Economic Development, 13th Edition, PDF by Michael P Todaro and Stephen C Smith

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Economic Development, Thirteenth Edition

By Michael P. Todaro and Stephen C. Smith

Economic Development, 13th Edition, PDF by Michael P Todaro and Stephen C Smith

Contents:

Case Studies and Boxes xv

Figures and Tables xvii

Preface xxi

1 Introducing Economic Development: A Global Perspective 1

1.1 Introduction to Some of the World’s Biggest Questions 1

1.2 How Living Levels Differ Around the World 2

1.3 How Countries Are Classified by Their Average Levels of Development: A First Look 7

1.4 Economics and Development Studies 8

1.4.1 Wider Scope of Study 8

1.4.2 The Central Role of Women 10

1.5 The Meaning of Development: Amartya Sen’s “Capability” Approach 10

1.6 Happiness and Development 13

1.7 The Sustainable Development Goals: A Shared Development Mission 15

1.7.1 Seventeen Goals 15

1.7.2 The Millennium Development Goals, 2000–2015 16

1.7.3 Implementing the Sustainable Development Goals 19

1.8 Some Critical Questions for the Study of.Development Economics 21

Case Study 1: Comparative Economic Development: Pakistan and Bangladesh 24

2 Comparative Economic Development 35

2.1 An Introduction 35

2.2 What is the Developing World? Classifying Levels of National Economic Development 37

2.2.1 Conventional Comparisons of Average National Income 37

2.2.2 Adjusting for Purchasing Power Parity 43

2.2.3 Other Common Country Classifications 45

2.3 Comparing Countries by Health and Education, and the Human Development Index 46

2.3.1 Comparing Health and Education Levels 46

2.3.2 Introducing the Human Development Index 46

2.3.3 Human Development Index Ranking: How Does it Differ from Income Rankings? 49

2.3.4 Human Development Index: Alternative Formulations 51

2.4 Key Similarities and Differences Among Developing Countries 54

2.4.1 Levels of Income and Productivity 54

2.4.2 Human Capital Attainments 55

2.4.3 Inequality and Absolute Poverty 57

2.4.4 Population Growth and Age Structure 58

2.4.5 Rural Economy and Rural-to-Urban Migration 59

2.4.6 Social Fractionalisation 59

2.4.7 Level of Industrialisation and Manufactured Exports 61

2.4.8 Geography and Natural Resource Endowments 61

2.4.9 Extent of Financial and Other Market Development 62

2.4.10 Quality of Institutions and External Dependence 63

2.5 Are Living Standards of Developing and Developed Nations Converging? 67

2.5.1 The Great Divergence 67

2.5.2 Two Major Reasons to Expect Convergence 69

2.5.3 Perspectives on Income Convergence 70

2.6 Long-Run Causes of Comparative Development 74

2.7 Concluding Observations 82

Case Study 2: Institutions, Colonial Legacies, and Economic Development: Ghana and Côte d’Ivoire 84

Appendix 2.1 The Traditional Human Development Index (HDI) 102

Appendix 2.2 How Low-Income Countries Today Differ from Developed Countries in Their Earlier Stages 108

3 Classic Theories of Economic Growth and Development 116

3.1 Classic Theories of Economic Development: Four Approaches 116

3.2 Development as Growth and the Linear-Stages Theories 117

3.2.1 Rostow’s Stages of Growth 118

3.2.2 The Harrod-Domar Growth Model 118

3.2.3 Obstacles and Constraints 121

3.2.4 Necessary Versus Sufficient Conditions: Some Criticisms of the Stages Model 122

3.3 Structural-Change Models 122

3.3.1 The Lewis Theory of Economic Development 122

3.3.2 Structural Change and Patterns of Development 127

3.3.3 Conclusions and Implications 128

3.4 The International-Dependence Revolution 129

3.4.1 The Neocolonial Dependence Model 130

3.4.2 The False-Paradigm Model 131

3.4.3 The Dualistic-Development Thesis 131

3.4.4 Conclusions and Implications 132

3.5 The Neoclassical Counter-Revolution: Market Fundamentalism 133

3.5.1 Challenging the Statist Model: Free Markets, Public Choice, and Market-Friendly

Approaches 133

3.5.2 Traditional Neoclassical Growth Theory 135

3.5.3 Conclusions and Implications 137

3.6 Classic Theories of Development: Reconciling the Differences 138

Case Study 3: Classic Schools of Thought in Context: South Korea and Argentina 140

