Development Economics is a branch of economics which deals with economic features of the development process in low-income countries. Its emphasis is on methods of stimulating economic growth, through structural changes for improving the output for the people, through improving health facilities, education and working conditions, either through public or private sector.
Development
economics include methods that help to decide policies and practices that can
be executed at either the domestic or international level. It includes
restructuring market incentives or reallocation for optimising the efficiency
of existing policy instruments, through a mixture of quantitative
and qualitative methods.
The
world is divided up into rich and poor countries. The terms developed and less developed economies or
developing economies.
A
developed country is
characterized with large modern farms, many firms producing a wide variety of
goods and services, a well-developed road and rail network, and a relatively
healthy wealthy and educated population. United Kingdom and United states are
developed economies.
A
less developed or developing economies
are nations with problems, farming methods are poor, providing scarcely enough
foods for a growing population to eat, there may be very few firms producing
other goods and services. People are living in poor health condition, receiving
little or no education, no access to clean water, the modern convenience of
shops, transport and communication.
The
main reasons of underdevelopment
are,
1)
High population growth
2)
A dependence on the production and sale of agricultural (primary sector - one
or two) products
3)
A poor infrastructural facilities
4)
A lack of capital
5)
A poor natural resource endowment
6)
Massive under employment
7)
Social, religious and cultural barriers to change
To achieve a sustained growth the economy should improve its
income per head, advancement in economic welfare, and improve the quality and
quantity of factors of production. In order to achieve this -
1)
The quality of human resources should be increased by improvements in education, training and health
2)
Output per head should be increased (with capital deepening) with an improvement in technology to develop
the capital resources
3)
Favourable climate and a good supply of minerals and fuels help to improve the natural resources
4)
To improve the income come per head, resources should be moved from low
productivity industries to high productivity industries – reallocation of resources
5) Innovation will stimulate the
economic development by the adoption of new methods, improved technology,
better communication and advanced managed technologies.
Strategies of Economic Development
The
most suitable method for less developed
nations to develop is help themselves and not relay on help from richer
countries. The developmental strategies are;
1)
Increasing primary production
[inelastic demand and supply of food products, an increase in world supply will
reduce the income of poor countries]
2)
Industrialising through import
substitution enable to reduce imports through protectionism
3)
Promoting an export led growth
and trading will generate income and stimulate efficiency, competitiveness,
improve standard of living and reduce unemployment
4)
Another method is to control population
growth. Excess population means fewer resources per person.
Reduction in population will help to improve the standard of living
5)
Borrowing from abroad is another
method used for development. [This will be a burden for the future generation
and they find it difficult to pay back the debts]
6)
The lack of resource forces them to receive help from developed countries and
they are known as foreign aid.
Foreign aids are in the form of food aid and financial aid.
Role of Foreign aids in economic development
The
foreign aid are motivated are;
1)
Humanitarian motives – fortunate
rich minority consider poverty and help
2)
Political motives – to will the
political allegiance of the recipients and
3)
Economic motives – to escape
from the poverty trap and achieve economic growth.
[The International Monetary Fund, World Bank and United
Nations websites contain a lot of relevant information to make a comparison
possible. The factors of production, the role of the public and private
sectors and the degree of foreign aid are to be considered].
Adverse effects of foreign aids
Rich
countries produce more food than they need. Cost of storing all this is
very high and these are given to developing countries as food aid. Food aid adversely affects the country,
that when people get free food, they will not buy from the producers / farmers,
so they leave farming and find some other work. So in future, there will
be a reduction in farming.
Financial
aid is often given to developing countries on the condition that they spend it on a particular project [often
strings attached to it]. So developing countries will get an opportunity
to decide for them how to spend financial aid. To improve the standard of
living aid is given in the form of modern technology [technological aid]. The
problem for this is that the people do not have sufficient skill or training to
use this technology. Even if they are trained it can employ only a very
small number of workers.
Other forms of aid are
1)
Gifts of consumer goods
2)
Loans and grants
3)
Direct investment
4)
Technical and direct assistance
5)
Education
6)
Specialist services and
7)
Trade.
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