Professional Documents
Culture Documents
Outline
I.
THE
EMERGENCE
OF
DEVELOPMENT
ECONOMICS
A.
DEFINITION
AND
EVOLUTION
OF
CONCEPT
B.
BEYOND
ECONOMICS:
MULTIDISCIPLINARITY
OF
DEVELOPMENT
ECONOMICS
II.
ISSUES
IN
DEVELOPMENT
ECONOMICS
A.
MEASURES
OF
DEVELOPMENT
1.
Economic
output
2.
Equitable
distribution
3.
Human
development
B.
CAUSES
OF
UNDERDEVELOPMENT
C.
THE
THEORY-PRACTICE
GAP
D.
ON
STATE,
MARKET,
AND
GROWTH
E.
INSTITUTIONAL
AND
BEHAVIORAL
DIFFERENCES
ACROSS
COUNTRIES
1.
On
Institutions
2.
On
Behavior
3.
On
Institution-Individual
Behavior
Dynamics
F.
INDIGENIZATION
OF
DEVELOPMENT
ECONOMICS
III.
CRITICISMS
OF
DEVELOPMENT
ECONOMICS
WORKS
CITED
1
1
3
4
4
4
5
6
7
8
10
11
12
13
13
14
15
17
The Seven Decades of Development Economics: A Review of Literature This review traces the evolution of concept and definition of development economics, and the issues that emerged in this field after the Second World War in 1945 up to the turn of the twenty-first century. Evidently, some concerns have been consistently in the development agenda or part of its discourse, while others have changed or been redefined over time. The field of development economics started as practical activities in less developed countries (LDCs) without coherence of subject matter, accepted analytical apparatus, and wealth of empirical observations that characterize the older economic specialties, resembling the study of socialist economies or the study of economic history and consisted mainly of applying standard economic tools in the analysis of LDCs (Reynolds, 1969, p.401). For these reasons, development economics was logically categorized under economics. Despite the acknowledgement that multidisciplinarity could be a possible solution to what ails development theory (Taylor, 2008) and that interdisciplinary problem solving could prove more useful than honing theory and methodology (Bowden, 1971), still many of the works on development economics are from economics perspective, which is the limitation of this review.
During
the
1950s
and
1960s,
economists
proposed
that
to
overcome
underdevelopment,
there
has
to
be
a
big
push
or
critical
minimum
effort
that
requires
massive
investment
in
a
number
of
simultaneous
projects
as
well
as
coordination
of
various
industries,
so
that
a
country
could
break
out
from
the
vicious
cycle
of
poverty
and
become
self-sustaining
(Reynolds,
1969;
Lewis,
1984;
Peet
&
Hartwick,
2009).
The
concept
of
economies
of
market
coordination
by
Young
(1928),
Rosenstein-Rodan
(1943),
Nurkse
(1953),
Scitovsky
(1954)
and
Fleming
(1955)which
argues
that
an
economy
has
to
coordinate
its
complementing
industries
to
serve
the
demand
inter-linkages
to
achieve
growthwas
born
in
this
period
but
eventually
lost
its
intellectual
force
in
the
succeeding
decades.
According
to
Krugman
(1992
in
Bardhan,
1993),
the
discourse
was
not
sustained
because
at
the
policy
level,
the
difficulties
of
aggregate
coordination
were
underestimated
and
the
incentive
and
organizational
issues
of
micro-management
of
capital
were
underappreciated
(p.134).
Hirschman
(1958,
in
Peet
&
Hartwick,
2009)
opposed
this
big
push
theory,
believing
that
poor
countries
lack
the
resources
to
make
the
necessary
capital
investment.
Instead
of
addressing
the
obstacles
to
economic
progess,
he
proposed
that
inducement
mechanisms
be
applied
so
that
people
would
be
forced
to
invest.
He
was
referring
to
entrepreneurship,
or
the
ability
to
perceive
opportunities
and
make
investment
decisions
(Peet
&
Hartwick,
2009,
p.71).
This
period
also
centered
on
resolving
the
problem
of
high
and
persistent
unemployment
and
underemployment
vis--vis
positive
wagethis
led
to
the
development
of
the
efficiency-wage
theory.
Effects
of
technology
on
growth
also
became
part
of
the
discourse
but
gained
attention
only
in
the
1970s
and
1980s
with
the
recognition
of
externalities
brought
forth
by
the
transfer,
absorption,
development,
and
adaptation
of
innovation
particularly
in
the
catching-up
developing
countries
(Bardhan,
1993).