Appendix 3.1 Components of Economic Growth 147

Appendix 3.2 The Solow Neoclassical Growth Model 153

Appendix 3.3 Endogenous Growth Theory 158

4 Contemporary Models of Development and Underdevelopment 164

4.1 Underdevelopment as a Coordination Failure 165

4.2 Multiple Equilibria: A Diagrammatic Approach 168

4.3 Starting Economic Development: The Big Push 174

4.3.1 The Big Push: A Graphical Model 175

4.3.2 Other Cases in Which a Big Push May Be Necessary 180

4.3.3 Why the Problem Cannot Be Solved by a Super-Entrepreneur 181

4.4 Further Problems of Multiple Equilibria 183

4.4.1 Inefficient Advantages of Incumbency 183

4.4.2 Behaviour and Norms 183

4.4.3 Linkages 184

4.4.4 Inequality, Multiple Equilibria, and Growth 185

4.5 Michael Kremer’s O-Ring Theory of Economic Development 186

4.5.1 The O-Ring Model 186

4.5.2 Implications of the O-Ring Theory 189

4.6 Economic Development as Self-Discovery 191

4.7 The Hausmann-Rodrik-Velasco Growth Diagnostics Framework 192

4.8 Conclusions 199

Case Study 4: China: Understanding a Development “Miracle” 202

5 Poverty, Inequality, and Development 220

5.1 Measuring Inequality 222

5.1.1 Size Distributions 222

5.1.2 Lorenz Curves 224

5.1.3 Gini Coefficients and Aggregate Measures of Inequality 226

5.1.4 The Ahluwalia-Chenery Welfare Index (ACWI) 228

5.2 Measuring Absolute Poverty 228

5.2.1 Income Poverty 228

5.2.2 Multidimensional Poverty Measurement 233

5.3 Poverty, Inequality, and Social Welfare 233

5.3.1 What is it About Extreme Inequality That’s So Harmful to Economic Development? 233

5.3.2 Dualistic Development and Shifting Lorenz Curves: Some Stylised Typologies 235

5.3.3 Kuznets’s Inverted-U Hypothesis 239

5.3.4 Growth and Inequality 243

5.4 Absolute Poverty: Extent and Magnitude 244

5.4.1 The Multidimensional Poverty Index (MPI) 246

5.5 Economic Characteristics of High-Poverty Groups 251

5.5.1 Children and Poverty 252

5.5.2 Women and Poverty 252

5.5.3 Ethnic Minorities, Indigenous Populations, and Poverty 255

5.6 Growth and Poverty 257

5.7 Labour, the Functional Distribution of Income, and Inclusive Development 258

5.7.1 The Functional Distribution 258

5.7.2 Labour and Inclusive Development 260

5.8 Policy Options on Income Inequality and Poverty: Some Basic Considerations 262

5.8.1 Areas of Intervention 262

5.8.2 Altering the Functional Distribution of Income Through Relative Factor Prices: Minimum

Wage and Capital Subsidy Debates 263

5.8.3 Modifying the Size Distribution Through Increasing Assets of the Poor 264

5.8.4 Progressive Income and Wealth Taxes 265

5.8.5 Direct Transfer Payments and the Public Provision of Goods and Services 266

5.8.6 Applying Insights from Behavioural Economics to Address Poverty 268

5.9 Summary and Conclusions: The Need for a Package of Policies 270

Case Study 5: India: Complex Challenges and Compelling Opportunities 272

Appendix 5.1 Appropriate Technology and Employment Generation: The Price Incentive Model 281

