status/influence, based on conditional loyalties &
involving mutual benefits.
Many low-income countries, especially in Africa, are
characterized by predatory rule, involving a
personalistic regime ruling through coercion,
material inducement, and personality politics,
which degrades the institutional foundations of the
economy/state.
In most LICs, land, capital and credit, insurance,
and forward & other exchange-rate markets are
poorly developed.
Structural/Institutional Characteristics & Problems
of the 3rd World Countries
Current Islamic World’s Experience of Decline of Science
[After Climax of Science in Golden Age of Islam for 350 years between
750A.D. and 1100A.D, when the world of science was dominated by only
Muslim scientists originating from the Common Wealth of Muslim
Countries of Arabs, Turks, Afghans, and Persians – for example, Jabir,
Khwarizmi, Razi, Wafa, Biruni, Avicenna, Ibn-Al-Hatham and Umar
Khyyam as well as by many Muslim scientists (for example, Ibn Rushd,
Tusi and Ibn Nafees) and few Western scientists (Gerard of Cremona
and Roger Bacon) between 1100 A.D. and 1350 A.D. Climax of the
climax of science in the golden age of Islam was based on the
teachings of the Holy Qur’an (Its 750 verses inspire the
believers to study nature, reflect on it, make the best use of
reason and make scientific enterprise as integral part of
community life and 200 verses are legislative), which gave
great importance to pursuit of knowledge of the universe
and assigned superiority to men of knowledge. More over
Muslim scientists were fully supported and financed by the
Muslim rulers and governments.}
Structural/Institutional Characteristics & Problems of the
3rd World Countries
Current Islamic World’s Experience of Decline of
Science Caused by Three Factors
1. Lack of Attention to The Teachings of the Holy
Qur’an.
2. Essential governmental support for the
Muslim scientists faded away because the rulers
became more interested in music and building
palaces as well as monuments.
3. Brain drain (migration of Muslim scientists to the
West) caused by the significant decline in the
value and respect as well as the financial problems
of scientists in the Muslim world.
4. Decline of Waqf institution, which used to
support academic and scientific activities.
Structural/Institutional Characteristics & Problems
of the 3rd World Countries
Insufficient State Tax Collections/ Insufficient Provision of Basic Services
While an important institutional capability is the
capacity of a national economy to raise revenue
and provide basic services, several failed LICs
(Sierra Leone, Liberia, Sudan, and Somalia)
failed to provide minimal functions such as
defense/law & order, property rights, public
health (potable water/sewage disposal),
macroeconomic stability & protection of the
destitute, to say nothing of intermediate
functions (basic education/transport/communic-
ation/pollution control/pensions/family allowan-
ces/health, life & unemployment insurance.
Structural/Institutional Characteristics & Problems
of the 3rd World Countries
Insufficient State Tax Collections and Insufficient
Provision of Basic Services
Governments need to maintain or reestablish a
social compact with all their citizens, including
the poor, in which some basic needs are met in
return for tax contributions according to the
ability to pay.
A way to increase legitimacy & raise tax revenue
is to replace widely evaded direct taxes – personal
income taxes – with indirect taxes [for example,
Value-Added Tax (VAT)], which is simpler/more
uniform/less distortive than a simple sales tax &
has high income elasticity f revenue generation.
Structural/Institutional Characteristics & Problems
of the 3rd World Countries
Insufficient State Tax Collections and
Insufficient Provision of Basic Services
But, VAT can face administrative problems among
numerous small industrial firms & traders in LICs.
Building economic institutions – a tax system, which raises
enough revenue for basic services, is essential for stimulat-
ing investment to increase economic growth and stability.
Climatic Determinism (CD) and Colonization
Theory of CD (equatorial paradox in economic
geography) asserts that about 70% of a country's
economic development can be predicted by the distance
between the country & equator & that the further from
the equator a country is located, the more developed it
tends to be.
Structural/Institutional Characteristics & Problems
of the 3rd World Countries
Climatic Determinism (CD) and Colonization
In light of Huntington’s assertion that
climate can lead to the demise of even
advanced civilizations through
drought/food insecurity/damages to
economic production, the theory of CD
asserts that warmer climate zones
produce less civilized, more degenerate
peoples, who are in need of salvation by
western colonial powers.
Structural/Institutional Characteristics & Problems
of the 3rd World Countries
Adverse Geography
Geography is one of the significant determinants of
the extent of problems of agriculture, public health
and comparative underdevelopment of nations.
Landlocked economies have lower incomes than
coastal economies. Developing countries are
primarily tropical [Earth’s regions having subsolar
points where the sun is directly overhead at least once
during a solar year – Tropics (regions of the earth
situated around equator have tropical climate, which is
either warm or hot and moist throughout the year with
lush green vegetation] or subtropical [Subtropic
zones are often characterized by warm to hot summers &
cool to mild winters with infrequent frost].
Structural/Institutional Characteristics & Problems of the
3rd World Countries
Adverse Geography
Geographically, tropical/subtropical climate of
developing countries means that they suffer from
the tropical pests and parasites/endemic diseases
such as malaria/water constraints/extremes of heat.
Bangladesh/Chad,/Yemen/Haiti have minimal
endowments of raw materials, minerals and fertile land.

