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Universitas Pembangunan Nasional “Veteran” Yogyakarta, Indonesia
PROBLEMS AND POLICIES IN
DEVELOPMENT ECONOMICS
by Ardito Bhinadi
www.arditobhinadi.com e-mail: [email protected]
Universiti Utara Malaysia, September 23, 2014
1
Outline
•
•
•
•
Overview Development Economics
The Challenge of Development
The Evolution of Development Thought
The Quality of Growth
2
1
OVERVIEW DEVELOPMENT
ECONOMICS
3
The Nature of Development Economics
• The nature of development economics
– Tradidional economics: efficiency of scarcity resource
allocation.
– Politics: social and institutional processes that affect
resources allocation.
– Development economics: efficiency of allocation,
sustainability, and economic, social, politic, and
institutional mechanism.
• The role values ind development economics
– Economics is not value-free  the validity of the economic
analysis is based on the assumption that underlying values.
4
Economics as a Social Systems
• Social system: inter-related relationship between
economic and non-economic variable.
• Economics is important.
– Microeconomic: individual behavior.
– Macroeconomic: Y  C + I + G + X - M
• Non-economic variables are also important.
– Social, demography, cultural, etc.
• Values, attitudes, and institutions must be
understood in development process.
ARDITO BHINADI
5
What Do We Mean By Development?
• Development: capacity of the national
economy that the economic condition in the
initial period is static in long periode to
create and maintain GNP at a certain level.
ARDITO BHINADI
6
What Do We Mean By Development?
• Traditional economic measures: GDP
Country
Brunei Darussalam
Total land
area
Total population
km 2
thousand
2013
2013
1/
Population
density
1/
Annual
population
1/
Gross domestic
product
grow th
at current prices
persons per km 2
percent
US$ million
2013
2013
2013
5.769
406,2
70
1,6
16.117,5
Cambodia
181.035
14.962,6
83
1,5
15.659,0
Indonesia
1.860.360
248.818,1
134
1,4
862.567,9
Lao PDR
236.800
6.644,0
28
2,0
10.002,0
Malaysia
330.290
29.948,0
91
1,5
312.071,6
Myanmar
676.577
61.573,8
91
1,0
56.408,0
Philippines
300.000
99.384,5
331
1,8
269.024,6
Singapore
715
5.399,2
7.550
1,6
297.945,8
Thailand
513.120
68.251,0
133
0,5
387.534,1
Viet Nam
330.951
89.708,9
271
1,1
171.219,3
4.435.617
625.096,3
139
1,3
2.398.549,6
ASEAN
Source: ASEAN Statistics 2014
7
Selected Key ASEAN Macroeconomic Indicator
Grow th rate of
gross domestic
product
Country
Brunei Darussalam
at constant prices
Inflation rate
(y ear-on-y ear
growth of CPI
at end of
period )
Exchange rate
at end of period
percent
percent
national
currency per
US$
2013
2013
2013
-1,8
0,2
1,25
Cambodia
7,0
4,6
3.995
Indonesia
5,8
8,4
10.567
Lao PDR
8,2
6,9
8.224
Malaysia
4,7
3,2
Myanmar
7,5
Philippines
Unemploymen
1/
t rate2
Currency
/
percent
2012
Dollar (B $)
1,7
Riel
0,6
Rupiah (Rp)
6,1
Kip
1,9
3,16
Ringgit (RM)
3,0
4,9
965
Kyat
4,0
7,2
4,1
42,89
Peso (PhP)
6,8
Singapore
3,9
1,5
1,25
Dollar (S $)
2,8
Thailand
2,9
1,7
30,73
Baht
0,5
Viet Nam
5,4
6,0
20.934
Dong
3,2
5,1
n.a.
n.a.
ASEAN
n.a.
n.a.
Source: ASEAN Statistics 2014
8
What Do We Mean By Development?