Appendix 5.2 The Ahluwalia-Chenery Welfare Index 284

6 Population Growth and Economic Development: Causes,

Consequences, and Controversies 293

6.1 The Basic Issue: Population Growth and the Quality of Life 293

6.2 Population Growth: Past, Present, and Future 294

6.2.1 World Population Growth Throughout History 294

6.2.2 Structure of the World’s Population 296

6.2.3 Demographic Structure and the Hidden Momentum of Population Growth 299

6.3 Demographic Structure and the Demographic Transition 303

6.4 The Causes of High Fertility in Developing Countries:

The Malthusian and Household Models 305

6.4.1 The Malthusian Population Trap 305

6.4.2 Criticisms of the Malthusian Model 309

6.4.3 The Microeconomic Household Theory of Fertility 311

6.4.4 The Demand for Children in Developing Countries 314

6.4.5 Implications for Development and Fertility 315

6.5 The Consequences of High Fertility: Some Conflicting Perspectives 316

6.5.1 It’s Not a Real Problem 317

6.5.2 It’s a Deliberately Contrived False Issue 318

6.5.3 It’s a Desirable Phenomenon 318

6.5.4 It Is a Real Problem 320

6.5.5 Goals and Objectives: Toward a Consensus 324

6.6 Some Policy Approaches 326

6.6.1 What Developing Countries Can Do 326

6.6.2 What the Developed Countries Can Do 329

6.6.3 How Developed Countries Can Help Developing Countries with Their Population Programmes 330

6.6.4 Policy for Still-Developing Countries Facing Population Declines 330

Case Study 6: “Twins” Growing Apart: Burundi and Rwanda 332

7 Urbanisation and Rural–Urban Migration: Theory and Policy 340

7.1 Urbanisation: Trends and Living Conditions 341

7.2 The Role of Cities 349

7.2.1 Industrial Districts 349

7.2.2 Efficient Urban Scale 353

7.3 Understanding Urban Giants: Causes and Consequences 354

7.3.1 First-City Bias 355

7.3.2 The Political Economy of Urban Giants 356

7.4 The Urban Informal Sector 358

7.4.1 Policies for the Urban Informal Sector 359

7.4.2 Women in the Informal Sector 362

7.5 Migration and Development 363

7.6 Toward an Economic Theory of Rural–Urban Migration 366

7.6.1 A Verbal Description of the Todaro Model 366

7.6.2 A Diagrammatic Presentation 368

7.6.3 Policy Implications 370

7.7 Conclusion: A Comprehensive Urbanisation, Migration, and Employment Strategy 373

Case Study 7: Rural–Urban Migration and Urbanisation in Developing Countries: India and Botswana 377

