CHAPTER ONE

ECONOMICS OF DEVELOPMENT: CONCEPTS AND

APPROACHES
1.1. Introduction
• The study of economic development is one of
the newest, most exciting and most challenging
branches of the broader disciplines of
economics and political economy.
• Development economics is a field of study that is
rapidly evolving its own distinctive analytic and
methodological identity, though it often draws on
relevant principles and concepts from other
branches of economics.
• Development economics is not the same as the
economics of advanced capitalist nations
(modern “neoclassical” economics).
• It is nothing more or less than the economics of
contemporary poor, underdeveloped nations
• The discipline deals with nations with varying
ideological orientations, diverse cultural
backgrounds, and very complex yet similar
economic problems that usually demand new
ideas and novel approaches.
• Traditional economics is concerned with the
efficient, least allocation of scarce productive
resources.
• It deals with an advanced capitalist world of
perfect markets; consumer sovereignty; purely
materialistic, individualistic, self interested
orientation toward economic decision making.
• On the other hand, political economy goes
beyond traditional economics to study the social
and institutional processes through which certain
groups of economic and political elites influence
the allocation of scarce productive resources.
• Development economics has an even greater
scope than the upper mentioned disciplines of
economic thought.
• In addition to being concerned with the efficient
allocation of resources, development economics
must also deal with the economic, social,
political, and institutional mechanisms, both
public and private, necessary to bring about
rapid and large scale improvements in levels of
living for the masses of poverty-stricken,
malnourished and illiterate peoples of Africa,
Asia and Latin America.
• Unlike the more developed countries, in the less
developed countries, most commodity, resource
markets are highly imperfect, consumers and
producers have limited information, the
potential for multiple equilibria rather than a
single equilibrium are common, and
disequilibrium situations often prevail (prices do
not equate supply and demand).
• These all may lead to unfair competition where
there is a tendency that only some segments of
the people are likely to benefit from such a
phenomenon.
• This implies the application of the concept
of neoclassical economic thought to this
special case might be misleading.
• Therefore, the application of a special
discipline of economics (development
economics) is vital.
 1.3. Meaning of growth and development
1.3.1. Economic Growth and Development in
Traditional Perspective
• Generally, economic growth refers to an annual
increase in gross national product (GNP) of a nation.
• According to traditional perspective, development
was viewed to be highly attached to the concept of
growth.
• In strictly economic term, development has
traditionally meant the capacity of a national
economy to generate and sustain an annual increase
in its GNP at rates of perhaps 5% to 7% or more.
• Economic development in the past has also been
typically seen in terms of the planned alteration
of the structure of production and employment
so that agriculture’s share should decline and the
share of the manufacturing and service sectors
should increase.
• Development strategies have therefore focused
on rapid industrialization, often at the expense of
agriculture and rural development.
• Therefore, according to the tradition perspective
of development, problems of poverty,
discrimination, unemployment, and income
distribution were of secondary importance.
 1.3.2. Development Economics in Review
(The New View of Development)
• The experience of the 1950s and 1960s, when many
developing nations did realize their economic
growth-targets but the levels of living of the masses
of people remained for the most part unchanged,
signaled that something was very wrong with the
narrow (traditional) definition of development.
• A number of developing countries experienced
relatively high rates of growth of per capita income
during then but showed little or no improvement or
even an actual decline in employment, equality and
the real incomes of the bottom 40% of their
populations.
• An increasing number of economists and policy
makers clamored for the “dethronement of GNP”
and the elevation of direct attack on widespread
absolute poverty, increasingly inequitable income
distributions and rising unemployment.
• In short, during the 1970s, economic
development came to be redefined in terms of
the reduction or elimination of poverty,
inequality and unemployment within the context
of growing economy.
• Development must therefore be conceived of as
a multidimensional process involving
➢major changes in social structures,
▪ popular attitudes,
▪ changes in national institutions,
➢the acceleration of economic growth,
➢the reduction of inequality, and
➢the eradication of poverty.
Amartya Sen’s “Capability” Approach
▪ Amartya Sen, the 1998 Nobel laureate in economics,
argues that the “capability to function” is what really
matters for status as a poor or nonpoor person.
▪ As Sen put it “Development has to be more
concerned with enhancing the lives we lead and the
freedoms we enjoy.
▪ In effect, Sen argues that poverty cannot be properly
measured by income or even by utility as conventionally
understood; what matters fundamentally is not the