A greater concern is that the global warming is going to

have its greatest negative effect impavt on Africa and Asia.
Case of Congo illustrates the so-called “curse of
natural resources” proves that high mineral
wealth is no guarantee of development success.
Structural/Institutional Characteristics & Problems of the
3rd World Countries
Adverse Geography & Favorable Geography in the 3rd World
Curse of natural resources refers to the widespread
conflict over profits from the mineral/natural wealth,
which shifts focus from the creation of wealth to the
distribution of wealth & culminates in social strife/
undemocratic governance/high inequality/armed conflict.
Geography is not destiny as high income Singapore,
which lies almost directly on the equator, and parts of the
Southern India have exhibited great progressive
dynamism in recent years. To solve common problems of
tropical/subtropical nations together, efforts need to be
redoubled for spreading the benefits of green
revolution/ tropical disease control to Sub-Saharan
Africa.
Oil-Rich Persian Gulf States are another extreme case
Structural/Institutional Characteristics & Problems
of the 3rd World Countries
Adverse Geography & Favorable Geography in the 3rd World
Of course, economically successful countries are
also situated in in tropical or subtropical zones.
The aforementioned contradicting development
performances of countries of the same tropical/
subtropical countries is also due to differences in
national social inequality levels and institutions
resulting from differences in the national
institutions inherited from different imperial
powers, which colonized those particular nations of
the 3rd World & recreated unhelpful “extractive”
institutions in their respective colonized nations in
which it became hard for imperial powers to settle.
Structural/Institutional Characteristics & Problems of the
3rd World Countries
Adverse Geography
Extremes of heat & humidity in most of poor
developing countries contribute to deterioration of
soil quality/depreciation of many natural goods/
decline in productivity and output of certain crops,
deterioration of health of animals. Increase in
discomfort to workers,/decline in health of workers/
reduction in in the desire of workers to accomplish strenuous
physical work/decline in productivity /efficiency of workers.

