ELEMENTS & MEASURES OF ECONOMIC DEVELOPMENT

 The Factors / Determinants of Economic Development

- Population Characteristics: Growth; Structure; Attributes

* Two-Way effect

- Cultural Attributes: Political Attitudes; Social Values & Attitudes

* Two-Way effect

- Technology

- Energy and Resource Base

- Government (?)

 Measures of Economic Development

- Gross National Product (GNP): total value of goods and services produced by a given nationaleconomy for one (1) year, plus income earned by its citizens (including those abroad) minus incomeof non-residents located in that country.

- Per Capita GNP: GNP / Total Population

 

- Gross domestic product  (GDP):   the market value of all officially recognized final goods and servicesproduced within a country for one (1) year .   GDP is related to national accounts, a subjectin macroeconomics.

- Per capita GDP is often considered an indicator of a country's standard of living;

- Difference between GNPand GDP:

GNP: outputs generated by a country’s enterprises, whether physically located domestically or abroad(ownership).

GDP: total output produced within a country’s borders, whether produced by that country’s own localfirms or by foreign firms (geographical).

- 2012 World Bank Ranking of Countries based on GDP:1. EU 3. China 5. Germany Indonesia- 17 Thailand- 31 Singapore- 352. USA 4. Japan S. Korea - 15 Norway- 23 Malaysia- 34 Hongkong- 36Phipippines- 39 (US$250 billion)Vietnam- 55; Cambodia- 118; Laos- 135

- Gross Domestic Income (GDI) is the total income received by all sectors of an economy within a nation.It includes the sum of all wages, profits, and taxes, minus subsidies. Since all income is derived fromproduction (including the production of services), the gross domestic income of a country shouldexactly equal its gross domestic product  (GDP).

 World Pattern of Economic Development (Per Capita GNP)

US$ 20,581-41,210: USA; West European countries

US$ 9,741- 20,580: Canada; Australia; Japan; Korea; North & South Europe

US$ 2,311- 9,740: Latin American countries; Central America; South Africa; Middle East countries;Malaysia; Singapore

US$ 0 – 2,310:Asia; Africa; WesternSouth America

Map of countriesby GDP (nominal)

in US$

 

ECONOMICDEVELOPMENT

POPULATIONCHARACTERISTICS

CULTURALATTRIBUTES

TECHNOLOGYENERGY &

RESOURCEBASE

 

- Other Measures of Development:

Human Development Index (HDI) – composite measure of life expectancy, education and income indices.Adopted by the UNDP.

Parameters Measured:1. Life Expectancy Index (LEI) = (Life Expectancy at birth - 20) / (82.3 – 20)

2. Education Index (EI) = Square Root of (Mean Years of Schooling Index xExpected Years of Schooling Index)

0.9513. Income Index (II) = In (GNI

 

pc) – In (100) GNIpc = Gross National IncomeIn (107,721) – In (100) at purchasing power parity / capita

HDI = Cube Root of (LEI x EI x II)

2013 UN Ranking of Countries based on HDI:

1. Norway Japan- 10 Singapore- 18 Malaysia- 64 Vietnam- 1272. Australia S.Korea- 12 Indonesia- 121 Thailand- 103 Cambodia- 1383. USA Hongkong- 13 Brunei- 30 Phil.- 114 Laos- 139

Gross National Happiness (GNH)- measures the quality of life or social progress in more holistic andpsychological terms.

Genuine Progress Indicator (GPI)- measures the health of a nation’s economy by incorporating cost of harmful effects of economic activities.

MODELS OF ECONOMIC DEVELOPMENT

A. Rostow’s Model of Regional/ Economic Stages of Economic Dev’t.

1. Traditional Society:subsistence economy; dominantly agricultural; low technological inputs.

2. Pre-Conditions for Take-Off:Stimulus for development as a nation emerges; national prestige; better way of life;increased profits; institutional reforms/ changes emerge to pursue the goals of economicprogress; per capita growth increases slowly.

3. Drive to Maturity:Technology widespread in application to economic activities/ production; rapid increases inproductivity; political institutions encourage economic growth; usually lasts for 40-60years.

4. High Mass Consumption:Technology applied to consumption (prepared food; packaging & preserving; styling;luxury items); investments in production continues, but increasing share in investments goto education, social welfare, health care, security, leisure and recreation.

Correlation of Level of Economic Development & Labor Employment:

Traditional Society – Agriculture and Mining (Primary)

Pre-Conditions for Take-Off – Manufacturing (Secondary)

Drive to Maturity – Retailing & Services (Tertiary)

High Mass Consumption – Information & Communications(Quaternary)

B. Models of REGIONAL GROWTH:

- From a geographic perspective, as economic activities develop and the market economyevolves in a given area or region, this results in regional growth and development.