Two
decades
later,
the
economists
realized
that
the
growth
consensus
did
not
work
and
that
no
single
theory
could
possibly
explain
and
solve
the
problems
of
all
the
LDCs,
termed
developing
countries
at
this
time.
The
trend
then
became
the
identification
and
analysis
of
sub-groups
of
LDCs
(Killick,
1980).
Although
economics
provided
some
theoretical
framework
in
the
analysis,
Reynolds
(1969)
recognized
the
institutional
and
behavioral
differences
between
the
LDCs
and
the
richer
nations,
which
were
traditionally
the
center
of
the
discipline.
He
argued
that
peasant
households
that
characterized
the
emerging
nation-states
do
not
behave
like
the
mid-western
farm
households
and
that
the
growth
pattern
of
industrialized
economies
was
different
from
that
of
Development Economics: A Review of Literature Page 2 of 18
the poor countries. Quoting Keynes, Reynolds further asserted, Economics does not furnish a body of settled conclusions immediately applicable to policy. It is a method rather than a doctrine.(Reynolds, 1969, p.403). With this premise, Reynolds suggested four things to advance development studies: 1) construction of growth models adapted to the LDCs, as no one growth model could possible explain all kinds of LDCs; 2) empirical analysis of early economic growth in particular countries; 3) comparative cross-sectional studies; and 4) microanalysis of economic behavior. Eventually, development economics became the application of economic principles and methods to conditions in the LDCs and was considered another specialism alongside agricultural economics or international trade (Killick, 1980). Its description later evolved into the process of improving quality of all human lives (Todaro 1989: 620 in Smiley, 1995) to the investigation of the causes of poverty and low incomes around the world and (which) seeks to make progress in designing policies that could help individuals, regions, and countries to achieve greater economic prosperity (Acemoglu, 2010). Given Acemoglus background and bias, however, development economics in his term has remained in the traditional economic discipline despite several authors assertion of multiple facets and levels of development. The author also maintained that in development economics where agenda ought to be broad, we should not lose sight of the bigger picture of the problem of economic development (Acemoglu, 2010, p.50), again, despite the other authors focus on context and localization of economic principles. Mono-economicsthe position that all economies work in similar ways and that neoclassical economics was universally applicable (Peet & Hartwick, 2009, p.68)is still held true today by some economists, only that now they acknowledge that price-setting is more difficult in the LDCs. On the other hand, development economists no longer reject the principle of neoclassical economics but propose that other problems such as income distribution, unemployment, and poverty, among others, be included in the model (Peet & Hartwick, 2009).
if economic models are independent of government policies, they would inevitably come in conflict with the reality of political relations (Resnick, 1975). Similarly, Killick (1980) pointed out that in the dependency of nations, economic penetration spills over into influence over culture, social organization, education, and politics. In consequence, policies and development plans are influenced and even determined by foreign private interests and governments (Harris, 1975 in Killick, 1980). Thus, the fields of anthropology and social psychology, in addition to political science mentioned earlier, come into the analysis of development economics. Lewis (1984) furthered that market mechanisms sometimes do not hold in poor countries, where people do what they do for non-economic reasons and not to maximize their income. In some countries, he said, production and exchange are governed by ritual laws, based on kinship and on authority status(and) to demonstrate their superior achievement (people do) deliberate destruction of productive assets (p.3). Costs and benefits also differ across ethnic classification. For these reasons, Lewis emphasized the role of economic anthropology in development, especially that the behavior relating to investment, savings, risks, and having children is not governed by the calculus of marginal utility (p.4). Economic theory, econometric methods, sociology, anthropology, political science, and demographyall these subjects have eventually merged into the field of development economics (Ray, What's New in Development Economics?, 2000).
1. Economic output
Adelman
(1975)
countered
that
concentrating
on
growth
assumes
that
other
goals
such
as
equity
and
welfare
follow,
that
is,
they
are
positively
correlated.
History
shows,
however,
that
there
is
no
automatic
trickle-down
of
benefits
and,
worse,
development
typically
leads
to
trickle-up,
benefitting
the
middle
class
and
the
rich
(p.302).
The
trickle-down
assumption,
the
author
said,
was
based
on
the
modern
industrial
nation
model
which
led
the
LDCs
to
use
performance
criteria,
strategies,
models,
and
methodologies
inappropriate
to
their
context.
Adelman
thus
proposed
a
development
model
whose
goals
are
1)
to
provide
material
basis
to
achieve
realization
of
human
potential
and
2)
to
establish
the
economic
conditions
for
relaxing
the
other
barriers
to
self-realization
such
as
access
to
education,
work
satisfaction,
status,
security,
self-expression,
and
power
(p.306).