There is evidence that tropical geography actually poses

significant problems for economic development.
Therefore, special attention needs to be given to promote
international development assistance for developing a
rd
Structural/Institutional Characteristics & Problems
of the 3rd World Countries
Lack of Transparency
Transparency, political accountability and knowledge
transmission are key ingredients in effective
development strategy.
Stiglitz (2002) points to existence of natural asymmetry
of information between ruling elites & citizens.
He argues that the most important check against abuses
is the presence of a competitive press that reflects a
variety of interests.
Media plays a major role in the extent of support/or
opposition) for ruling elites/industrial leaders/ provision
of a voice for the people & spread of economic
information. Media freedom is highly correlated with
democracy/food security/efficiency/economic
development.
Structural/Institutional Characteristics & Problems
of the 3rd World Countries
Underdeveloped Markets
Problems of imperfect markets/incomplete information
are widespread in many developing countries due to
both the weak legal/institutional foundations for
markets & the absence of 7 factors:
1. A legal system that enforces contracts &
legalizes/authenticates property rights.
2. Stable and trustworthy currency.
2. Infrastructure of roads & utilities for lowering
transportation/communication costs &
increasing international trade.
4. A well-developed & efficiently regulated
system of banking & insurance for ensuring
broadest access to credit based on profitability &
enforcement of repayment of loans.
Structural/Institutional Characteristics & Problems of the
3rd World Countries
Underdeveloped Markets
5.Substantial market information for consumers and
producers about prices/quantities/qualities of products &
resources as well as for banks about the creditworthiness of
potential borrowers
6. Social norms, which facilitate successful long-term
business relationships.
7.Economies of scale in major sectors of the economy (due to
limited demand, few sellers, widespread externalities in
production/consumption & inefficient/distorted allocation of
resources and poorly regulated common property resources
(fisheries, grazing lands and water reservoirs)
Widespread imperfect markets & incomplete information
warrant greater governmental intervention for developing
markets]
Structural/Institutional Characteristics & Problems
of the 3rd World Countries
Lingering Colonial Impacts &Unequal International Relations
Most 3rd World countries were once colonies of Europe &
were dominated by the Wedstern foreign powers and their
institutions, which had persistent harmful effects on the
development of the 3rd World countries.
Colonial institutions often favored extractors of wealth
instead of favoring the creators of wealth such that colonial
powers facilitated the exploitations of human and other
resources for the benefit of the colonizing elite thereby
reinforcing extreme inequalities, controls on the favored
colonial elites have been weak and a smaller segment of
society has been able to gain access to take advantage of
economic opportunities.
Colonial powers brought settlers in large numbers to live
permanently in their colonized nations &annihilated native
populations & exploited/enslaved their descendents.
Structural/Institutional Characteristics & Problems
of the 3rd World Countries
Lingering Colonial Impacts &Unequal International Relations
Colonial powers favored kleptocratic institutions
at the cost of the progressive institutions, which
encouraged productive effort.
Kleptocracy is a political system governed by
kleptocrats (corrupt leaders), who use their power
to exploit both their subjects and national natural
resources for enriching their personal wealth
through by embezzling funds and political power.

Extractive colonial institutions (kleptocratic

institutions) are the original cause of poor
governance/maladministration and poor
performing underdeveloped markets.
Structural/Institutional Characteristics & Problems
of the 3rd World Countries
In addition to the anti-development effects of the colonies’
wealth stolen by colonial powers, harmful effects of
kleptocratic institutions linger in many 3rd world nations
even during several decades of their independence because
the anti-development institutions have a long life span.
Diversity of colonial history explains the wide spectrum of
development performances of today’s 3rd world countries
[Latin American countries (Spanish/n Portuugese) have a
longer history of independence & have long been been
MICs (Beazil) caught in middle-income trap.
India/Pakistan/ Bangladesh (British), Vietnam (French),
Indonesia (Dutch) Korea (Japanese) and Algeria (French)
have diverse levels of economic progress.
In cold war era, developing countries remained dominated
either by USA & their former colonial powers or by Soviet
Union. Now. they are mainly dominated by USA.
Structural/Institutional Characteristics & Problems
of the 3rd World Countries
Lingering Colonial Impacts &Unequal International Relations
European colonial powers had a dramatic long-lasting impact
on the economies & political as well as institutional structures
of their Asian/African colonies by introducing powerful
innovations of property rights, personal taxation and the
obligation of paying taxes in the form of money, which
created extreme inequalities & facilitated elite rule.
Colonial era’s extreme inequalities have resulted into
slower movement toward democratic institutions, less
investment in public goods &less widespread investment
in human capital, which are among the serious
problems of underdevelopment of the 3rd world nations.
Especially, Africa experienced the impact of
colonization in the forms of enslavement of millions of
originally free African people & global slave trade.
Theories of Economic Development
Theory is a systematic explanation of
interrelationships among economic variables.
Purpose of theory is to explain causal relationships
among pertinent economic variables for under-
standing world better & provide basis for policy.
Four Classic Theories of Development
Literature on economic development is
dominated by the four strands of thought:
1.Linear-Stages-of-Growth Model – 1950s & 1960s
2.Theories & Patterns of Structural Change –1970s
3.International-Dependence Revolution–1970s
4.Neo-classical, free-market counterrevolution –
1980s & 1990s
Theories of Economic Development
1.Linear-Stages-of-Growth Model – 1950s & 1960s
Theories of linear-stages-of-growth regarded the
process of economic development as being a
series of successive stages of economic growth,
in which economic development required only
a right mixture of saving, investment, and
foreign aid was necessary, & emphasized
the role of accelerated capital ccumulation
in economic development.
i) Rostow’s Theory of Stages of Economic Growth