things a person has—or the feelings these provide—but
what a person is, or can be, and does, or can do.
▪ What matters for well-being is not just the
characteristics of commodities consumed, as in the
utility approach, but what use the consumer can and
does make of commodities.
▪ As Sen noted, a person with parasitic diseases will be
less able to extract nourishment from a given quantity of
food than someone without parasites
Amartya Sen’s “Capability” Approach
▪ To make any sense of the concept of human well-
being in general, and poverty in particular, we need
to think beyond the availability of commodities and
consider their use: to address what Sen calls
functionings , that is, what a person does (or can do)
with the commodities of given characteristics that
they come to possess or control.
▪ Sen defines capabilities as
▪ “the freedom that a person has in terms of the
choice of functionings, given his personal
features (conversion of characteristics into
functionings) and his command over
commodities.”
 Some Key “Capabilities”
• Some Important “Beings” and “Doings” in
Capability to Function:
– Being able to live long
– Being well-nourished
– Being healthy
– Being literate
– Being well-clothed
– Being mobile
– Being able to take part in the life of the
community
– Being happy – as a state of being - may be
valued as a functioning
1.4 Three Core Values of Development
– Sustenance: The ability to meet basic needs such as
food, clothing, and shelter, that are necessary to
sustain an average human being at the bare minimum
level of living.
– Self-Esteem: to be a person. The feeling of
worthiness that a society enjoys when its social,
political, and economic systems and institutions
promote human values such as respect, dignity,
integrity, and self-determination.
– Freedom from Servitude: to be able to choose. A
situation in which a society has at its disposal a
variety of alternatives from which to satisfy its wants
(i.e. to be able to choose) and individuals enjoy real
choices according to their preferences.
➢The three objectives of Development
• Development is both a physical reality and a
state of mind in which society has, through
some combination of social, economic, and
institutional processes, secured the means for
obtaining a better life. Development in all
societies must have at least the following three
objectives:
1. To increase the availability and widen the
distribution of basic life-sustaining goods such
as food, shelter, health, and protection
2. To raise levels of living, including, in addition to
higher incomes, the provision of more jobs,
better education, and greater attention to cultural
and human values, all of which will serve not only
to enhance material wellbeing but also to
generate greater individual and national self-
esteem
3. To expand the range of economic and social
choices available to individuals and nations by
freeing them from servitude and dependence not
only in relation to other people and nation-states
but also to the forces of ignorance and human
misery
1.6. Measurement of Economic Development
• Economic development is measured in four ways:
➢ GNP. In terms of an increase in the economy’s
real national income over a long period of time.
But this is not a satisfactory definition due to the
following reasons
1. “Real national income” price changes will have
to be ruled out while calculating real national
income. But this is unrealistic because variations
in price are inevitable in short term.
2. fails to take into consideration changes in the
growth of population
3. does not reveal the costs to society of environmental
pollution, urbanization, and industrialization and
population growth. It considers natural resource to
be free and treats the earth “like a business in
liquidation”.
4. Further, it tells us nothing about the distribution of
income in the economy.
5. Moreover, there are difficulties in the measurement
of GNP which are discussed as under:
a) there are a number of goods and services which are
difficult to be assessed in terms of money, e.g.
painting as a hobby by an individual, the bringing up
of children by the mother.
b) double counting which arises from the failure to
distinguish properly between final and intermediate
products.
c) As a corollary, it double counts both addictions
and cures. First, when food and wine are
consumed. Second, when money is spent on the
good industry and for curing alcoholism.
d) it equates goods with bads.
e) Doesn’t include Income earned through illegal
activities such as gambling or illicit extraction of
wine, etc.
f)difficulty of including transfer payments in GNP
On the one hand, these earnings are a part of
individual income and, on the other, they are
government expenditure.
J) The calculation of GNP in terms of money is the
underestimation of real GNP. It does not include
the leisure forgone in the process of production
of a commodity. Thus GNP places no value on
leisure.
K) In calculating GNP, a good number of public services
are also taken which cannot be estimated correctly.
How should the police and military services be
estimated? Similarly, to estimate the contribution
made to GNP by profits earned on irrigation and
power projects in terms of money is also a difficult
problem.
Moreover, the emphasis on GNP is based on the
application of experience of the developed countries
on the underdeveloped countries which are different
in the socio-economic set up.
But GNP as an index of economic development has not been