Appendix 7.1 A Mathematical Formulation of the Todaro Migration Model 382

8 Human Capital: Education and Health in Economic Development 390

8.1 The Central Roles of Education and Health 390

8.1.1 Education and Health as Joint Investments for Development 392

8.1.2 Improving Health and Education: Why Increasing Income Is Not Sufficient 393

8.2 Investing in Education and Health: The Human Capital Approach 396

8.2.1 Social Versus Private Benefits and Costs 399

8.3 Child Labour 401

8.4 The Gender Gap: Discrimination in Education and Health 407

8.4.1 Education and Gender 407

8.4.2 Health and Gender 408

8.4.3 Consequences of Gender Bias in Health and Education 409

8.5 Educational Systems and Development 411

8.5.1 The Political Economy of Educational Supply and Demand: The Relationship Between

Employment Opportunities and Educational Demands 411

8.5.2 Distribution of Education 413

8.6 Health Measurement and Disease Burden 416

8.6.1 HIV/AIDS 421

8.6.2 Malaria 424

8.6.3 Parasitic Worms and Other “Neglected Tropical Diseases” 426

8.7 Behavioural Economics Insights for Designing Health Policies and Programmes 428

8.8 Health, Productivity, and Policy 429

8.8.1 Productivity 429

8.8.2 Health Systems Policy 430

Case Study 8: Pathways Out of Poverty: Progresa/Oportunidades in Mexico 434

9 Agricultural Transformation and Rural Development 447

9.1 The Imperative of Agricultural Progress and Rural Development 447

9.2 Agricultural Growth: Past Progress and Current Challenges 450

9.2.1 Trends in Agricultural Productivity 450

9.2.2 Market Failures and the Need for Government Policy 456

9.2.3 Agricultural Extension 458

9.3 The Structure of Agrarian Systems in the Developing World 459

9.3.1 Three Systems of Agriculture 459

9.3.2 Traditional and Peasant Agriculture in Latin America, Asia, and Africa 462

9.3.3 Agrarian Patterns in Latin America: Progress and Remaining Poverty Challenges 462

9.3.4 Transforming Economies: Problems of Fragmentation and Subdivision of Peasant Land in

Asia 465

9.3.5 Subsistence Agriculture and Extensive Cultivation in Africa 468

9.4 The Important Role of Women 470

9.5 The Microeconomics of Farmer Behaviour and Agricultural Development 473

9.5.1 The Transition from Traditional Subsistence to Specialised Commercial Farming 473

9.5.2 Subsistence Farming: Risk Aversion, Uncertainty, and Survival 474

9.5.3 The Economics of Sharecropping and Interlocking Factor Markets 477

9.5.4 Intermediate Steps to Mixed or Diversified Farming 480

9.5.5 From Divergence to Specialisation: Modern Commercial Farming 481

9.6 Core Requirements of a Strategy of Agricultural and Rural

Development 483

9.6.1 Improving Small-Scale Agriculture 483

9.6.2 Institutional and Pricing Policies: Providing the Necessary Economic Incentives 484

9.6.3 Conditions for Rural Development 486

Case Study 9: The Need to Improve Agricultural Extension for Women Farmers:

Kenya and Uganda 489

10 The Environment and Development 503

10.1 Environment and Development: The Basic Issues 503

10.1.1 Economics and the Environment 503

10.1.2 Sustainable Development and Environmental Accounting 505

10.1.3 Environment Relationships to Population, Poverty, and Economic Growth 506

10.1.4 Environment and Rural and Urban Development 508

10.1.5 The Global Environment and Economy 509

10.1.6 Natural Resource–Based Livelihoods as a Pathway Out of Poverty: Promise and

Limitations 510

10.1.7 The Scope of Domestic-Origin Environmental Degradation 511

10.1.8 Rural Development and the Environment: A Tale of Two Villages 513

10.1.9 Environmental Deterioration in Villages 514

10.2 Global Warming and Climate Change: Scope, Mitigation, and Adaptation 515

10.2.1 Scope of the Problem 515

10.2.2 Mitigation 518

10.2.3 Adaptation 519

10.3 Economic Models of Environmental Issues 521

10.3.1 Privately Owned Resources 521

10.3.2 Common Property Resources 526

10.3.3 Public Goods and Bads: Regional Environmental Degradation and the Free-Rider

Problem 528

10.3.4 Limitations of the Public-Good Framework 530

10.4 Urban Development and the Environment 531

10.4.1 Environmental Problems of Urban Slums 531

10.4.2 Industrialisation and Urban Air Pollution 532

10.4.3 Problems of Congestion, Clean Water, and Sanitation 535

10.5 The Local and Global Costs of Rain Forest Destruction 536

10.6 Policy Options in Developing and Developed Countries 539

10.6.1 What Developing Countries Can Do 539

10.6.2 How Developed Countries Can Help Developing Countries 541

10.6.3 What Developed Countries Can Do for the Global Environment 545

Case Study 10: A World of Contrasts on One Island: Haiti and the Dominican Republic 548