This
model
focuses
on
individuals
and
includes
removal
of
social,
political,
and
spiritual
forms
of
deprivation
as
well
(Adelman,
1975).
It
can
be
operationalized
through
this
strategy:
redistribute
assets
and
educate
people
first,
then
grow
later.
This
strategy
was
employed
by
the
four
successful
equitable-growth
countries
in
the
1950s,
namely
Israel,
South
Korea,
Singapore,
and
Taiwan
(Adelman,
1975).
There
is
yet
another
argument
why
production,
usually
measured
by
gross
national
income
and
similar
economic
terms,
cannot
be
an
accurate
gauge
of
development.
Building
on
Beckers
(1965)
notion
of
household
production,
Parente,
Rogerson,
and
Wright
(2000)
established
a
growth
model
that
showed
cross-country
differences
in
income
are
due
to
differences
in
both
capital
and
market
hours
and
that
individuals
in
poor
countries
spend
less
time
working
in
the
market.
Given
this
condition,
there
is
little
correlation
between
published
participation
rates
of
rural
folks
and
their
income
per
capita.
Another
insight
was
provided
by
Mueller
(1984)
and
Kirkpatrick
(1978):
while
individuals
devote
much
time
working,
relatively
small
fraction
of
it
is
devoted
to
activities
that
generate
output
that
is
measured
in
gross
national
product
accounts
(Parente,
Rogerson,
&
Wright,
2000,
p.685).
Thus,
the
authors
argued
that
home
production
should
be
made
part
of
the
income
accounting.
On
the
issue
of
equitable
distribution
of
benefits,
Resnick,
seemingly
referring
to
the
dependency
theory,
explained
that
the
economies
in
the
hinterland
and
the
LDCs
that
are
characterized
by
poverty
have
been
systematically
organized
by
the
center
or
the
affluent
countries.
Therefore,
unequal
distribution
of
income
is
an
essential
and
endogenous
part
of
capitalist
development
(Resnick,
1975,
p.317).
As
reaction
to
this
dependency
theory,
Killick
(1980)
supported
Todaros
work
on
freeing
individuals
and
nations
from
servitude
and
dependence
(p.370).
He
explained
that
dependency
takes
place
when
the
following
happen:
1)
heavy
Development Economics: A Review of Literature Page 5 of 18
2. Equitable distribution
influx
of
foreign
capital
into
a
peripheral
nation;
2)
lop-sided
export
structure
favoring
the
central
nation;
3)
unequal
position
in
trade,
investment,
and
taxation;
4)
inappropriate
technologies
exported
to
the
periphery;
and
5)
consumption
patterns
in
the
periphery
are
set
by
the
central
nation.
With
the
constant
widening
of
income
inequalities,
Killick
(1980)
wrote
that
development
should
also
consider
the
following:
social
justice,
human
satisfaction,
and,
quoting
Michael
Todaro,
basic
human
needs,
jobs
creation
and
employment,
education,
cultural
and
humanistic
values,
expansion
of
social
choices,
which
all
lead
to
individual
and
national
self-esteem
(p.370).
He
observed,
too,
that
development
in
the
1950s
and
1960s
focused
on
the
problem
of
inequality
between
nation-states,
not
on
conditions
within
a
nation-state.
While
the
national
self-esteem
concept
seems
to
have
been
lost
over
time,
the
individual
focus
of
development
persists
through
the
1990s.
The
poor
became
the
center
of
development
that
asserts
priority
attention
should
be
given
to
satisfying
the
basic
needs
of
people
for
food,
water,
and
shelter
rather
than
to
simple
growth-maximization,
andthe
environment
to
sustain
such
growth
(Friedmann,
1992,
p.2).
It
further
argues
that
economic
growth
does
not
necessarily
mean
higher
income
for
everyone;
in
fact,
it
leads
to
the
exclusion
of
some
sectors
and
adds
still
to
the
poverty
of
others
(Friedmann,
1992,
pp.17-21).
Later,
this
assertion
became
the
foundation
of
what
was
later
called
Alternative
Development.
3.
Human
development
Considering
the
changes
in
development
thrusts
over
the
past
decades,
human
development-focused
measures
cannot
be
wholly
attributed
to
Amartya
Sen,
as
done
by
some
development
scholars
today.
Sens
human
capacitation
and
enlargement
of
peoples
choices
of
human
development
(Nederveen
Pieterse,
2010,
pp.6-7)
has
been
a
subject
of
debates
since
the
1970s.