successful in reducing poverty, unemployment and
inequalities, and raising living standards in developing
countries. It was proved by World Bank Governor Robert
McNamara in February 1970
➢The second measure is GNP per capita
• It relates to an increase in the per capita real
income of the economy over the long period.
• Meier defines economic development “as the
process whereby the real per capita income of a
country increases over a long period of time –
subject to the stipulations that the number of
people below an ‘absolute poverty line’ does not
increase, and that the distribution of income does
not become more unequal. The definition in
intended to emphasize that for economic
development the rate of increase in real per capita
income should be higher than the growth rate of
population.
• There are some difficulties with definition
1) It may not raise the real standard of living of the
masses. It is possible that while per capita real
income is increasing, per capita consumption might
be falling. People might be increasing the rate of
saving or the government might itself be using up
the increased income for military or other purposes.
2) Another possibility of the masses remaining poor
despite an increase in the real GNP per capita if the
increased income goes to the few rich.
3) Such a measure subordinates other questions
regarding “the structure of the society, the size and
composition of its population, its institutions and
culture, the resource patterns and even distribution
of output among the society’s members.”
4. fail to measure adequately changes in output due
to changes in the price level
5. International comparisons of the real GNP per
capita are inaccurate due to exchange rate
conversion of different currencies into a common
currency. The use of a single currency unit for
computing the total output of goods and services
underestimates the per capita national incomes of
underdeveloped countries as compared with the
developed ones. There are many goods and services
in underdeveloped countries that are never traded
internationally and are also priced low. So it is
better to use purchasing power parity (PPP) in
dollar rather than the exchange rate.
6. It fails to take into account problems
associated with basic needs like nutrition,
health, sanitation, housing, water and
education. The improvement in living
standards by providing basic needs cannot be
measured by increase in GNP per capita.
Despite these limitations, the real GNP per
capita is the most widely used measure of
economic development
• The third measure is Welfare
There is also a tendency to measure economic
development from the point of view of economic
welfare.
• Economic development is regarded as a process
whereby there is an increase in the consumption of
goods and services of individuals.
• According to Okun and Richardson, economic
development is “a sustained, secular improvement
in material well-being, which we may consider to be
reflected in an increasing flow of goods and
services”.
• Limitations
1. It is not correct to have the same weights in preparing the
welfare index of individuals because the weights to be
attached to the consumption of individuals and in turn
depends on the tastes and preferences of individuals.
2. The increased total output may be composed of capital
goods. It may be at the cost of a reduced output of consumer
goods. therefore, caution has to be exercised with regard to
the composition of the total output
3. the real difficulty arises in the valuation of the output. The
output may be valued at market prices whereas economic
welfare is measured by an increase in real national output or
income. In fact, ‘with a different distribution of income,
price would be different and both the composition and value
of national output would also be different
4. from the welfare point of view we must also consider
not only what is produced but how it is produced. For
instance, the increased output might have resulted
from long hours and in the deterioration of the
working conditions of the labor force.
5. mere increase in economic welfare does not lead to
economic development till the distribution of
national income is equitable or justifiable.
Last, we cannot equate an increase in output per head
with an increase in economic welfare, let alone social
welfare without additional considerations. To specify
an optimum rate of development, we must make
value judgments regarding income distribution,
composition of output, tastes, real cost and other
particular changes that are associated with the overall
increase in the real income.
• The fourth measure Social Indicators
➢ Dissatisfied with GNP/GNP per capita, certain
economists have tried to measure economic
development in terms of social indicators.
Social indicators are often referred to as the basic needs
for development such as , education, food, water,
sanitation and housing.
The direct provision of such basic needs affects poverty in
a shorter period and with fewer monetary resources
than GNP/GNP per capita strategy which aims at
increasing productivity and incomes of the poor
automatically over the long run.
Basic needs lead to a higher level of productivity and
income through human development in the form of
educated and healthy people
• The merit of social indicators is that they are
concerned with ends which is human development.
Economic development is a means to these ends
Hicks and Streeten consider six social indicators for basic needs