- Two (2) theories on Regional Economic Growth:

1.   Internal Growth theory  : Economic development occurs due to changes occurring within aregion. The structure of the economy evolves because of internal processes in the region,such as application of technology to a local resource, or because of an increase ininvestments or purchasing power. These results in changes generated within a region.

2.   Export Base Theory  : Economic growth occurs as a result of the expansion of exports toother regions. Income received from the sale of exqiports induces economicdevelopment. Trade is the mechanism that initiated the economic change.

 

- Process of Internal Growth:

- Subsistence economies based on location and environment.

- Self- subsistence economies interact with each other, as roads connect the various areas –local trade evolves.

- As the system of trade grows, with more producers, competitive advantages of certainareas will begin to emerge, as some producers will prove to be more efficient, or their location more advantageous.

- The more competitive producers will eventually expand their markets and produce more.Larger sales will enable application of new technology where the average cost per itemmay decrease as the number of items produced increases.

This is the concept/ principle of “Economies of Scale”.

- As agricultural trade grows, there is an increase in per capita income. Moreover, withagricultural surplus, local manufacturing and service industries will be stimulated.

- The process will feed on itself, together with application of technology in reducingtransport costs and also unit production costs – resulting in growing trade, especially for the advantageously located producers.

- Shift from agriculture to an industrial base. With industrialization comes increased needfor tertiary activities, leading to the stage of economic maturity.

- The Export Base Theory

- The theory is premised on the recognition that areas have a natural resource base, whichcan attract foreign capital and technology.

- An area therefore, can specialize on such resource base for its production, becoming itsexport – known as “regional specialization”.

- Income received from the export of the resource provides the initial impetus for growth.

C. GROWTH POLE THEORY

- Formulated by a French Economist, Francois Perroux, in the early 50s.

- A variant of the Internal Growth Theory

- The theory has undergone several modifications to give it geographic character, primarily byAlbert Hirschman, Gunnar Myrdal and John Friedmann

- The Theory in Summary  Development does not occur evenly in a region. Some areas would tend to grow faster,

while others would lag behind.

 The areas growing faster are the metropolitan areas, which initially started to grow with thepresence of a KEY INDUSTRY.

 As the Key Industry grows with increased output, it leads to;-Increase in employment;-Rise in purchasing power;-New industries and activities (called AFFECTED INDUSTRIES) are attracted to the area;-Improvements in banking, government, retailing, health care, etc.

 Agglomeration follows and sustains the growth of the area, until it becomes a metropolitan/urban area – GROWTH POLE.

- Initial Negative Effects of Growth at a Pole (POLARIZATION EFFECTS)

 Local industries in the lagging areas become uncompetitive;

 Outmigration of skilled manpower from the lagging areas to the growth pole.

 Capital shifted from the lagging areas to the growth center.

- Trickle-Down Effects of Growth Poles  Increase in purchases of production inputs by the growth center from the lagging areas;  Employment absorption by the growth center of unemployed in the lagging areas;

 Spill over of capital from the growth center to lagging areas;

 

 With further development in the growth center, it will gradually enlarge, bringing about 2processes of growth diffusion:

 Areal Accretion – expansion of growth to the periphery.

 Leapfrogging – growth jumps to another center with Secondary Key Industry, leading toHierarchical Diffusion of development.

- Other Factors Supporting the Growth Pole Theory

 Multiplier Effect – additional economic activities & services are stimulated by the growthand expansion of an economic activity.

 Market Threshold – minimum number of people (aggregate purchasing power) necessaryfor an economic activity or industry to exist profitably.

 Technological Innovation/ Invention

 Circular/ Cumulative Causation

PROBLEMS OF ECONOMIC DEVELOPMENT

- Development has no sure fire formula that will be universally or generally be applicable to allcountries.

- Spurring economic growth and development involves an integrated and coordinated approachon the various factors affecting development.

- Illustrations:

  Shifting the economy’s focus from agriculture to manufacturing and services will not beeffective unless there is a consumer market to sustain the further growth of manufacturingand service industries. The shift from agriculture to manufacturing, then to services, mustnaturally evolve in order to bring about income increases of the agricultural population, toeventually serve as market for manufactured products - enough to bring about a thresholdmarket.

 Infrastructure developments will not likewise stimulate development unless there is acorresponding increase in economic production that will make use of the infrastructures.

 Investing in agricultural development will not also be sufficient unless rapid populationgrowth is addressed so as to realize surplus production.

- The importance of Investments, Capital Accumulation and Institutional Changes.

- Problems in Philippine Economic Development

- Population Characteristics: Growth; Structure; Attributes

- Cultural Attributes: Political Attitudes; Social Values & Attitudes

- Technology

- Energy and Resource Base