Sen
(1999),
enriching
the
earlier
human-focused
concept,
argues
that
freedom
is
the
means
and
ends
of
developmentthe
individual
capacity
to
do
thingsand
refers
to
it
as
that
which
is
concerned
with
the
process
of
decision
making
as
well
as
opportunities
to
achieve
valued
outcomes
(p.291).
Sens
freedom
therefore
could
very
well
mean
Killicks
interpretation
of
Todaros
freedom
from
servitude
and
dependence.
Decades
before
the
happiness
index
was
considered
an
alternative
way
of
measuring
well-being
and
thus,
of
development,
Sen
(1984
in
Bardhan,
1993)
had
already
put
forward
his
argument
to
this
idea:
Judging
importance
by
the
mental
metric
of
happiness
or
desire-fulfillment
can
take
a
deeply
biased
form
due
to
the
fact
that
mental
reactions
often
reflect
defeatist
compromises
with
Development Economics: A Review of Literature Page 6 of 18
harsh reality induced by hopelessness grievance and discontent are submerged in cheerful endurance by the necessity of uneventful survival (p.138). Ray (2000, 2007) argued that despite all the indicators or variables identified over the yearsbad nutrition, high mortality rate, lack of access to sanitation, safe water and housing, to name a fewnobody has come up yet with the definition of development or underdevelopment and that these concepts are merely correlated with the variables. No causal relationship has been established; just as these variables may cause underdevelopment, underdeveloped could also cause the occurrence of these variables.
B.
Causes
of
Underdevelopment
While
the
solutions
for
underdevelopment
have
been
thought
about
since
the
1940s,
the
analysis
as
to
what
causes
it
has
not
been
brought
to
fore
until
a
decade
or
so
later.
The
development
economics
that
emerged
in
the
1950s
attributed
underdevelopment
to
traditionality,
that
is,
individuals
mindlessly
following
traditions
in
resource
allocation,
as
opposed
to
modernization,
whereby
such
matter
is
decided
by
market
forces
and/or
the
developmental
state.
The
argument
therefore
of
the
early
development
economics
was
that
the
state
had
the
leading
role
in
overruling
those
civil
society
institutions
that
carried
values
inimical
to
market
forces
and
individual
enterprises
(Cameron,
2000,
p.629).
Another
possible
cause
is
Rosentein-Rodan
(1943)
and
Hirschmans
(1958)
role
of
expectations
and
self-fulfilling
prophecy.
Both
concepts,
related
to
the
discussion
of
multiple
equilibria,
work
on
the
basis
of
peoples
speculation
and
social
pressure,
meaning
doing
what
everybody
else
does.
If
an
investor
thinks
that
demand
would
be
high,
then
he
would
be
willing
to
invest
money;
if
all
investors
share
the
same
optimism,
then
all
of
them
would
invest
in
the
market
and
thus
demand
would
indeed
be
high.
The
reverse,
the
case
of
pessimism,
is
also
true
(Ray,
What's
New
in
Development
Economics?,
2000).
History
or
initial
condition
is
another
possible
cause
of
underdevelopment
(Bardhan,
1993).
A
nation,
despite
its
similarities
with
other
nations
technological
capacity
for
example,
could
end
up
at
a
level
of
development
different
from
the
others
because
of
its
history
or
initial
conditions.
Initial
conditions
include
but
are
not
limited
to
inherited
capital
stock,
legal
structure,
traditions,
inequalities
in
the
distribution
of
asset
ownership,
colonial
heritage,
institutional
settings
and
political
institutions,
and
character
of
early
industry
and
agriculture
(Ray,
What's
New
in
Development
Economics?,
2000;
Ray,
Development
Economics,
2007).
Development Economics: A Review of Literature Page 7 of 18
Sokoloff and Engermann (2000) explained the impact of initial conditions on future development of a nation thus: the early institutions of colonial rule were designed precisely for the purpose of resource extraction and the resulting inequalities had effects on the subsequent development of the colonized nations. In nations where such extractive agreements did not exist, one could expect comparative equality and path of development that is more broad-based (Ray, Development Economics, 2007, p.10). Further, in societies that started with inequalities, the elites were able to set up institutions that would protect their positions thereby sustaining inequality over time. In contrast, such effort of the elite groups in societies with greater equality was relatively unsuccessful (Ray, Development Economics, 2007). The eventual rise of the convergence theorywhich supposes that after controlling savings rate, population, and political climate or corruption, poorer countries will tend to grow faster and hence, catch up with the others and convergeled to another research query: why have other countries fail to converge? Often, peoples intrinsic difference in their willingness to save or to procreate, or some other social, cultural, and political factors are used to explain a countrys failure to converge. However, whether corruption, high population growth, and/or low savings rate is a cause or an effect of poverty is not established. In short, there may be correlation between the variables but the direction of causation is not clear. The result therefore is superficial, if not flawed policy interventions (Ray, What's New in Development Economics?, 2000).