ii)The Harrod-Domar (H-D) Growth Model

 Theories of Economic Development
i)Rostow’s Theory of Stages of Economic Growth
Rostow‘s 5 stages of growth:
1.The traditional society
2.The pre-conditions for take-off
3.The take-off
4.The drive to maturity
5.The age of high mass consumption
Developing countries are still in either the
traditional society or the pre-conditions
stage.
1.Traditional Society (TS) Stage ⇒ Pre-Newtonian
agricultural society – at the turn of the 18th century,
which used traditional/ad hoc production techniques.
Rostow’s TS groups past economies, DCs of the 19 th century &
 Theories of Economic Development
2)Preconditions for Take-off
There are inevitably required radical changes in three
nonindustrial sectors:
a) Dramatically large increases in transport investment
for enlarging target market and product
specialization
b) Agricultural revolution to feed urban population
c)Dramatically large increases in imports of capital –
capital goods used for industrialization – to be
financed by exporting natural resources
Existence of powerful pro-development leadership,
which is genuinely interested in national development
due to either affinity or due to a reaction to past
colonial domination, is a logical imperative for
realizing the above three preconditions for take-off.
Theories of Economic Development
3) Take-Off (TO)
TO is a decisive economic growth occurring during a
period of 2-3 decades. which radically transforms
economy & society such that all barriers to steady
growth are overcome, forces making widespread
progress dominate the society and growth becomes a
normal phenomenon.
TO occurred in times of industrial revolution in late 18th-
century England, pre-civil war USA’s railroad/manufact-
uring development, late-19th-century German revolution,
post-1868 Meiji Restoration/ Renovation/Revolution/
Renewal/Reform of Japanese Imperial Regime , rapid
growth in coal/iron/ heavy engineering industries in a
quarter century before 1917 Russian Revolution, the 1st
decade of Indian independence & post-1949 Communist
Victory in China.
 Theories of Economic Development
Imperatives for Occurrence of TO
a) Sharp increase in NI/NNP ratio from 5% to 10%.
b) Emergence of a leading manufacturing sector –
textiles emerged as the leading sector in UK –
stimulates growth through backward/forward linkages.
c) Establishment of political/social/cultural/
institutiontional framework to exploit expansion of
modern sectors for promotion of entrepreneurship to
take the risk of innovating/resources’ mobilization
through retained earnings from rapidly growing
sectors/development of banks & capital markets and
foreign investment.
All advanced economies have passed
the stage of take-off into self
 Theories of Economic Development
4. Drive to Maturity
Growth becomes regular/expected/self-sustaining.
Labor force becomes predominantly urban/
skilled/individualistic/more bureaucratic & looks
increasingly to state to provide economic security.
5. Age of High Mass Consumption
Symbols of this stage – realized by the USA in
the 1920s – are gadgets/automobiles/suburb-
anization/countless durable consumer goods.
A country chooses to be either a welfare state or
an international military & political power – US
in the 1920s & the Western Europe in the 1950s.
 Theories of Economic Development
ii)A Simplified Form of the H-D Growth Model
s = S/Y ⇔ S = sY
K/Y = c ⇔ [△K/△Y] = c ⇔ △K = c△Y
I = △K
In Equilibrium:
S = I ⇔ S = sY = △K = c△Y
[△Y/Y] = [s/c] (1)
Equation (1) of H-D growth model states that in the
absence of government, the rate of growth of GDP is
positively related to net national saving ratio – s –
and negatively related to national capital/output – c.
 Theories of Economic Development
ii)A Simplified Form of the H-D Growth Model
Steady State ⇔ An unvarying condition in a physical
process, according to a theory that the eternal universe is
maintained/sustained by constant creation of matter.
A system or a process is in a steady state if the
variables – state variables, which define the behavior
of the system or the process, are unchanging in time.
[△Y/Y] = [△K/K] = g ⇔ A constant growth rate
△K = I – бK
S G = sG Y = I
△K = sG Y – бK ⇔ [△K/K] = (sG Y)/K – б
[△K/K] = s/(K/y) – б ⇔ [△K/K] = sG /c – б (2
Equation (2) is the H-D Model expressed in terms of gross
savings with б as the rate of depreciation of capital stock K.
Theories of Economic Development
According to the H-D growth model (AK

