chapter 2 development econ
Economic Development: Overview
By the problem of economic development I mean simply the problem of accounting for the observed pattern, across
countries and across time, in levels and rates of growth of per capita income. This may seem too narrow a definition, and
perhaps it is, but thinking about income patterns will necessarily involve us in thinking about many other aspects of societies
too, so I would suggest that we withhold judgement on the scope of this definition until we have a clearer idea of where it
leads us.
—R. E. Lucas [1988]
[W]e should never lose sight of the ultimate purpose of the exercise, to treat men and women as ends, to improve the human
condition, to enlarge people’s choices. . . . [A] unity of interests would exist if there were rigid links between economic
production (as measured by income per head) and human development (reflected by human indicators such as life
expectancy or literacy, or achievements such as self-respect, not easily measured). But these two sets of indicators are not
very closely related.
—P. P. Streeten [1994]
2.1. Introduction
Economic development is the primary objective of the majority of the world’s nations. This truth is
accepted almost without controversy To raise the income, well-being, and economic capabilities of
peoples everywhere is easily the most crucial social task facing us today. Every year, aid is
disbursed, investments are undertaken, policies are framed, and elaborate plans are hatched so as to
achieve this goal, or at least to step closer to it. How do we identify and keep track of the results of
these efforts? What characteristics do we use to evaluate the degree of “development” a country has
undergone or how “developed” or “underdeveloped” a country is at any point in time? In short, how
do we measure development?
The issue is not easy to resolve. We all have intuitive notions of “development.” When we speak
of a developed society, we picture in our minds a society in which people are well fed and well
clothed, possess access to a variety of commodities, have the luxury of some leisure and
entertainment, and live in a healthy environment. We think of a society free of violent discrimination,
with tolerable levels of equality, where the sick receive proper medical care and people do not have
to sleep on the sidewalks. In short, most of us would insist that a minimal requirement for a
“developed” nation is that the physical quality of life be high, and be so uniformly, rather than being
restricted to an incongruously affluent minority.
Of course, the notion of a good society goes further. We might stress political rights and freedoms,
intellectual and cultural development, stability of the family, a low crime rate, and so on. However, a
high and equally accessible level of material well-being is probably a prerequisite for most other
kinds of advancement, quite apart from being a worthy goal in itself.1 Economists and policy makers
therefore do well (and have enough to do!) by concentrating on this aspect alone.
It is, of course, tempting to suggest that the state of material well-being of a nation is captured
quite accurately in its per capita gross national product (GNP): the per-head value of final goods and
By the problem of economic development I mean simply the problem of accounting for the observed pattern, across
countries and across time, in levels and rates of growth of per capita income. This may seem too narrow a definition, and
perhaps it is, but thinking about income patterns will necessarily involve us in thinking about many other aspects of societies
too, so I would suggest that we withhold judgement on the scope of this definition until we have a clearer idea of where it
leads us.
—R. E. Lucas [1988]
[W]e should never lose sight of the ultimate purpose of the exercise, to treat men and women as ends, to improve the human
condition, to enlarge people’s choices. . . . [A] unity of interests would exist if there were rigid links between economic
production (as measured by income per head) and human development (reflected by human indicators such as life
expectancy or literacy, or achievements such as self-respect, not easily measured). But these two sets of indicators are not
very closely related.
—P. P. Streeten [1994]
2.1. Introduction
Economic development is the primary objective of the majority of the world’s nations. This truth is
accepted almost without controversy To raise the income, well-being, and economic capabilities of
peoples everywhere is easily the most crucial social task facing us today. Every year, aid is
disbursed, investments are undertaken, policies are framed, and elaborate plans are hatched so as to
achieve this goal, or at least to step closer to it. How do we identify and keep track of the results of
these efforts? What characteristics do we use to evaluate the degree of “development” a country has
undergone or how “developed” or “underdeveloped” a country is at any point in time? In short, how
do we measure development?
The issue is not easy to resolve. We all have intuitive notions of “development.” When we speak
of a developed society, we picture in our minds a society in which people are well fed and well
clothed, possess access to a variety of commodities, have the luxury of some leisure and
entertainment, and live in a healthy environment. We think of a society free of violent discrimination,
with tolerable levels of equality, where the sick receive proper medical care and people do not have
to sleep on the sidewalks. In short, most of us would insist that a minimal requirement for a
“developed” nation is that the physical quality of life be high, and be so uniformly, rather than being
restricted to an incongruously affluent minority.
Of course, the notion of a good society goes further. We might stress political rights and freedoms,
intellectual and cultural development, stability of the family, a low crime rate, and so on. However, a
high and equally accessible level of material well-being is probably a prerequisite for most other
kinds of advancement, quite apart from being a worthy goal in itself.1 Economists and policy makers
therefore do well (and have enough to do!) by concentrating on this aspect alone.
It is, of course, tempting to suggest that the state of material well-being of a nation is captured
quite accurately in its per capita gross national product (GNP): the per-head value of final goods and
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