Page 8 of 18
Reynolds
(1969)
criticized
the
existing
theories
for
not
tackling
non-economic
variables
that
were
equally
influential
in
the
growth
of
the
LDCs,
referring
to
the
territories
of
political
science
and
social
anthropology,
among
others
(p.404;
also
in
Myrdal
1963,
p.151
in
Peet
&
Hartwick,
2009).
Bowden
(1971)
supported
this
argument,
saying
that
if
the
theorist
or
analyst
deals
only
with
quantifiable
variables
he
will
fail
to
consider
concepts
which
may
in
fact
determine
the
economic
future.
It
is
so
easy
to
be
precise
and
sure
when
relevancy
is
sacrificed
(p.115).
Clearly,
even
in
the
earlier
days,
development
had
been
recognized
not
merely
as
a
sub-theme
of
economics
but
a
multidisciplinary
field
on
its
own.
The
1980s
was
marked
by
the
emergence
of
new
theories.
No-growth
or
stagnation
theory
had
grown
out
of
fashion
and
was
replaced
instead
by
theories
on
the
growth
of
resources
of
nations,
which
lead
to
the
query
as
to
why
some
move
faster
than
the
others.
The
alternative
strategy
of
development,
which
addresses
basic
needs
and
supports
expenditures
on
social
services
and
investments
in
human
capital
also
emerged.
Entrepreneurship
and
its
related
issues
became
a
trend:
higher
propensity
of
certain
ethnic
groups
to
be
entrepreneurial
than
the
others
and
the
resented
foreign
entrepreneurship
by
the
locals
despite
the
benefits
they
derive
from
their
presence,
for
example.
The
role
of
leadership
was
likewise
emphasized
in
this
period
as
a
factor
contributing
to
sustained
growth
(Lewis,
1984).
By
the
first
decade
of
the
21st
century,
Taylor
(2008)
divided
the
development
economists
into
two:
those
who
want
to
totally
destroy
the
past
development
theories
and
those
who
seek
to
remodel
them.
Among
the
first
group
were
Erik
S.
Reinert
and
Ha-Joon
Chang.
Reinert
criticized
the
existing
development
economics
theories
for
two
things:
1)
over
emphasis
on
the
mathematics
in
their
attempt
to
become
hard
science
and
thereby
overlooking
in
the
process
the
link
between
economies
and
societies
and
the
practical
policies;
and
2)
their
discard
for
qualitative,
case-study-oriented
research
and
so
they
failed
to
account
for
the
differences
across
nations
such
as
knowledge
base,
entrepreneurship
(which
has
been
part
of
the
discourse
since
the
1980s),
and
capabilities.
Likewise,
there
are
still
staunch
supporter
of
economics
as
a
science.
They
hold
economics
crucial
role
in
development
not
only
because
it
helpsfocus
on
the
most
important
economic
mechanisms
but
also
because
it
provides
guidance
on
the
external
validity
of
economteric
measureshow
specific
empirical
exercises
about
the
effects
of
shocks
and
policies
in
different
circumstances
and
when
implemented
on
different
scales
(Acemoglu,
2010,
p.17).
Despite
this
claim,
Acemoglu
recognized
that
relationship
of
variables
cannot
simply
be
derived
from
an
economic
model
unless
relevant
constraints
are
incorporated
in
it.
He
also
noted
that
policies
are
made
often
not
on
the
basis
of
economic
principles
Development Economics: A Review of Literature Page 9 of 18
but on the political elites self-serving interestsan issue raised by the likes of Killick in as early as 1980s.