11 Development Policymaking and the Roles of Market,

State, and Civil Society 557

11.1 A Question of Balance 557

11.2 Development Planning: Concepts and Rationale 558

11.2.1 The Planning Mystique 558

11.2.2 The Nature of Development Planning 558

11.2.3 Planning in Mixed Developing Economies 559

11.2.4 The Rationale for Development Planning 560

11.3 The Development Planning Process: Some Basic Models 562

11.3.1 Three Stages of Planning 562

11.3.2 Aggregate Growth Models: Projecting Macro Variables 563

11.3.3 Multisector Models and Sectoral Projections 565

11.3.4 Project Appraisal and Social Cost–Benefit Analysis 566

11.4 Government Failure and Preferences for Markets Over Planning 570

11.4.1 Problems of Plan Implementation and Plan Failure 570

11.4.2 The 1980s Policy Shift Toward Free Markets 572

11.4.3 Government Failure 573

11.5 The Market Economy 574

11.5.1 Sociocultural Preconditions and Economic Requirements 574

11.6 The Washington Consensus on the Role of the State in Development

and Its Subsequent Evolution 575

11.6.1 Toward a New Consensus 577

11.7 Development Political Economy: Theories of Policy Formulation and Reform 578

11.7.1 Understanding Voting Patterns on Policy Reform 580

11.7.2 Institutions and Path Dependency 582

11.7.3 Democracy Versus Autocracy: Which Facilitates Faster Growth? 583

11.8 Development Roles of NGOs and the Broader Citizen Sector 585

11.9 Trends In Governance and Reform 593

11.9.1 Tackling the Problem of Corruption 593

11.9.2 Decentralisation 594

11.9.3 Development Participation 596

Case Study 11: The Role of Development NGOs: BRAC and the Grameen Bank 599

12 International Trade Theory and Development Strategy 615

12.1 Economic Globalisation: Meaning, Extent, and Limitations 615

12.2 International Trade: Some Key Issues 618

12.2.1 Five Basic Questions about Trade and Development 621

12.2.2 Importance of Exports to Different Developing Nations 623

12.2.3 Demand Elasticities and Export Earnings Instability 625

12.2.4 The Terms of Trade and the Prebisch-Singer Hypothesis 626

12.3 The Traditional Theory of International Trade 628

12.3.1 Comparative Advantage 628

12.3.2 Relative Factor Endowments and International Specialisation: The Neoclassical

Model 629

12.3.3 Trade Theory and Development: The Traditional Arguments 634

12.4 The Critique of Traditional Free-Trade Theory in the Context of

Developing-Country Experience 634

12.4.1 Fixed Resources, Full Employment, and the International Immobility of Capital and

Skilled Labour 635

12.4.2 Fixed, Freely Available Technology and Consumer Sovereignty 638

12.4.3 Internal Factor Mobility, Perfect Competition, and Uncertainty: Increasing Returns,

Imperfect Competition, and Issues in Specialisation 639

12.4.4 The Absence of National Governments in Trading Relations 641

12.4.5 Balanced Trade and International Price Adjustments 642

12.4.6 Trade Gains Accruing to Nationals 642

12.4.7 Some Conclusions on Trade Theory and Economic Development Strategy 643

12.5 Traditional Trade Strategies and Policy Mechanisms for Development:

Export Promotion Versus Import Substitution 645

12.5.1 Export Promotion: Looking Outward and Seeing Trade Barriers 647

12.5.2 Import Substitution: Looking Inward but Still Paying Outward 651

12.5.3 Tariffs, Infant Industries, and the Theory of Protection 652

12.5.4 The IS Industrialisation Strategy and Results 654

12.5.5 Foreign-Exchange Rates, Exchange Controls, and the Devaluation Decision 659

12.5.6 Trade Optimists and Trade Pessimists: Summarising the Traditional Debate 663

12.6 The Industrialisation Strategy Approach to Export Policy 666

12.6.1 Export-Oriented Industrialisation Strategy 666

12.6.2 The New Firm-Level International Trade Research and the Developing Countries 670

12.7 South–South Trade and Economic Integration 672

12.7.1 Economic Integration and Development Strategy 672

12.7.2 Regional Trading Blocs and Prospects for South–South Cooperation 674

Case Study 12: Pioneers in Development Success through Trade and Industrialisation Strategy:

