Development economics

Development economics is a branch of economics that tries to find ways to improve the economies and social conditions in developing countries. Development economics studies how microeconomic and macroeconomic factors affect such countries, and helps economists identify factors that would allow developing countries to improve and become more stable. Development economics first became an important field of study in the first half of the twentieth century as economists tried to understand why some economies developed and others did not. Though the discipline is still studied and used by researchers, some economists believe that the field has done very little to actually help improve economies in developing countries.

Background

Economics is one of the social sciences. People who study economics are interested in the way scarcity motivates people and the way society reacts to scarcity. Scarcity is the idea that each society has a limited amount of resources and must find a way to divide those resources among its people. Many different branches of economics exist, with some branches borrowing ideas and concepts from other branches. Two of the main branches of economics are microeconomics and macroeconomics. Microeconomics is the branch that studies how individual markets and decision-makers behave. For example, one basic idea of microeconomics is supply and demand. The law of supply states that the amount of an object in a market increases as its price increases and decreases as its price decreases. The law of demand says that the price of an object increases as demand increases and decreases as demand decreases. These concepts focus on individual decisions and motivations. Macroeconomics focuses on the economy as a whole. A macroeconomist would be interested in how raising and lowering interest rates would affect the national economy. Changing interest rates in a country is one way economists propose to use macroeconomics to alter economic conditions. People interested in development economics must use the principles of microeconomics and macroeconomics to better understand how both small- and large-scale changes might affect developing countries. Development economics also borrows principles and methods from other branches of economics.

Development economics first emerged as a specific discipline during the 1940s. At that time, economies around the world were expanding more rapidly, bringing to light notable differences among nations. Economists began to examine why some economies were more developed than others. They also began to use theories from both macroeconomics and microeconomics to help underdeveloped economies become more fully developed.

Overview

One of the most basic ideas that drives development economics is that the world comprises both wealthy and economically disadvantaged countries, with the differences between such nations often extreme. Though this seems like a basic truth, economists point out that the extreme extent of the differences is a fairly new phenomenon. Wealth gaps among nations began to materialize about the seventeenth century and grew exponentially in the nineteenth century, in large part because of the Industrial Revolution. This revolution changed the way people produced and purchased goods, helping to create a number of strong economies. Less developed countries tended to have economies based on agriculture, and made up more than half the economies in the world in the twenty-first century.

Development economics recognizes that countries can be classified as developing or already developed, yet no standardized criteria exist to measure either term. Economists use data such as gross domestic product (GDP), per capita income, and per capita output to make judgments about which countries fit into a particular category. However, these statistics often do not tell the whole story of a country or its economy. Some oil-rich nations have a high GDP but still have a weak overall economy because most citizens do not benefit from the sale of oil. Likewise, some countries with high per capita income can also have a large wealth gap because of a large number of citizens with very low incomes living in rural areas. For these reasons, economists must study an entire economy and consider multiple factors to determine whether an economy is developing or already developed.

A fundamental principle in the discipline of development economics is studying the process by which lower-income nations with smaller economies can become wealthier nations with larger economies. This economic development can happen for a number of reasons. Sometimes, development occurs because a country has a resource that is in high demand. Other times, it may occur because the country has implemented policies that exploit its workforce. In development economics, researchers study possible interventions that can help foster economic development. Some economists study historical data to look for trends that might indicate ways to best help undeveloped economies.

Though most people correlate having more money with being happier, development economists use data to identify specific reasons why increased wealth can aid a national economy. Economists have found that increased wealth usually correlates to longer lives, while citizens of less developed nations typically have shorter life expectancies. This is most likely true because of access to better healthcare, social programs to protect individuals with disabilities and low-income individuals, and education programs that prepare people to be in the workforce.

Another factor that affects economic development is that democratic nations tend to have more developed economies. Less developed nations are typically under the control of single-party or authoritarian control. These countries are more likely to have oppressive laws and social policies. Some economists believe that developing an economically disadvantaged nation’s economy could improve the political and social conditions for its citizens. For example, in a subsistence economy, each person or family must cultivate crops and then turn those crops into food, clothing, or other tools. In a developed economy, one person or family may cultivate the crops, and another individual or group could turn the crops into useful goods. Each individual or group can specialize in one job instead of performing many different tasks to survive. Economists believe such specialization can help families and may be the best way to help an economy further develop.

Researchers interested in development economics also try to understand how countries and regions gain their wealth and develop. This idea is important because economists can use an understanding of why economies grow to create goals for growth in less-developed economies. One of the models of growth is called the Solow method or the Solow-Swan method, named after economists Robert Solow and Trevor Swan who developed it in the 1950s. Robert Solow won the Nobel Prize in 1987 for developing the model. This model states that economies generally grow slowly, but some changes in inputs can give the economy a small boost. This model also states that most of the differences among nations’ economies are because of differences in technology.

The O-ring model of economic development states that one weak link in an economy can harm the entire economy. This means all the elements of the economy must be performing at their best for development to happen. The implication of this model is that policymakers should try to influence the “weak links” in a developing economy. The O-ring model got its name because of the faulty O-rings that were responsible for causing the Space Shuttle Challenger explosion in 1986. The O-rings were a component of the solid rocket boosters that propelled the space vehicle off the launch pad. They were a small and seemingly inconsequential part of the space shuttle launch process, but they were responsible for initiating the disaster. In much the same way, the O-ring model predicts that seemingly small problems in an economy could actually cause much larger issues.

Another model of economic development is the "Big Push" model. This model, developed in the first half of the twentieth century, states that some economies may be caught in states of low performance. However, a “push” from an outside source, such as a government, could have enough power to move the economy past this state and spark positive economic development. This push works best if stimulus efforts are coordinated across multiple sectors. As each sector receives the investment, they complement one another and create positive feedback loops. Rather than working to improve one industry at a time, the Big Push method aims to shock the economy into prosperity.

Developmental economics also relates to politics and international relations. The discipline points out the ways a country would most likely change if it had more wealth pumped into its economy. A change in a country’s economy has wide-reaching effects, impacting the political fortunes of government leaders, improving standards of living, and changing social conditions. Individuals living in a nation that experiences a positive economic change have access to better healthcare, education, working conditions, and a wider range of employment opportunities in various markets. Furthermore, development economics can also affect international relations because changing economic conditions impact neighboring countries.

Bibliography

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