benefited from restricted capital flows, state-run industrialization initiatives, and nascent industry protection (Taylor, 2008, p.545). He also observed that trade could be good only if the trading countries are in equal footing and that poor nations should be allowed to protect their domestic industries because open- market policies only destroy the most advanced industries in the LDCs (Taylor, 2008). These arguments are the very same things advanced by the likes of Killick in the 1980s in response to dependency theory. In the end, however, Taylor (2008) concluded that sometimes market fails not because of the policies imposed from abroad but because of the decisions made by the interest groups, politicians, and bureaucrats in the domestic front. The author could be referring to Kruegers concept of political failure (to be discussed in the next section on Institutions). Recent literature highlights the role of entrepreneurship in development. Baumol et. al., for example, emphasized the importance of entrepreneurship in economic growth and poverty reduction and suggested a typology of capitalism: 1) big firms; 2) state-directed; 3) oligarchic; and 4) entrepreneurial. The problem, according to Baumol et. al., is that conventional economic theory does not include innovation into models and accounts only for inputs and and total factor productivity. They argued further that a mix of entrepreneurial and big- firm capitalism is more likely to lead to growth in that the entrepreneurs innovations could be refined, produced, and marketed by the large players in order to create a successful entrepreneurial economy (Taylor, 2008, p.548).
1. On Institutions Lewis (1984) posed the questions as to how institutions influence decisions, how they use incentives, and how they have changed over time. Self-reinforcing mechanisms of sub-optimal institutions, for example, block economic progress. Akerlof (1984 in Bardhan, 1993) used the Indian caste system to illustrate how economically unprofitable or socially unpleasant customs may persist when each individual conforms out of fear of loss of reputation from disobedience (p.136). Smiley (1995) also argued that problem of poverty and inequality in the agrarian, labor-intensive LDCs could not be solved unless the institution of landholding, which is concentrated heavily on the few, is changed. Patterns in the LDCs showed that landlords take 50 percent to 80 percent of the crops while money lenders, who are often also the landlords, charge interest at 50 percent to 200 percent. The peasants thus evolve from small proprietor, to tenant, to sharecropper, to landless laborer, to jobless vagrant, and finally to migrant slum dweller (p.492). Some economists therefore attributed the success of the East Asian tiger economies to their land reform programs, by which the power of landed elites was broken (Rock 1993 in Smiley, 1995), refuting the earier claims of neoclassical economists that this success was due to simple free market mechanisms (Cameron, 2000). Hence, the 1990s witnessed the rise of New Institutional Economics (NIE), which concern capital, property rights, and institutions. While neoclassical economists assume that individuals make decisions based on rational choice or utility-maximization thinking, institutional economists argue that factors such as culture of poverty, moral economy, and social formations influence the decision making of peoplean influence of socioeconomics and anthropology on development economics. NIE suggests that institutions have considerable durability and path-dependence and recognizes non-government organizations (NGOs) as having unique position in transforming society, as they negotiate with the two competing dominant institutional modelsthe market and the state. Under the NIE, the NGOs also play an important role in the creation and capacity building of grassroots institutions that better represent their target groups of vulnerable people (Cameron, 2000, p.633). Later, institutionalism was considered passe in that the incentives the institutions provide were given more importance than the form that they assumed (Taylor, 2008). In fact, Rodrick argued that principles should be institution-free, that is, without a single institutional framework that can or should be applied universally (Rodrik, p. 29 in Taylor, 2008).
Page 12 of 18
2.
On
Behavior
Development
economists
also
looked
into
the
individual
behavior
in
the
face
of
economic
change.
Duflo
(2006
in
Ray,
Development
Economics,
2007,
p.6)
hypothesized
that
being
poor
almost
certainly
affects
the
way
people
think
and
decide.
Different
sources
of
income,
for
example,
are
treated
differently
by
the
household
members,
depending
on
how
it
affects
ones
position
in
the
intrahousehold
power
game.
Another
hypothesis
has
been
formed:
underdevelopment
leads
to
conflict,
in
contrast
to
the
more
popular
thinking
that
conflict
leads
to
underdevelopment.
The
causal
link
is
thuspoverty
reduces
opportunity
cost
of
engaging
in
conflict.
Grabbing
resources,
for
example,
is
quicker
and
more
profitable
for
the
poor
than
the
steady
process
of
wealth
accummulation
(Ray,
Development
Economics,
2007,
p.17).
Ray
(2010)
also
argued
that
uneven
growth
can
both
raise
our
ambitions
and
unleash
our
frustrations
(p57).
Exposures
to
higher
living
standards
may
affect
ones
rate
of
savings,
decision
to
migrate,
fertility
choices,
technology
adoption,
and
work
ethic,
among
othersthings
that
are
often
excluded
in
the
economic
models.
It
is
unclear,
however,
whether
such
exposure
would
lead
an
individual
to
greater
motivation
to
be
economically
productive
or
to
despair
and
frustration.
