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M. A. Part - Ii Economics Group - I Paper - Iii Development Economics 31 M. A. PART - II ECONOMICS GROUP - I PAPER - III DEVELOPMENT ECONOMICS (UNDER UGC - DEB DEVELOPMENT GRANT FOR YEAR 2013-2014) © UNIVERSITY OF MUMBAI Dr. Sanjay Deshmukh Vice Chancellor, University of Mumbai. Dr.AmbujaSalgaonkar Dr.DhaneswarHarichandan Incharge Director, Incharge Study Material, Institute of Distance and Institute of Distance and Open Learning, Open Learning, Universityof Mumbai. Universityof Mumbai. Programme & Course : Ms. Rajashri Pandit Co-ordinator& Editor Asst. Prof-cum-Asst. Director, IDOL, Universityof Mumbai, Mumbai-400 098 Course Writer : Dr. K. L. N. Sastry Head of Dept. Business Economics, Chetans H. S. College of Com. & Economics Bandra (E), Mumbai - 400051 : Prof. Shubhangi Vartak Ramniranjan JhunjunwalaCollege, Ghatkoper (W), Mumbai - 400086 : Prof. Krishnan Nandela Dr. T. K. TopeArts and Commerce College, Parel, Mumbai - 400012 : Prof. Suchitra Kumar Gurunanak Khalsa College, Matunga, Mumbai - 400019 Reprint October 2015, M. A. Part - II, Economics Group - I, Paper III, Development Economics Published by : Incharge Director Institute of Distance and Open Learning , University of Mumbai, Vidyanagari, Mumbai - 400 098. DTP Composed : Ashwini Arts Gurukripa Chawl, M.C. Chagla Marg, Bamanwada, Vile Parle (E), Mumbai - 400 099. Printed by : CONTENTS Unit No. Title Page No. Module 1 1 Theories of Economics Growth and Development 1 2. Classical Theories of Growth and Development 19 3. Partial Theories of Development 42 Module 2 4. Theories of Economics Growth and Development - II 56 5. The AK Model and The Feldman - Mahalnobis - Domar Models 73 6. GrowthAccounting 90 Module 3 7. Political Economy of Development 97 Module 4 8. Microeconomics of Development 117 9. Migration 131 10. Environment, Property Rights and Development 146 Module 5 11. Microeconomics of Development 160 12. ForeignTrade, Finance and Economic Development 176 13. FinancialaspectsofTradeandDevelopment 188 Module 6 14. Development Strategy, Development Planning and DevelopmentPolicy-I 201 15. Development Strategy, Development Planning and DevelopmentPolicy-II 219 16. Structuralist Approaches to adjustment 246 I M. A. PART - II ECONOMICS GROUP - I, PAPER - III DEVELOPMENT ECONOMICS Module 1 : Theories of Economic Growth and Development - I Alternative measures of development - Basic development processes - Typology of development patterns - Some features and stylized facts of growth and development. Classical theories of growth and development : Adam Smith - David Ricardo - Karl Marx - Joseph Schumpeter - W. W. Rostow, Partial theories - Model of surplus labour - The big push - Barlanced versus unbalanced growth - Critical minimum effort - Low level equilibrium trap. Module 2 : Theories of Economic Growth and Development - II The Harrod - Domar model - The Solow - Swan model - The golden rule of accumulation - Absolute and conditional convergence - Technological progress - Models of endogenous growth : The AK model - Growth models with poverty traps - The Feldman - Mahalnobis - Domar (FMD) class of models - Two sector models of endogenous growth : The role of human capital. Growth accounting - Total factor productivity - Cross section analysis of growth rates - Some empirical regulations about growth. Module 3 : Political Economy of Development Approaches to political economy : Radical, mainstream and institutional - Unequal exchange - Imperialism, development and underdevelopment - ‘Dependencia’ theories of development - Centre - periphery models. The political economy of structural adjustment - Political instability and economic policy - Political responses to external shocks : Capital flows and aid - Reciprocal conditionality and growth - Redistribution and political economy - Political stabilization cycles. The role of institutions - Institutional economics and the State in development - Political lessons of economic reforms. Module 4 : Microeconomics of Development : The need for microeconomics modeling - Risk and insurance in an agricultural economy - Fragmentation and informal credit markets - Segmented labour markets - Rural land markets and inter - linked markets - Under - nutrition and labour markets - Efficiency wage hypothesis - Migration - Theory of demographic transition - Economic of fertility - Microeconomics of child labour - Poverty alleviation : Efficiency, equity and entitlement issues - Environment, property rights and development - Unitary versus bargaining II models of the household - Gender and development - Gender and fertility models - Women’s work participation rates and the development process - An assessment of development microeconomics. Module 5 : Macroeconomics of Development Agriculture - industry interrelationships in the development process - Dual