model), the principal strategy/trick for

development is mobilization of saving and
generation of investment to accelerate
economic growth.

Importance of H-D growth model (AK

model) lies in the fact that it explains the
mechanism by which investment leads to
growth.
 Theories of Economic Development
Structural-Change Models
Structural-change theory focuses on the
mechanism by which underdeveloped
economies transform their domestic
economic structures from traditional to an
industrial economy.

Representative examples of this strand of thought

are the Lewis theory .of development and
Chenery’s patterns of development.

Lewis Theory of Development is

also known as the two-sector
surplus labor model.
 Theories of Economic Development
Features of the basic model:
Economy consists of two sectors – traditional
and modern sectors.
Traditional sector has surplus of labor
(MPL=0).
Model focuses on the process of transfer of
surplus labor and the growth of output in
the modern sector.
The process of self-sustaining growth and
employment expansion continues in the
modern sector until all of the surplus
labor is absorbed.
Structural transformation of the economy
has taken place with the growth of the
Theories of Economic Development
 Theories of Economic Development
Structural Changes & Patterns of Development:
Chenery’s Model’s Patterns of development theorists view
increased savings and investment as necessary but not
sufficient for economic development.
In addition to capital accumulation, transformation of
production, composition of demand, and changes in
socio-economic factors are all important.
Empirical structural change analysts recognize that the 3rd
World countries are part of an integrated international
system that can promote as well as hinder their
development.
They acknowledge/emphasize both domestic constraints –
countries’ physical size/population /resource endowments
– &international constraints – access to external
capital/technology/ international trade – on development
of the 3rd World countries.
 Theories of Economic Development
Chenery & his colleagues examined patterns
of development for developing countries
having different per capita income levels.
Their empirical studies identified several
characteristic features of economic
development:
Shift from agriculture to industrial production
Steady accumulation of physical and human
capital
Change in consumer demands
Increased urbanization
Decline in family size
Demographic transition
 Theories of Economic Development
Implications of Structural Changes & Patterns of
Development