• The new economic view of development
– development is more than just statistics
– development is a multidimensional process
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GDP per Capita ASEAN Disparity
in US$; at current market prices
Country
Brunei Darussalam
2009
2010
2011
2012
2013
28.454,0
32.062,9
42.431,5
42.445,5
39.678,7
Cambodia
735,1
785,1
881,7
976,9
1.046,5
Indonesia
2.362,1
2.988,0
3.497,3
3.578,4
3.466,7
Lao PDR
913,0
1.095,3
1.262,4
1.394,3
1.505,4
Malaysia
7.215,6
8.514,8
9.962,1
10.345,9
10.420,5
Myanmar
538,3
706,4
868,9
846,2
916,1
Philippines
1.828,6
2.127,1
2.339,7
2.567,8
2.706,9
Singapore
37.960,9
45.713,8
51.247,5
54.026,9
55.183,3
Thailand
3.946,6
4.743,2
5.116,0
5.391,3
5.678,1
Viet Nam
1.128,5
1.225,5
1.404,2
1.595,9
1.908,6
2.590,9
3.138,6
3.586,6
3.760,9
3.837,1
3.237,2
3.940,6
4.484,3
4.682,7
4.712,6
939,2
1.069,1
1.258,6
1.363,6
1.554,6
ASEAN
1/
ASEAN 5
BCLMV
2/
Source: ASEAN Statistics, 2014.
10
What Do We Mean By Development?
• Three core values of development
– Sustenance  ability to provide basic
needs.
– self-esteem become fully human
– freedom from servitude  ability to choice
What is the difference of the poor and the rich?
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New Development Paradigm (Sen)
• Capability to have function: the most determining
factor wheter someone is poor or not.
• Economic growth is not the final goal.
• Development should pay more attention to improve
the quality of life.
• Poverty rate: not measured by the level of income
but what to do with the goods.
• Welfare: benefit from the goods, freedom of choice,
management of life.
ARDITO BHINADI
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The three objectives of development
• Increases in availability and improvements in
the distribution of food, shelter, health,
protection, etc.
• Improvements in ‘levels of living,’ including
higher incomes, more jobs, better education,
etc.
• Expansions in the range of economic and
social choices available to individuals and
nations
13
Comprehensive Development Framework
• Structural elements:
– Honesty, government’s commitment to attacking
corruption, protection for the poor, property right,
financial system, social safety net.
• Human resources development:
– Education, health, etc.
• Phisycal development:
– Extent of access to electricity, road, transportation,
telecomunication, environment, comitment to protect the
cultural and historical sites.
• Sectoral elements:
– Strategy of integrated rural, urban, and enviromental
management respectively.
ARDITO BHINADI
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2
THE CHALLENGES OF
DEVELOPMENT
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The Challenges of Development
• Fallacies in development theory
• The world economy in transition
• Development Issues
16
Fallacies in Development Theory
• Fallacy 1: Underdevelopment has but a single
cause.
• Fallacy 2: A single criterion suffices for
evaluating development performance.
• Fallacy 3: Development is a log-linear process.
17
Fallacy 1: Underdevelopment has but a
single cause
Underdevelopment is due to constraint X; loosen X, and
development will be the inevitable result.
• X equals physical capital (1940-70)
• X equals entrepreneurship (1958-65)
• X equals incorrect relative prices (1970-80)
• X equals international trade (1980-)
• X equals hyperactive government (1980-96)
• X equals human capital (1988-)
• X equals ineffective government (1997-)
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Fallacy 2: A single criterion suffices for
evaluating development performance
• Sen (1988): GNP only indicates national
potential for improving the welfare of the
majority of the population – not the extent to
which the society delivers on this potential.
• Multidimensional criterion such as Human
Development Index.
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Fallacy 3:
Development is a log-linear process
• Proposition 1: The development process is highly
nonlinear.
• Proposition 2: Development paths are not unique.
• Proposition 3: Initial conditions shape subsequent
development.
• Proposition 4: The development trajectory of
countries is not only nonunique but also malleable.
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• Economic development is a highly
multifaceted, nonlinear, path-dependent,
dynamic process that involves systematically
shifting interaction patterns among different
aspects of development and therefore
requires predictable changes in policies over
time.
