Leading Issues in Economic Development

Leading Issues in Economic Development

Leading Issues in Economic Development

Leading Issues in Economic Development


Completely updated and revised in this eighth edition, Leading Issues in Economic Development covers the main issues in economic development through professional journal articles by leading scholars. These articles are edited to provide greater accessibility to an undergraduate audience and organised thematically using overview essays along with explanatory notes and comments. This distinctive approach allows for a variety of perspectives while keeping the most important overall themes in sight. This extensive collection of articles and essays is prefaced with an introductory section that covers the measurement of development, recent economic performance of less developed countries, and the discipline of development economics. It also provides a historical perspective on how the world divided into rich and poor countries and treatments of international trade, human resources, investment and finance, urbanisation and the informal sector, agriculture, income distribution, political economy, development, and the environment. The Eighth Edition is updated to include:
• Renaming of Savings and Investment chapter and expansion of chapter to include contagion and development issues raised by the Asian financial crisis
• Political Economy expands its treatment of the political process of decision making
• The Human Resource chapter adds coverage of gender issues
• Treatment of poverty is updated to reflect recent research, and new selections are added on the role of social capital in productivity and also on transition economies
• Selections are strengthened that deal with the microeconomics of development, education, health, and agricultureContents:1. Introduction2. Historical Perspective3. International Trade and Technology Transfer4. Human Resources5. Investment and Finance6. Urbanisation and the Informal Sector7. Agriculture8. Income Distribution9. Political Economy10. Development and the EnvironmentIndex


The subject of this book is the economics of less developed countries, sometimes called “developing countries.” Yet we must admit from the start that there is no universally accepted definition of “less developed country” (LDC). Roughly speaking, the definition in use by the writers whose work is excerpted in this book is the countries of Latin America, North Africa and the Middle East, sub-Saharan Africa, and Asia minus Japan and the countries that were formerly members of the Soviet Union—in short, what used to be called the Third World. When the border that separated East and West Germany became obsolete, so did the boundaries that separated the classification “Second World” from the classifications “First World” and “Third World.” Yet the countries of Eastern Europe and the former Soviet Union, no matter how poor, were labeled “transition” countries rather than “less developed” countries, and were the subject of “transition economics” rather than “development economics.” Moreover, a number of formerly Third World countries such as Israel, Singapore, and Taiwan would appear to have graduated to “more developed” or “industrialized” status.

In attempting to define “less developed country” it would clearly be helpful to have an accepted measure of “development.” In recent years a consensus has been gathering around the Human Development Index (HDI) as the preferred measure of development. The HDI is based on a country's per capita income, life expectancy, and educational attainment and effort. Exhibit I.A.1 shows the exact method of calculating the HDI used by the United Nations Development Program in its annual Human Development Report. Exhibit I.A.2 compares the rankings of countries by HDI to their rankings by per capita income in U.S. dollars, which was the preferred measure of development in the past. Note I.A.1 describes how the HDI evolved in response to criticisms of the adequacy of U.S. dollar per capita income as a measure of development.

The United Nations Development Program classifies countries with HDI less than 0.5 as “low human development,” countries with HDI of at least 0.5 but less than 0.8 as “medium human development,” and countries with HDI of at least 0.8 as “high human development.” We can then call the low- and medium-human development countries the “less developed countries” and the high-human development countries the “more developed countries” or simply “developed countries.” If we set the bar for developed country classification a bit higher, at an HDI of 0.85, then we can see from Exhibit I.A.2 that the only country from the former Third World with a population greater than 10 million that would be classified as “developed” is the Republic of Korea (South Korea). (Taiwan would be another such country, but it is not included in United Nations statistics.)

The per capita income component of the HDI is constructed using per capita GDP in “international dollars” or “purchasing power parity dollars” rather than U.S. dollars. As described in Note I.A.1, this is done because of evidence that the purchasing power of U.S. dollars is greater in poor countries than it is in rich countries. Exhibit I.A.3 shows that this “correction” of exchange-rate converted per capita income tends to be greater, the poorer the country relative to the United States. Selection I.A.1 by Jagdish Bhagwati and the following Comment attempt to explain why services are so much cheaper relative to commodities in poor countries than in rich countries, cheaper services being the chief reason why the purchasing power of the dollar is greater in poor countries . . .

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