economy models - Financing development from domestic and foreign resources - Financial repression and capital controls - Effects of interest rate liberalization - Capital mobility and monetary autonomy - Credibility and exchange rate management - Speculative attacks and BOP crises - Contractionary devaluation and real - exchange - rate targeting - Trade reforms and development - Structuralist - monetarist models of the inflationary process - Disinflation and nominal anchors - Debt, investment and growth. Module 6 : Development Strategy, Development Planning and Development Policy Evaluation of alternative development strategies and policies - Resource allocation and shadow prices - Development planning models - Dual gap analysis - Growth programming : Revised minimum standard model (RMSM) - The merged Bank - Fund model - Adjustment with a human face - Redistribution with growth - Sustainable development - The quality of growth - Human development - Structuralist approaches to adjustment : The three gap framework - Intersectoral complementarities and coordination failures - Linkages and policy - Liberalization with stabilization - Sequencing and speed of reforms - Structural adjustment programmes - Global integration and external sector equilibrium. Reference : 1. Agenor P. R. and P. J. Montiel (1996), “Development Macroeconomics”, Princeton University Press Princeto, N. J. (Module 5). 2. Agion P. and P. Howitt (1998), “Endogenous Growth Theory”, The MIT Press, Cambridge, Mass. (Module 2). 3. Bardhan P. and C. Udry (1999) “Development Microeconomics”, Oxford University Press, Oxford (Module 4). 4. Barrow R. J. and X. Sala - I - Martin (1995), “Economic Growth”, Mc-Graw Hill, New York. (Module 2). 5. Basu K. (1997) “Analytical Development Economics” MIT Press, Cambridge, Mass (Module 4). III 6. Blitzer C. R., P. B. Clark and L. Taylor (eds) (1975) “Economy - Wide Models and Development Planning”, Oxford University Press, Oxford, (Module 2). 7. Chenery H.B. and M. Syrquin (1975), “Patterns of Development”, Oxford University Press, Oxford (Module I). 8. Claassen E. M. (1996) “Global Monetary economics”, Oxford University Press, Oxford. (Module 5). 9. Dasgupta P. (1993) “An Inquiry Into Well - being and Distribution”, Clarendon Press, Oxford. (Module 4 and 6). 10.Ghatak S. (1986) “An Introduction to Development Economics”, 2e, Allan and Unwin, London. (Module 5). 11.Goyal A. (1999) “Developing Economy Macroeconomics”, Allied Publishers, New Delhi (Module 5). 12.C. I. Jones (1998), “Introduction to Economic Growth”, Norton and Co., New York. (Module 2). 13.Rao M. J. M. and R. Nallari (2001), “Macroeconomic Stabilization and Adjustment”, Oxford University Press, New Delhi. (Module 6). 14.Ray D. (1998), “Development Economics”, Oxford University Press, New Delhi. (Modules 3 and 4). 15.Thirwall A. P. (1999) “Growth and Development”, 6e, Macmillan Press Ltd., London. (Modules 1 and 2) 1 1 MODULE 1 THEORIES OF ECONOMIC GROWTH AND DEVELOPMENT Unit Structure : 1.0 Objectives 1.1 Economic Development 1.2 Alternative Measures of Economic Development 1.3 Concept of Human Development 1.4 Some Features and Stylized Facts of Growth and Development 1.5 Summary 1.6 Questions 1.0 OBJECTIVES To study the Concept of Economic Development To study the Alternative measures of development To understand the Concept of human development To study some features and stylized facts of growth and development 1.1 ECONOMIC DEVELOPMENT Economic development until the 1960s was considered the same as economic growth. It is now understood as economic growth plus some progressive changes which determine the welfare of the people. Mahbub ul Haq, a leading Pakistani economist observed that “the problem of development must be defined as a selective attack on the worst forms of poverty. Development goals must be defined in terms of progressive reduction and eventual elimination of malnutrition, disease, illiteracy, squalor, unemployment and inequalities. We were taught to take care of our GNP because it would take care of poverty. Let us reverse this and take care of poverty because it will take care of 2 the GNP. In other words, let us worry about the content of GNP even more than its rates of increase.” There are two approaches to the concept of Economic Development and these two approaches are the traditional and the modern approach. The Traditional Approach : The traditional approach defines economic development in economic terms. It means a sustained annual increase in GNP at rates varying from 5 to 7 percent along with changes in the economic structure so that the share of agriculture declines in both production and employment and the share of the secondary and tertiary sectors increases. The policy measure to achieve such GNP growth is industrialization. Objectives of poverty elimination,
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