Basic Need Indicators

1. Health Life expectancy at birth
2. Edcation Literacy signifying primary school enrolment as per cent of
population
3. Food Calorie supply per head
4. Water Supply Infant mortality and percentage of population with access to potable
water
5. Sanitation Infant mortality and percentage of population with access to
sanitation
6. Housing None
• Except for calorie supply per head, all other indicators
are output indicators. Of these, infant mortality is both
the indicator of sanitation and clean drinking water
facilities because children are prone to water-borne
diseases.
• Limitation : Problems arise in constructing a
composite index based on a rational weighting system.
1) There is no unanimity among economists as to the
number and type of items to be included in such as
index. Goldstein takes only infant mortality as an
indicator of basic needs
• Limitation cont…
Hagen, and UNRISA use eleven to eighteen
items with hardly a few common. On the
other hand Morris uses only three items, i.e.,
life expectancy to birth infant mortality and
literacy rate.
2) problem of assigning weights to the various
items which may depend upon the social,
economic and political set-up of the country.
This involves subjectivity.
3) Social indicators are concerned with current welfare
and are not related to the future.
4) The majority of indicators are inputs and not
outputs, such as education, health, etc.
5) Lastly, they involve value judgments. Therefore, in
order to avoid value judgments and for the sake of
simplicity, economists and UN organizations use
GNP per capita as the measure of economic
development.
1.6. Alternative measures of level of development
Economists have tried to measure social indicators of
basic needs by taking one, two or more indicators for
constructing composite indices of human development.
We study below the Physical Quality of Life Index (PQLI)
of Morris and the Human Development Index (HDI) as
developed by the United Nations Development
Programme (UNDP) and Human Poverty Index.
1. Physical Quality of Life Index (PQLI)
Constructed by Morris D. Morris in 1979 relating to 23
developing countries for a comparative study. He
combines three component indicators ; infant
mortality, life expectancy at age one and basic literacy
at age 15.
• Each indicator of the three components is placed on a
scale of zero to 100. 0 representing absolutely worst
and 100 absolutely best performance.
• The PQLI index is calculated by averaging the three
indicators giving equal weight to each and the index is
also scaled from 0 to 100.
• According to Morris, each of the three indicators
measures results and not inputs such as income
• An improvement in these indicators signifies an
increase in the proportion of people benefiting from
them.
• Each indicator lends itself to international comparison
• But none of the indicators depends on any particular
level of development.
• The Gabon’s infants morality rate of 229 per
thousand live births as worst in 1950 is set as 0 and
the best achievement is set at 7 per thousand for
the year 2000.
• Again, taking Vietnam’s life expectancy at age one
as 38 years in 1950 and the upper limit is set at 77
years for men and women combined for the year
2000.
• Lastly, the literacy rate at 15 years is taken as the
literacy index. The result of correlation is:-
➢Negative and high correlation between life
expectancy at age one and infant mortality
➢High degree of positive correlation between literacy
and life expectancy
• Morris regards life expectancy at age one and infant
mortality as very good indicators of the physical
quality of life
• Table 1 PQLI performance and GNP per capita of two LDCs and two developed
countries