21
The World Economy in Transition
• The setting for development
- Global integration
- Suceeding in an integrated world
- The global effect of shocks
- Recent development
• Prospect for world development
- World trade
- International capital flows and finance
- An uncertain world
• Toward region community
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The Changing World
•
•
•
•
•
•
•
•
International trade
International financial flows
International migration
Global environmental challenges
New political tendencies in developing countries
Emerging subnational dynamics
Urban imperatives
Implications for development policy
ARDITO BHINADI
23
The Changing World
• The World Bank noted that since the 2004-2008 global growth pole
has shifted from the region of North America and Europe into Asia
and South America.
• Studies conducted by McKinsey stated that the center of economic
growth shifted to the East at a speed of 140 km / year.
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International Migration
Development Issues
• The State in a Changing Word (WDR 1997).
– What the state should do, how it should do it, and howi t
can doi t better
– An effective state was needed to enable markets
todevelop andto address social issues.
• Knowledge for Development (WDR 1998/1999).
– the global explosion of knowledge had the potential of
lifting hundreds of millions out of poverty, or creating
awidening knowledge gap, in which poor countries would
lag further and further behind.
– Knowledge base to improve competitiveness.
• Entering the 21th Century (WDR 1999/2000).
ARDITO BHINADI
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Development Issues
• Attacking Poverty (WDR 2000/2001)
• Building Institutions for Markets (WDR 2002).
• Sustainable Development in a Dynamic World (WDR
2003).
• Making Services Work for Poor People (WDR 2004).
• A Better Investment Climate for Everyone (WDR
2005)
• Equity and Development (WDR 2006).
• Development and the Next generation (WDR 2007).
• Etc.
ARDITO BHINADI
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Elements of a Market-Friendly Approach
• Investing in people
Welfare and growth; challenges in human
development; public policy
• The climate for enterprise
Entrepreneurs unleashed; enterprise in agriculture;
empowering the manufacturer; evidence on the
productivity of investment projects
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Elements of a Market-Friendly Approach
• Integration with the global economy
Channels of technology transfer; labor flows and direct
foreign investment; trade policy and economic growth;
conditions for success in trade reform; the global climate for
trade
• The macroeconomic foundation
Policies to promote stability and growth; booms and busts;
from stabilization to growth; the art of reform; investment
and saving; global economic conditions
29
Priorities for Action
• Task for global action
Global trade; capital flows and finance; economic policies;
technology; the global environment
• Specific actions that work
Investing in people; making markets work; opening up to
trade and technology; fostering macroeconomic stability;
environmental policies; implications of good policies
• A global challenge
30
New Directions in Development Thinking
• Sustainable development has many
objectives.
• Development policies are independent.
• Government play a vital role in development,
but there is no simple set of rules that tells
them what to do.
• Processes are just as important as policies.
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New Directions in Development Thinking
• Sustainable development has many
objectives.
• Development policies are independent.
• Government play a vital role in development,
but there is no simple set of rules that tells
them what to do.
• Processes are just as important as policies.
32
The many Goals of Development
The DAC of the OECD has produced indicators that set global
targets for the wider goals of development to be reached by
2015 or earlier.
• Reduce extreme poverty by one-half.
• Ensure universal primary education and eliminate gender disparity in
education.
• Reduce infant and child mortality by two-thirds and maternal mortality by
three-quarters, while providing universal access to reproductive health
services.
• Implement worldwide national strategies for sustainable development and
reserve trends in the loss of environmental resources.
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3
THE EVOLLUTION OF
DEVELOPMENT THOUGHT
The Evolution of Development Thought
•
•
•
•
•
•
Goals of Development
Macroeconomic Growth Theory
Capital Accumulation
State and Market
Government Intervention
Policy Reform
35
Goals of Development
GDP
Freedom
Real per
capita GDP
Nonmonetary indicators
(Human Development
Index)
Entitlements and
capabilities
Mitigation of
poverty
Sustainable
development
36
Macroeconomic Growth Theory
HarrodDomar
analysis
Solow sources of
growth
New growth
theory
37
Capital Accumulation
Physical
capital
Human
capital
Knowledge
capital
Social
capital
38
State and Market
Market
failures
Nonmarket
failures
New market
failures
Institutional
failures
39
Government Intervention
Programming and
planning
Minimalist
government
Clompementary of
government and
market
40
Policy Reform
Poor
because
poor
Poor because
poor policies get
prices right
Get all
policies
right
Get instituion
right
41
Principles of Development
• Focus on all assets: physical, human, and
natural capital.