Differences in development among

the countries are attributed to
domestic constraints and
international constraints.
Structural-change analysts believe
that the “correct mix” of
economic policies will generate
beneficial patterns of self-
sustaining growth.
They acknowledge capital accumulation,
transformation of production, composition of
 Theories of Economic Development
3.Theory of International Dependence Revolution (IDR)
Advocates of IDR assert that dependence is
underdevelopment.
They reject exclusive emphasis on GNP growth
rate as the principal index of development.
They emphasize international power
imbalances/unequal international capitalist
system as the cause of the underdevelopment
of the 3rd world and recommend
radical/revolutionary reforms worldwide.
They identify numerous serious challenging
problems of developing countries in forms of
institutional/political/economic rigidities in
both domestic and international system.
 Theories of Economic Development
3. International-Dependence Revolution
They highlight the fact that developing countries are
entrapped in a dependence-dominance relationship
with powerful/rich capitalist countries.
There are 3 Streams of Thought within IDR:
i) Neocolonial Dependence Model
ii) False-Paradigm Model
iii) Dualistic-Development Thesis
i) Neoclassical Dependence Model (NDM)
NDM is an indirect result of Marxist thinking.
NDM attributes of the persistence of
underdevelopment (U) to the historical evolution of
unequal capitalist system of rich country-poor
country relationships.
 Theories of Economic Development
NDM asserts that the coexistence of rich and poor
countries in an international system dominated by
unequal power relationships between the center
(DCCs) and the periphery (the 3rd World) renders
attempts by the poor nations to be self-sufficient and
independent difficult and sometimes impossible.
Certain high income/gentry politically powerful groups
& comprador groups in the 3rd world (landlords,
entrepreneurs, military rulers, merchants, salaried
public officials and trade union leaders), which
constitute elite ruling class. are perpetuators of the
international capitalist system of inequality/conformity
compliance/c and, are dependent on rewards from the
national/bilateral/multilateral assistance organizations
such as the World Bank/IMF (for their above role)
which are tied by loyalty or funding to capitalist DCs.
 Theories of Economic Development
NDM asserts that often elite’s viewpoints/activities serve
to inhibit any genuine efforts for progressive reforms,
which can benefit the wider population, and actually
lead to lower levels of living thereby perpetuating U.
This neo-Marxist, neocolonial view of U attributes a
large part of the 3rd world’s continuing poverty to the
existence/policies of the industrial countries of the
Northern hemisphere and their extensions {in the forms
of a small powerful elite and comprador groups) in LDCs.
Instead of the linear-stages-of-growth/structural change
theories’ claim of internal constraints of developing
countries being the causes of U of the third world, U of
the 3rd world is an externally induced phenomenon.
Revolution/major restructuring of global capitalist system is
needed to free the dependent 3rd World from direct/ indirect
control of oppressor DCs & their domestic oppressors.
 Theories of Economic Development
NDM’s most forceful statement of NDM is made by
Dos Santos:
“Underdevelopment, far from constituting a state of
backwardness prior to capitalism, is rather a
consequence of and a particular form of
capitalist development known as dependent
capitalism.”
“Dependence is a conditioning situation in which the
economies of one group of countries are
conditioned by the development and expansion
of others.”
“Dependence, then, is based upon an international
division of labor which allows industrial
development to take place in some countries,
while restricting it in others, whose growth is
 Theories of Economic Development
Argument of NDM is endorsed by Christian
Pope John Paul II:
“One must denounce the existence of economic/
political/social mechanisms which, although they
are manipulated by people, often function almost
automatically, thus accentuating the situation of
wealth for some & poverty for the rest.
These mechanisms, which are maneuvered
directly or indirectly by the more developed
countries by their very functioning favor
interests of the people manipulating them.
But in the end, they suffocate or condition of the
the economies of the LDCs.”
 Theories of Economic Development
ii) False-Paradigm Model (FPM)
FPM attributes U of the 3rd World to the
faulty & inappropriate advice provided by
the donor developed countries’/ multinational
organizations’ well-intentioned but biased
and ethnocentric international “expert
advisers” who offer misleading complex
growth/development models – models
contributed by Lewis/