country PQLI Average annual GNP Per capita

growth rate
1950 1960 1970

India 14 30 40 1.8

Sri Lanka 65 75 80 1.9

Italy 80 87 92 5.0

USA 89 91 93 2.4
• From the table Morris observes that there is no
automatic link between GNP per capita and PQLI
• In fact, the presence or absence of social relations,
nutritional status, public health, education and family
environment determine a society’s PQLI
• Further, it takes considerable time to build institutional
arrangements that can generate and sustain a high PQLI
Limitations;
➢ Morris admits that PQLI is a limited measure of basic
needs
➢ It supplements but does not supplant the GNP
➢ It does not measure economic growth
➢ Further, it does not explain the changing structure of
economic and social organization . Therefore, does not
measure economic development
➢ Similarly, it does not measure total welfare. However, it
measures the qualities of life which are essential for the
poor.
➢ Morris has been criticized for using arbitrary weights
for the three variables of his PQLI.
According to Meier, “Non-income factors captured by the
PQLI are important but so are income and consumption
statistics and distribution-sensitive methods of
aggregation by which to obtain an overall poverty index
Despite these limitations, the PQLI can be used to identify
particular regions of under-development and groups of
society suffering from the neglect or failure of social
policy.
It points towards that indicator where immediate action
is required
2. Human Development index
The Traditional Human Development Index
Developed by UNDP in 1970 in
• HDI ranks all countries on a scale of 0 (lowest human
development) to 1 (highest human development)
• It based on three goals of development
– longevity as measured by life expectancy at birth.
25 years and 85 years
– knowledge as measured by a weighted average of
adult literacy (two-thirds) and gross school
enrollment ratio (one-third)
– standard of living as measured by real per capita GDP
adjusted for the differing PPP. $ 100 and $ 40,000
• The HDI ranks countries into four groups:
– low human development (0.0 to 0.499)
– medium human development (0.50 to 0.799)
– high human development (0.80 to 0.90) and
– very high human development (0.90 to 1.0)
• HDI can be calculated for groups and regions in
a country