• Attend to the distributive aspects over time.
• Emphasize the institutional framework for
good governance.
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Framework
H
Addressing
misgovernance and
corruption
(Human
capital)
Reducing distortions
favoring K
K
Correcting market
failures hurting H, R
Strengthening
regulation
TFP
Growth
(Physical
capital)
Welfare
R
(Natural
capital)
TFP
43
Asset accumulation and use
• By reducing policy distorcions
For example:
Those favoring or subsidizing physical capital, while
complementing markets in valuing natural resources
and investing adequately in human resources.
The implication is to ensure broadly based, sustainable
growth, not to slow growth.
44
Regulatory frameworks
• By building regulatory frameworks for
competition and efficiency to accompany
liberalization and privatization and giving legal
and judicial reforms greater attention, while
ensuring macroeconomic stability.
• The implication is to take supportive regulatory
actions along with liberalization, not to slow
liberalization.
45
Good governance
• By nurturing civil liberties, participatory processes,
and accountability in public institutions; promoting
anticorruption efforts; and actively involving the
private sector to reduce the influence of vested
interests, while building capacity for policy changes.
• The implication is to increase the attention to
coalition building in civil society, not to detract from
government policy and capacity building.
46
A Mixed Development Record
• “Economics is not only concerned with
generating income, but also making good use
of that income to enhance our living and our
freedoms”.
47
Measure of Development
• Human Development
• Income Growth
• Environmental Sustainability
48
Human Development
•
•
•
•
•
Decrease in poverty
Increase in literacy
Decrease in infant mortality
Increase in life expetancy
Decrease in income inequality
49
Environmental Sustainability
• Decrease in carbon dioxide emission
• Increase in forest cover
• Decrease in water pollution
50
Actions for Quality
• Policies for Undistorted Growth of Physical,
Human, and Natural Capital.
• Attend to the Stability and Distributive
Aspects of Growth.
• Building the Governance Framework for
Development.
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Policies for Undistorted Growth of Physical, Human, and
Natural Capital
• Avoid direct or indirect subsidies to capital, such as tax breaks,
allocation of monopoly powers and subsidies, special
privileges that feed corruption, and implicit guarantees on
rates of return.
• Invest efficiently in human capital and ensure access for the
poor through incentives and allocation of public investments
in education.
• Sustain natural capital by clarifying property rights, avoiding
unrealistically low levels of royalties for natural resources, and
enforcing environmental taxes.
52
Attend to the Stability and
Distributive Aspects of Growth
• Ensure that the poor can access education,
technology, and health services, as well as land,
credit, skills training, and job opportunities in open
markets.
• Ensure effective regulatory frameworks and
anticorruption measures to accompany financial
openness and privatization.
• Align reforms and restructuring to mechanisms for
mitigating the costs of crises, which will likely be
borne disproportionately by the poor.
53
Build the Governance Framework
for Development
• Involve all stakeholders – the private sector, including
transnational firms and the domestic private sector,
NGOs, civil society, and the government – in
implementing a commonly shared development
agenda.
• Empower people throught voice, participation, and
greater civil and political liberties.
• Support economic liberalization by promoting
institutional development and better governance.
54
ASEAN’s Competitiveness Landscape
55
Rank HDI, Rank GTCI, and Rank GCI ASEAN Countries
No.
1
2
3
4
5
6
7
8
9
10
Country
Singapore
Brunei
Malaysia
Thailand
Indonesia
Phillipines
Vietnam
Lao PDR
Cambodia
Myanmar
Rank HDI
18
30
64
103
121
114
127
138
138
149
Rank GTCI
2
37
72
84
73
82
87
-
Rank GCI
2
24
26
37
38
59
70
81
88
139
56