Economics of Development

Theory and Evidence

A.P. Thirlwall, Penélope Pacheco-López

• Publisher: Bloomsbury Academic
• Year: 2017
• ISBN:
  9781350306134
• Edition: 10
• Topic: Economics
• Subtopic: Development Economics
• Index: Economics

This classic, bestselling textbook provides a comprehensive introduction to the field of development economics. The 10th edition of Tony Thirlwall's book, now co-written with Penélope Pacheco-López, provides a clear, comprehensive and rigorous introduction to the theory of development economics and the experience of developing countries. Balancing a historic approach with current data and references, it provides a wide-ranging analysis of the subject. This all-inclusive methodology succeeds at representing different schools of thought with a balance of micro and macro topics. An ideal textbook for undergraduate students of economics and other social sciences, it is also suitable for upper undergraduate and master's level modules on development economics as an option on a non-economics degree. New to this Edition:
- A brand new chapter on human capital: education, nutrition, health, and therole of women in development
- New material on the Sustainable Development Goals, the measurementof poverty, and the multidimensional poverty index
- Discussion of randomized control trials
- The role of structural change in economic development
- New IMF lending facilities

I

DEVELOPMENT AND UNDERDEVELOPMENT

1

THE STUDY OF ECONOMIC DEVELOPMENT • Introduction • Development economics as a subject • Academic interest in development • The new empirical development economics • A new international economic order • Sustainable Development Goals • Globalization and interdependence of the world economy • The meaning of development and the challenge of development economics • The perpetuation of underdevelopment • Summary • Discussion questions • Websites

Introduction

We ask the reader (especially the young student) to consider, behind a veil of ignorance (Rawls, 1972), what sort of world they would prefer to have been born into. A world in which nearly a billion people live on less than $1.90 a day (the official World Bank poverty line), with only a 5% chance of living a luxurious lifestyle or in a fairer world that provides a decent living standard for everyone wherever they are born – whether in Norway, the richest country, or Burundi, the poorest? Whatever answer you give, you will have shown an interest in development economics, which seeks to understand and explain why some countries are poor and others rich, and how to reduce poverty in poor countries to give everyone on the planet a minimum standard of life and freedom from hunger and fear of the future.

Development economics, as it is understood and taught today, is a relatively new subdiscipline of economics dating from the early years after the Second World War; but, in fact, the economic progress of nations has always been at the heart of economic enquiry, at least since the time of the great classical economists of the late eighteenth century and the first half of the nineteenth century – Adam Smith, Thomas Malthus, David Ricardo, John Stuart Mill and Karl Marx. These writers were all concerned with understanding the growth and development process of countries and the factors determining the distribution of income between classes of people. Modern development economics has, in many ways, revived the old interests of the classical economists concerning the importance of saving, investment, capital accumulation, trade, and the mobilization of surplus labour for structural change out of agriculture into manufacturing industry and service activities.

In this chapter we start by considering development economics as a subject – and academic interest in development issues – and why there has been a revival of development economics in the past 70 years, with many of the world’s best economists researching and writing on development matters. One of the major contributory factors has been the poorer countries of the world calling for a fairer deal from the functioning of the world economy, which they view as being biased against them. This demand for a new international economic order has been endorsed by all the major multilateral agencies established after the Second World War to oversee international relations and a smoother functioning of the world economy after the economic chaos of the prewar era: the United Nations (UN) and its several affiliates, the World Bank for Reconstruction and Development and the International Monetary Fund (IMF). We shall discuss what a new international economic order might consist of, and the components of the new Sustainable Development Goals laid down in 2015, to be achieved by 2030, which replaced the Millennium Development Goals 2000–15.

Another major factor responsible for the growing interest and concern with developing countries, and the process of economic development itself, has been the increased globalization of the world economy, which has led to a greater interdependence between countries of the world. We shall consider what globalization means, and what forms interdependence takes.

We then turn to the meaning of development and the challenge of development economics, focusing particularly on the ideas of Denis Goulet and Amartya Sen, who argue powerfully and persuasively that economic development must mean much more than just a rise in the average level of per capita income of a country. A concept of development is required that embraces all the economic and social objectives and values that countries strive for – not simply material progress but, in particular, the self-esteem of peoples and nations, and freedom.

We end the chapter by considering the perpetuation of underdevelopment and poverty; that is, the forces in the world economy that historically have produced and continue today to create divisions between rich and poor countries, and even to widen them. Differences in the structure of production between countries, unequal trade, the dependency of poor countries on rich countries, and the operation of international institutions can all interact to produce ‘vicious circles’ of poverty and relative stagnation for countries that get left behind in the development ‘race’.

Development economics as a subject

The study of development economics as a separate subject in economics is a relatively new phenomenon. For the student today, it will be difficult to appreciate that as recently as 60 years ago a course in development economics was a rare feature of an undergraduate programme in economics, and that textbooks on economic development were few and far between. Today, no respectable department of economics is without at least one course in economic development; there are scores of texts and thousands of case studies and articles on the subject.

The political and public concern with poverty and the poorer nations of the world is of equally recent origin. As far as poverty is concerned, Ravallion (2013), a former research director at the World Bank, has charted the evolution of attitudes to poverty over the past three centuries and concludes that the current worldwide consensus on raising people out of poverty is surprisingly recent. Up to the nineteenth century, the plight of the poor was largely blamed on themselves and, besides, poverty was socially useful because it provided plentiful cheap labour for industrial development. In the nineteenth century, some protection was provided for the poor in some Western countries, but little concerted action to reduce poverty itself. It was not until the second half of the twentieth century that a coherent theoretical framework emerged to show how high levels of poverty stifled effort, investment and growth, through lack of education, poor health and nutrition (see Chapter 7).

As far as poorer nations are concerned, the majority of the national and international bodies that exist today to promote development, such as national development banks, the World Bank and its affiliates, and agencies of the UN, were established after the Second World War in the 1940...