• HDI varies among groups within countries and it

varies across regions in a country as well as
between rural and urban areas
Advantage of the HDI is that it does reveal that a
country can do much better than might be expected
at a low level of income and that substantial income
gains can still accomplish relatively little in human
development.
It should be stressed that the HDI has a strong
tendency to rise with per capita income, as
wealthier countries can invest more in health and
education, and this added human capital raises
productivity
• Further, the HDI points up that disparity in income
are greater than disparities in other indicators of
development, at least health and education.
• Moreover, the HDI reminds us that by development
we clearly mean broad human development, not
just higher income.
A better indicator of development disparities and
rankings might be found by including health and
education variables in a weighted welfare measure
rather than by simply looking at income levels, and
the HDI offers one very useful way to do this.
Some drawbacks
1. Gross enrollment in many cases overstates the
amount of schooling because in many countries a
student who begins primary school is counted as
enrolled without considering whether the student
drops out at some stage
2) Equal (one-third) weight is given to each of the three
components, which clearly has some value judgment
behind it, but it is difficult to determine what this is.
3) There is no attention to the role of quality
For example, there is a big difference between an extra
year of life as a healthy, well-functioning individual and
an extra year with a sharply limited range of capabilities
(such as being confined to bed)
The New Human Development Index (NHDI)
• Introduced by UNDP in November 2010, to address some
of the criticisms of the HDI
• The index is still based on standard of living, education, and
health. But it has eight notable change
1. Gross national income (GNI) per capita replaces gross
domestic product (GDP) per capita
2. The education index has been completely revamped. Two
new components have been added: the average actual
educational attainment of the whole population and the
expected attainment of today’s children.
3. Expected educational attainment, the other new
component, is somewhat more ambiguous: it is not an
achievement but a UN forecast.
4. The two previous components of the education index,
literacy and enrollment, have been correspondingly
dropped
5. The upper goalposts (maximum values) in each
dimension have been increased to the observed
maximum rather than given a predefined cutoff
6. The lower goalpost for income has been reduced
7. Rather than using the common logarithm (log) to
reflect diminishing marginal benefit of income, the
NHDI now uses the natural log (ln)
8. Possibly the most consequential change is that the
NHDI is computed with a geometric mean
The component indexes of the NHDI are computed by
the same method as for the HDI
Computing the NHDI
Geometric mean is used in NHDI. Because using
arithmetic mean is assuming the perfect
substitutability among the three component. In
contrast, use of a geometric mean ensures that poor
performance in any dimension directly affects the
overall index.
So in the NHDI, instead of adding up the health,
education, and income indexes and dividing by 3, the
NHDI is calculated with the geometric mean:
NHDI = H1/3 E1/3 I1/3
• The UNDP now also offers the Inequality-Adjusted
Human Development Index (IHDI)
The 2010 New Human Development Index (NHDI), 2008 Data
3. Human Poverty Index
• The Human Development Report 1997 (UNDP 1997)
presents Human Poverty Index (HPI), and ranks 78 poor
countries using it.
• It asserts that poverty is multidimensional and cannot and
poverty measures based on the income criterion do not
capture deprivation of many kinds.
➢ HPI is based on three different types of deprivation (UNDP
1997)
1. Survival deprivation, as measured by the percentage of
people (in a given country) not expected to survive to age
40 years (P1).
2. Deprivation in education and knowledge, as measured by
the adult literacy rate (P2)
3.Deprivation in economic provisioning (P3), which is
computed as the mean of three variables: population
without access to safe water (P31), population without
access to health services (P32), and underweight
children under the age of 5 years (P33)-all three
expressed in percentages.

This is a 'power mean' of order three.

