copyright © 2006 pearson addison-wesley. all rights reserved. chapter 11 development policymaking...

Copyright © 2006 Pearson Addison-Wesley. All rights reserved.

Chapter 11

Development Policymaking and the Roles of Market, State, and Civil Society

Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 11-2

The Planning Mystique

In the past, few doubted the importance and usefulness of national economic plans

Recently, however, disillusionment has set in


The Nature of Development Planning

Basic concepts Planning in mixed developing economies


The Rationale for Planning in Developing Economies

Market failure Resource mobilization and allocation Attitudinal or psychological impact Foreign aid


The Planning Process: Some Basic Models

Characteristics of the planning process Planning in stages: 3 basic models

– Aggregate growth models


Aggregate Growth Models

)()( tkYtK

WhereK(t) is capital stock at time tY(t) is output at time tk is the average and marginal

capital-output ratio

(11.1)



)()()()1()( tSsYtKtKtKtI Where

I(t) is investment at time ts is the savings rateS is national savings is the depreciation rate

(11.2)

If g is the targeted rate of output growth, then

)(

)(

)(

)()1(

tY

tY

tY

tYtYg

(11.3)



Y

Y

YK

YKk

K

Kk

K

K

/

/(11.4)

k

s

K

KsYg (11.5)

k

spn

Where n is the labor force growth rate and p is the growth rate of labor productivity

(11.6)



YW (11.7)

IWss W (11.8)

Where W and are wage and profit incomes

Where s and sW are the marginal propensities to save from wage income and profit



WW sY

ssgk ))(()( (11.9)


The Planning Process: Some Basic Models

Characteristics of the planning process Planning in stages: 3 basic models

– Aggregate growth models– Multi-sector models and sectoral projections– Project appraisal and social cost-benefit

analysis


Project Appraisal and Social Cost-Benefit Analysis

Basic concepts and methodology Setting objectives Computing shadow prices and social

discount rates


The Social Rate of Discount

t

ttt

r

CBNPV

)1(

Net present value, or NPV is given by

WhereBt is the expected benefit at time tCt is the expected cost at time tr is the government’s social rate of

discount

(11.10)


Project Appraisal and Social Cost-Benefit Analysis

Basic concepts and methodology Setting objectives Computing shadow prices and social

discount rates Choosing projects: some decision criteria Conclusions: planning models and plan

consistency


Problems of Plan Implementation and Plan Failure

Theory versus practice– Factor prices, choice of technique, and

employment creation– Rural-urban imbalances– Demand for education– Structure of the economy


The Crisis in Planning: Problems of Implementation and Plan Failures (cont’d)

Reasons for plan failures– Deficiencies in plans and their implementation– Insufficient and unreliable data– Unanticipated economic disturbances– Institutional weaknesses– Lack of political will


Government Failure and the Resurgent Preference for Markets Over Planning

Problems of government intervention in LDCs


The Market Economy

The market economy sociocultural preconditions and economic requirements

Role and limitations of the market in LDCs


The “Washington Consensus” on the State in Development

1980s and 1990s (see Table 11.1)


Table 11.1


The “Washington Consensus” on the State in Development

1980s and 1990s Toward a new consensus


Development and Political Economy

Understanding voting patterns on policy reform

Institutions and path dependency Democracy versus autocracy: which

facilitates faster growth? Role of NGOs in development and the

broader citizen sector (see Figure 11.1)


Figure 11.1


Trends in Governance and Reform

Tackling the problem of corruption


Figure 11.2


Figure 11.3


Trends in Governance and Reform

Tackling the problem of corruption Decentralization Development participation- alternate

interpretations Genuine participation and role of NGOs


Developing Planning and the State: Concluding Observations

Pragmatism is needed in dealing with the role and limitations of economic policies in LDCs

Regardless of ideology, governments in LDC have been heavily involved in the economy

LDC governments shouldn’t necessarily do less, but do better


Concepts for Review

Accounting prices Aggregate growth

model Comprehensive plan Cost-benefit analysis Development

Participation Economic

infrastructure Economic plan

Economic planning Government failure Input-output model Interindustry model Internal rate of return Market failure Market prices Net present value


Concepts for Review (cont’d)

NGOs Partial plan Path dependency Planning process Political will Project appraisal

Rent seeking Shadow prices Social profit Social rate of discount

copyright © 2006 pearson addison-wesley. all rights reserved. chapter 11 development policymaking...

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