South Korea and Taiwan in Comparative Perspective 676

13 Balance of Payments, Debt, Financial Crises, and Sustainable

Recovery: Principles, Cases and Policies 697

13.1 Introduction 697

13.2 The Balance of Payments Account 698

13.2.1 General Considerations 698

13.2.2 A Hypothetical Illustration: Deficits and Debts 700

13.3 The Issue of Payments Deficits 704

13.3.1 Some Initial Policy Issues 704

13.3.2 Trends in the Balance of Payments 708

13.4 Accumulation of Debt and Developing-Country Crises:

The 1980s Debt Crisis, and its Resolutions and Repercussions 710

13.4.1 External Debt Accumulation and Crisis: The Basic Transfer Framework 710

13.4.2 The 1980s Crisis: Background and Analysis 712

13.4.3 Attempts at Alleviation: Classic IMF Stabilisation Policies, and Strategies for Debt

Relief 714

13.5 The 2000s Global Financial Crisis: Economic Development Impacts and Lessons 725

13.5.1 Causes of the Crisis and Challenges to Lasting Recovery 725

13.5.2 Economic Impacts on Developing Countries 728

13.5.3 Differing Impacts across Regions and Developing Country Groups 732

13.5.4 Conditions Affecting Prospects for Stability and Growth 735

Case Study 13: Brazil: Meaningful Development or Middle-Income Trap? 737

14 Foreign Finance, Investment, Aid, and Conflict: Controversies and

Opportunities 749

14.1 The International Flow of Financial Resources 749

14.2 Private Foreign Direct Investment and The Multinational Corporation 750

14.2.1 Private Foreign Investment: Some Pros and Cons for Development 754

14.2.2 Private Portfolio Investment: Benefits and Risks 761

14.3 The Role and Growth of Remittances 762

14.4 Foreign Aid: The Development Assistance Debate 765

14.4.1 Conceptual and Measurement Problems 765

14.4.2 Amounts and Allocations: Public Aid 766

14.4.3 Why Donors Give Aid 768

14.4.4 Why Recipient Countries Accept Aid 772

14.4.5 The Role of Nongovernmental Organisations in Aid 773

14.4.6 The Effects of Aid 774

14.5 Conflict and Development 775

14.5.1 The Scope of Violent Conflict and Conflict Risks 775

14.5.2 The Consequences of Armed Conflict 776

14.5.3 The Causes of Armed Conflict and Risk Factors for Conflict 779

14.5.4 The Resolution and Prevention of Armed Conflict 781

Case Study 14: The Roots of Divergence Among Developing

Countries: Costa Rica, Guatemala, and Honduras 785

15 Finance and Fiscal Policy for Development 800

15.1 The Role of the Financial System in Economic Development 800

15.1.1 Differences Between Developed- and Developing-Country Financial Systems 802

15.2 The Role of Central Banks and Alternative Arrangements 806

15.2.1 Functions of a Fully-Fledged Central Bank 806

15.2.2 The Role of Development Banking 809

15.3 Informal Finance and the Rise of Microfinance 810

15.3.1 Traditional Informal Finance 810

15.3.2 Microfinance Institutions: How They Work 813

15.3.3 MFIs: Three Current Policy Debates 815

15.3.4 Potential Limitations of Microfinance as a Development Strategy 817

15.4 Formal Financial Systems and Reforms 818

15.4.1 Financial Liberalisation, Real Interest Rates, Savings, and Investment 818

15.4.2 Financial Policy and the Role of the State 820

15.4.3 Debate on the Role of Stock Markets 822

15.5 Fiscal Policy for Development 824

15.5.1 Macrostability and Resource Mobilisation 824

15.5.2 Taxation: Direct and Indirect 824

15.6 State-Owned Enterprises and Privatisation 829

15.6.1 The Nature and Scope of SOEs 829

15.6.2 Improving the Performance of SOEs 830

15.6.3 Privatisation: Theory and Experience 831

15.7 Public Administration: The Scarcest Resource 834

Case Study 15: How Two African Success Stories Have Addressed Challenges: Botswana and Mauritius 836

Glossary 850

Name Index 862

Subject Index 868

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