• Out of 78 developing countries, Trinidad and Tobago had
the lowest HPI at 4.1, and Niger had the highest at 66.0
➢ HPI can be used in at least three ways
• as a tool of advocacy
• a planning tool for identifying areas of concentrated poverty
within a country
• and as a research tool
• For example, the HPI can help summarize the extent
of poverty along several dimensions, the distance to
go, and the progress made.
➢This index has some drawbacks
HPI does not include certain critical dimensions of
human poverty, such as
• low incomes,
• lack of political freedom,
• inability to participate in decision making,
• lack of personal security, and
• Threats to sustainability and intergenerational
equity.
• In addition, the quality and reliability of data used
for computing HPI are also questionable in many
cases.
The Multidimensional Poverty Index (MPI)
In 2010, the UNDP replaced the HPI with its new
Multidimensional Poverty Index (MPI)
• A poor person is identified through a dual cutoff:
• First, cutoff levels within each dimension (analogous to
falling below a poverty line for example $1.25 per day for
income poverty);
• Second, cutoff in the number of dimensions in which a
person must be deprived (below a line) to be deemed
multidimensionally poor.
• MPI focuses on deprivations in health, education,
and standard of living; and each receives equal (that
is one-third of the overall total) weight.
MPI Indicators
• Health - two indicators with equal weight - whether
any child has died in the family, and whether any
adult or child in the family is malnourished –
weighted equally (each counts as one-sixth toward
the maximum deprivation in the MPI)
• Education - two indicators with equal weight -
whether no household member completed 5 years of
schooling, and whether any school-aged child is out
of school for grades 1 through 8 (each counts one-
sixth toward the MPI).
• Standard of Living, equal weight on 6 deprivations (each
counts as 1/18 toward the maximum): lack of electricity;
insufficiently safe drinking water; inadequate sanitation;
inadequate flooring; unimproved cooking fuel; lack of more
than one of 5 assets – telephone, radio, TV, bicycle, and
motorbike.
Interaction of the deprivations?
• Building the index from household measures up to
the aggregate measure (rather than using already-
aggregated statistics), MPI approach takes account
of multiplied or interactive harm (complementarity)
done when multiple deprivations are experienced by
the same individual or family
• The MPI approach assumes an individual’s lack of
capability in one area can only to a degree be made
up by other capabilities – capabilities are treated as
substitutes up to a point but then as complements.
Computing the MPI
• The MPI for the country (or region or group) is then
computed
• A convenient way to express the resulting value is H*A, i.e.,
• The product of the headcount ratio H (the percent of people
living in multidimensional poverty), and the average
intensity of deprivation A (the percent of weighted
indicators for which poor households are deprived on
average).
• The adjusted headcount ratio HA is readily calculated
• HA satisfies some desirable properties. Important example -
• Dimensional monotonicity: If a person already identified as
poor becomes deprived in another indicator she is measured
as even poorer - not the case using a simple headcount ratio.
MPI Rankings and Poverty Headcounts for Selected Countries
Barriers to Economic growth and/ or Development
1. Poverty cycle
2. Institutional and political factors
3. International trade barriers
4. Social and cultural factors acting as barriers
1) Poverty cycle
Low incomes --> Low savings --> Low investment --> Low
productivity --> low income...
• Absolute poverty: inability to just meet basic physical
human necessities/needs of food/nutrition, clothing,
health and shelter in order to survive
• Relative poverty: a poverty measure based on a poor
standard of living/low income compared to the rest of
society
• Rural poverty
Most poor people are found in rural areas
2) Institutional and political factors
➢ Ineffective taxation structure
• Taxation is often a difficult problem in LEDCs
➢ Price Distortions
• Prices are often distorted due to subsidies or a strong union
sector which is able to extract high wages from foreign multi-
nationals
➢ Lack of property rights
• And rule of law in general, including reasonable, predictable
contract enforcement
• No clear title to real property (land, houses) and high-value
assets
• Inheritance of property often cloudy
• Capital gains from sales often subject to negotiation, thus not
predictable
3) Political instability
• Important to attract FDI because it creates uncertainity
• Important that the next government assume the debt
obligations of outgoing government
• Rule by the will of the people OR for the government in
power - who is the government working for?
➢ Corruption
➢ Unequal distribution of income
➢ Formal and informal markets
➢ Lack of infrastructure
4) International trade barriers
• overdependence on primary products
• consequences of adverse terms of trade
• consequences of a narrow range of exports
• protectionism in international trade
➢ International financial barriers
• International finance & indebtedness
4) Non-convertible currencies capital flight, brain drain
5) Social and cultural factor acting as barriers
• religion
• culture
• tradition
• gender issues
 1.7. Development gap
o The difference in levels of social well-being and
economic development between the poorest and the
richest people on the planet
o The divide between rich and poor or the ‘haves’ and
the ‘have-nots
• It can exist on different scales
• It involves social and economic differences
o Is development gap widening or narrowing?
Narrowing
• There has been global development, particularly in Asia
• Many poorer countries, like China and India, are
industrialising
Widening
• Development in much of Africa has lagged behind, although
the percentage of people in poverty has decreased actual
numbers have increased as population has grown
• Worldwide, one billion people live on less than US$1 dollar
a day
• There is an urban–rural divide in many countries, like
Mexico
• Economic growth is increasing the divide between extreme
wealth and poverty in some countries, like Brazil
• The gap between rich and poor people living in both richer
and poorer countries is growing
The development gap has narrowed for some people
but not for others