Harrod-Domar/Chenery), which often lead to
inappropriate/incorrect policies.
FPM asserts that the expert advisers’ policy
prescriptions serve the vested interests of
existing domestic (22 families in the 1960s)
/international power groups.
 Theories of Economic Development
FPM highlights foreign-trained leading
university professors/trade unionists/high
level government economists/civil servants as
the recipients of the unknowingly administered
unhealthy dose of Alien
Ideas, Concepts &
Glamorous/
Elegant
(Stylish/Graceful)
theoretical models,
which are taught in universities and
implemented by governments in spite of
their practical irrelevance.
 Theories of Economic Development
The Dualistic- Development Thesis
Dualism represents the existence and
persistence of increasing divergences
between rich and poor nations and rich and
poor peoples at all levels.
The concept embraces four key arguments:
1.Superior and inferior conditions can coexist
in a given space at given time
2.The coexistence is chronic and not
transitional
3. Dualism has an inherent tendency to
increase
4.In stead of helping the inferior elements
improve their conditions, superior elements
serve to “develop the U of inferior elements.
 Theories of Economic Development
Critique of IDR
Theories of IDR have failed to contribute
an alternative neo-Marxist development
model capable of explaining/illustrating
the process of initiating and sustaining
development in undeveloped 3rd World.
Actual development performance of the
neo-Marxism-based policies of the
economic isolation developing countries
(China and India) had been negative.
In spite of failures of IDR, IDR’s modified
versions are recently being adopted by
theorists/leaders of the antiglobalization
movement in the 21st century.
 Theories of Economic Development
Neoclassical Counterrevolution (NC):
Market Fundamentalism
Neoclassical counterrevolution of the 1980s
advocated freer markets and called for
dismantling the public ownership and
government regulations
4 Constituent Theories of NC
1.Free-Market Approach (FMA) – Markets alone are efficient.
Advocates of FMA assume that the 3rd
world markets are efficient, market
imperfections/failures are of little
consequence, and, therefore, any
government intervention in economy is
distortionary & counterproductive.
 Theories of Economic Development
2.Public-Choice Theory (PCT)– New Political Economy (NPE)
PCT asserts that governments can do nothing
right as politicians/bureaucrats/citizens/
states act only from a self-interested
perspective & use their political influence
&power/authority of state for their own
selfish personal goals (Citizens use their
political influence to obtain special
benefits (rents) from government policies
of giving import licenses/subsidies. Burea-
ucrats extract bribes from rent-seeking
citizens. Politicians use state resources to
consolidate/increase their position of
power/authority. Result is misallocation of
resources/reduction in individual
freedoms. So, minimal government is best.
 Theories of Economic Development
NC
3.Market-Friendly Approach (MFA)
MFA of the World Bank and its econmists
acknowledges that there are many
imperfections in the 3rd word goods
markets/factors markets, investment
coordination and environmental outcomes.
So, MFA allows key role of governments in
facilitating operations of free markets
through nonselective interventions,
4.New Institutionalism (NI)
NI asserts that the success & failure of
developmental efforts depend on the
nature/existence/ functioning of a country’s
fundamental institutions.
 Theories of Economic Development
A cornerstone of the neoclassical free-
market fundamentalism is the assertion
that liberalization (opening up) of
national markets draws additional
domestic and foreign investment and
this increases the rate of capital
accumulation.
This approach, which is equivalent to the
approach of increasing domestic savings,
enhances capital-labor ratios and per capita
incomes in capital-poor countries.
 Theories of Economic Development
Traditional Neoclassical Growth Theory
Traditional neoclassical growth
theory argues:
a) Capital flows from rich to
poor countries as K-L ratios are
lower and investment returns are
higher in the poor countries.
b) By impeding flows of foreign
investment, poor countries
choose a low growth path.
 Theories of Economic Development
Solow's Neoclassical Model – Exogenous
Growth Model
Solow’s economic growth model implies that
economies will conditionally converge to the same
level of income, given that they have the same rates
of savings, depreciation, labor force growth, and
productivity growth.
In contrast to Harrod-Domar model, Solow’s model
allows for substitution between labor and capital,
assumes that there exist diminishing returns to these
inputs and introduces technology in the growth
equation.
Aggregate Production Function
Y = A Kα L(1- α )