The
author
thus
recommends
the
inclusion
of
the
following
in
research
agenda
of
development
economics:
1)
social
determinants
of
behavior
such
as
aspirations,
separating
effect
of
information
from
the
effect
of
hope
and
desire;
2)
inequality
tolerance
and
evolution;
and
3)
study
redistributive
policy
with
behavioralism
in
mind
from
a
positive
political-economy
perspective.
3.
On
Institution-Individual
Behavior
Dynamics
Institutions
can
also
shape
individual
behavior,
just
as
individuals
can
influence
institutions.
Take
the
financial
system
and
the
poor
as
a
case
in
point.
The
formal
credit
sector
excludes
the
poor
not
because
they
are
less
trustworthy
but
because
in
case
of
project
failure,
they
do
not
have
the
resources
to
repay
their
debts.
The
poor
are
thus
compelled
to
turn
to
informal
lenderstheir
landlords
or
traders
most
oftena
situation
that
may
create
pockets
of
exploitative
local
monopoly
(Ray,
Development
Economics,
2007,
p.15).
Similarly,
legal
institutions
supporting
contract
enforcement
and
property
rights,
and
protecting
investments
and
credits
affect
corruption,
stock-market
participation,
corporate
valuation,
government
interventionism,
and
judicial
efficiency
(Ray,
Development
Economics,
2007,
p.19).
Krueger
(2009)
differentiated
government
failureinefficient
public
sector
enterprises,
regulations,
and
control
of
private
sector
activities,
inadequate
physical
infrastructure,
and
failure
to
deliver
basic
servicesfrom
political
failure,
under
which
politicians
act
according
to
their
self-interest
and
pursue
Development Economics: A Review of Literature Page 13 of 18
client-patronage relations, and in Rays (2007, p.11) term crippling of political opposition, much to the detriment of society in general. Such condition, according to Krueger, calls for reform by the leaders, which is deemed absolute essential in low-income countries if they are to achieve satisfactory rates of economic growth (Krueger, 2009, pp.280-281). Ray (2010), however, defended that bad decisions happen not necessarily because of the politicians self-interests. The author argued that allocation of public resources primarily lies in the debate, discourse, and lobbying, which in turn, depends on the power of media, the lobbyists, and the politicians. Due to this external force, even honest politicians could make bad resource-allocation decisions and thus corruption among policy makers may not (necessarily) make things worse in this case (Ray, 2010, p.53). Further, the author explained that interests of some groups become entrenched not so much due to corruption as it is due to lack of information of government (Ray, Uneven Growth: A Framework for Research in Development Economics, 2010). The problem is, in reforming the entrenched interests of certain groups, the losers or potential losers will defend the old system and impede progress, as they control institutions. To prevent their foreseen lot, these losers will block redistributions that spread growth to other sectors to secure their position (Ray, Uneven Growth: A Framework for Research in Development Economics, 2010). As explained by Evans (2004), the power wielders who are bound to lose their base under a new setup will resist change. People whose power will diminish as a result of the institutional change will likely not support the change even if the result will be beneficial in absolute terms, and thus, Evans concluded that bad institutions would be hard to reform (pp.38-39). Grindle (2004) recognized the same problem, saying that the governments may be trapped by the political elites and that this concern may be addressed by innovative ways such as the participation of civil society (p.539). This argument was also supported by March and Olsen (1989) who contended that political institutions dealing with the questions of preferences and endowments cannot treat these issues as they do in economics. They added that Pareto-optimal solutions will not be an adequate basis for choice, especially in cases where powers and rights can be converted into resources, even monetary resources at times (p.364)another proof that development economics cannot be separated from political science as well as from institutional economics.
Page 14 of 18
the context of the LDCs, Bowden (1971) proposed the need to develop applications of theory and methods in the local areas (p.117). The group of those who intend to remodel development theories such as Baumol, et.al, Rodrik, and Collier, argued that local knowledge and needs should be taken into account and that the problems of the poorest are remarkably different from the rest of the world. Rodrik reasoned that Washington Consensus failed because it did not consider the local-level barriers to growth such as high cost of financing, low return on financial and social investments, and low private appropriability (Rodrik, p. 89 in Taylor, 2008, p.550). Development literature also points out the advantages of local, informal, sometimes non-market lending over the large, formal credit system, as illustrated by the case of traditional rotating credit associations and group loans in poor countries. This credit system works largely because of peer monitoring, which as Arnott and Stiglitz (1991) argued, can be an important control mechanism for moral hazards (Bardhan, 1993).
