Section 6: Developmental Economics Questions

Below are a set of six questions answered by our economics class in a group discussion format. The purpose of these questions was to provide definitions for certain vocabulary in section 6 as well as cover some of the basic ideas of the section, such as the trade off between economic growth and sustainability. The questions below provide an outline of basic concepts in the section which can (and often are) applied to situations in the real world (e.g. the argument between growth and sustainability in a recently-wealthy Brasil).
Question 1: Explain the importance of human capital in contributing to economic development.

 

Human capital is the stock of competencies, knowledge and personality attributes embodied in the ability to perform labor so as to produce economic value.
Human capital is vitally important for an organization’s success (Crook et al., 2011); human capital increases through education and experienceStatistical indicator used for human capital = HDI (Human Development Index)

  • Combination of Life Expectancy Index, Education Index, Income Index

Life expectancy reveals health of the population of the country… obviously
Education reveals education standards as well as literacy of the country.

Human Capital = developed through standard of living, health, and education.
HDI is indicator of positive correlation between human capital formation and economic development. If HDI increases, there is higher rate of human capital formation in response to higher standard of education and health. Similarly, if HDI increases, per capita income of the nation also increases.

  • Implicitly, HDI reveals that higher the human capital formation due to good standard of health and education, higher is the per capita income of the nation
Question 2: Explain the difference between economic growth and economic development.
FOR A MORE SPECIFIC AND SOPHISTICATED EXPLANATION CLICK HERE AND HERE
Economic growth occurs when there is an increase in production potential. It is best measured by a country’s real level of output over time; in other words, an increase in real gross domestic product (real GDP) [real GDP is….GDP adjusted for inflation]
WHERE AS….
Economic development occurs when there is improvement in the lives of all people in a country. Improvement of the following:
  1. living standards
    1. greater availability of goods and services
    2. greater ability to purchase goods and services
  2. promotion of —
    1. self-esteem
    2. respect
    3. dignity
    4. freedom of choice and thought

Economic growth may occur in terms of an increase in real output or real GDP, but it does not indicate an improvement in the lives of all people in a country. This can mean that economic growth can sometimes lead to assumptions in the standard of living in a country, when in fact income disparity leaves a sector of the economy in poverty.

Question 3: Discuss the view that the achievement of higher economic growth rates should be the priority of developing economies. 

Biggest problems that all developing economies have

  • Poor level of education & health care
  • Poor politics & corruption → Investors feel insecure to invest
  • Income inequality
  • Unemployment → social problems

Pros of higher economic growth

  • Decrease in level of unemployment
  • Better standard of living for majority

Cons of higher economic growth

  • High inflation → High interest rate → Less productivity → Balance of payment deficit
  • Inequality of wealth and income distribution
Question 4: Explain what is meant by sustainable development. 

In terms of sustainability, it refers to the ability for the environment to survive without changing resources. Therefore, any resources used must be able to be reused and must not have any detrimental effects on to the environment.Aim:

  • improve recycling
  • alternative power
  • maintaining biodiversity
  • admitting to being wrong, if wrong, and accepting any repercussions that entail any act against the environment.

Methods:

  1. extending property rights: giving the society the ability to protect the environment
  2. pollution tax: taxing those who pollute that cause detrimental problems to the environment
  3. polluting permits: allowing for rations and the ability to pollute a certain amount. Also a limit to how much one can pollute.
  4. traffic control: imposing plans to eradicate the pollution of cars

Therefore sustainable development is the ability to sustain development and also protecting the environment at the same time.

Question 5: Explain how extending property rights and land ownership can help bring about more sustainable development. 

Extending property rights / land ownership: Allowing people to own, and therefore be responsible, for the land on which they live or operate a business.

By allowing people to be in control of their own land without support from the governing body, producers must be able to supply their products in a way that ensures the continuity of their property. Property in this sense is commonly thought of as the land the producer operates on, but can also include the local body of water, air, flora and fauna and natural resources, as well. In this sense sustainability can be observed by housing development, agriculture, resource mining and goods production. By allowing people to be in control of the way they produce they are forced to practice sustainable, or else be ousted from the competitive market after exhausting their resources.

Possible alternatives: Governments can also look to subsidize producers who excel in sustainable practice in order to encourage the longevity of sustainable development. Additionally governments can provide capital for those working towards becoming sustainable in order to facilitate a quicker transition.
Question 6: Discuss the view that economic growth will inevitably conflict with sustainable development. 

  • Inequality of income – growth rarely delivers its benefits evenly. It often rewards the strong, but gives little to the economically weak. This will widen the income distribution in the economy. In developing economies, income distribution is frequently unequal and many of the benefits of growth may go to the better-off in society and flow overseas in the form of increased profit for multinational corporations.
  • Pollution (and other negative externalities) – the drive for increased output tends to put more and more pressure on the environment and the result will often be increased pollution and resource degradation. This may be water or air pollution, but growth also creates significantly increased noise pollution. Deforestation and environmental degradation are likely to result from growth. This is particularly true in developing countries as they tend to have little legal protection of the environment.
  • Loss of non-renewable resources – the more we want to produce, the more resources we need to do that. The faster we use these resources, the less time they will last.
  • Loss of land – increased output puts further pressure on the available land. This may gradually erode the available countryside. In many developing economies there will also be additional problems resulting from the movement of people from country to urban areas.
  • Lifestyle changes – the push for growth has in many areas put a great deal of pressure on individuals. This may have costs in terms of family and community life in many economies.
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