country nor from global inequalities, but from misguided Keynesian development policies (Peet & Hartwick, 2009, p.75). Lal (1980, 1983 in Peet & Hartwick, 2009) also argued that because development economists treated the LDCs as special cases rather than merely further examples of rational beings, they distorted the standard economic principle of price-efficient and free-trade mechanisms. The author was against all forms of economic control and government interventions, and the redistribution of income from rich to the poor. For him, in a necessarily imperfect world, imperfect market mechanisms do better in practice than imperfect state planning mechanisms (p.76). By the mid-1980s the whole notion of development economics had been discredited in the conventional circles, which coincided with the revival of liberal, laissez faire economics under the banner neoliberalism. Overall, however, this review supports the observations made by Bardhan (1993): 1) that recent theorists are oblivious of the pre-existing and quite rich development literature that they tend to reiterate issues, which have already been in the discourse a few decades earlier; and 2) just as development economics have benefitted from the concepts and tools in other fields, so has development economics contributed to their literaturethe study of rent- seeking, commodity price stabilization, and dual economy models, for example.
Page 16 of 18
Works Cited
Acemoglu,
D.
(2010).
Theory,
General
Equilibrium,
and
Political
Economy
in
Development
Economics.
The
Journal
of
Economic
Perspectives
,
24
(3),
17-32.
Adelman,
I.
(1975
May).
Development
Economics-A
Reassessment
of
Goals.
The
American
Economic
Review
,
302-309.
Bardhan,
P.
(1993).
Economics
of
Development
and
the
Development
of
Economics.
The
Journal
of
Economic
Perspectives
,
7
(2),
129-142.
Bowden,
E.
V.
(1971).
The
Theory
and
the
Practice
of
Regional
Development
Economics.
Land
Economics
,
47
(2),
113-121.
Cameron,
J.
(2000).
Development
Economics,
the
New
Institutional
Economics,
and
NGOs.
Third
World
Quarterly
,
21
(4),
627-635.
Evans,
P.
(Winter
2004).
Development
as
Institutional
Change:
The
Pitfalls
of
Monocropping
and
the
Potentials
for
Deliberation.
Studies
in
Comparative
International
Development
,
38
(4),
30-52.
Grindle,
M.
S.
(2004).
Good
Enough
Governance:
Poverty
Reduction
and
Reform
in
Developing
Countries.
Governance:
An
International
Journal
of
Policy,
Administration,
and
Institutions
,
17
(4),
525-548.
Killick,
T.
(1980).
Trends
in
Development
Economics
and
Their
Relevance
to
Africa.
The
Journal
of
Modern
African
Studies
,
18
(3),
367-386.
Krueger,
A.
(2009).
From
despair
to
hope:
the
challenge
of
promoting
poverty
reduction.
Progress
in
Development
Studies
,
9
(4),
269-84.
Lewis,
W.
A.
(1984).
The
State
of
Development
Theory.
The
American
Economic
Review
,
74
(1),
1-10.
March,
J.
G.,
&
Olsen,
J.
P.
(1986).
Sovereignity
and
the
Search
for
Appropriate
Institutions.
Journal
of
Public
Policy
,
6
(4),
341-370.
Nederveen
Pieterse,
J.
(2010).
Development
Theory.
Sage
Publication.
Parente,
S.
L.,
Rogerson,
R.,
&
Wright,
R.
(2000).
Homework
in
Development
Economics:
Household
Production
and
the
Wealth
of
Nation.
Journal
of
Political
Economy
,
108
(4),
680-687.
Peet,
R.,
&
Hartwick,
E.
(2009).
Theories
of
Development
Contentions,
Arguments,
Alternatives.
New
York,
USA:
The
Guilford
Press.
Ray,
D.
(2007
March).
Development
Economics.
New
York,
New
York,
USA.
Development Economics: A Review of Literature Page 17 of 18
Ray, D. (2010). Uneven Growth: A Framework for Research in Development Economics. The Journal of Economic Perspectives , 24 (3), 45-60. Ray, D. (2000 January). What's New in Development Economics? New York, New York, USA. Resnick, S. A. (1975). State of Development Economics. The American Economic Review , 65 (2), 317-322. Reynolds, L. G. (1969). The Content of Development Economics. The American Economic Review , 59 (2), 401-408. Sen, A. (1999). Development as Freedom. New York, USA: Anchor Books. Smiley, D. H. (1995). Can Labor-Capital Models Predict the Response of Agrarian Societies to Development? Part I: Problems with Development Economics. American Journal of Economics and Sociology , 54 (4), 489-501. Taylor, M. M. (2008). Development Economics in the Wake of the Washington Consensus: From Smith to Smithereens? International Political Science Review , 29 (5), 543-556.
Page 18 of 18