Download Economics of Agribusiness

Economic
Development
Theories
Ing.Bohuslava Boučková
Department
of Economics
CEMS II/277
Phone: 22438 2300
e-mail: [email protected]
A short explanation to my
(for you rather unusual) name
Many Czech Christian names include
the part –slava or –slav (for men),
which means
GLORY (or celebrating in glory)
And Boh (or Bůh in modern Czech)
is GOD
Therefore, my Christian name means
“Glory to God“
Therefore, my Christian name
means “Glory to God“
And my surname
BOUČKOVÁ
is a female form of the name
Bouček,
which is my husbands surname
and it means “a little beech tree“
Structure of the lecture
 Some information
 Main concepts
 Sectors of national economy:
different concepts
 Economic equations
 Business cycles
 Economic development theories
 Growth indicator controversy
 A little economic fairy-tale
Before we start…
During your stay in Prague, we will tackle
together 9 different topics:
• Theory of economic development
• Agriculture in economic development
• Command driven and market economy: Czech
experience
• Transformation, restitution, privatisation in
agriculture
• Economic integration in Europe and
• Czech accession to the EU
• Food consumption and nutrition policy
• Agricultural policy comparison
• Position of women in Czech economy and society
• Churches and religions in the CR
As you already know,
You are obliged to submit an economic essay
before the final exam of the course.
The topic might be also connected to any of
these 9 topics of lectures (or rather 8, as the
situation of churches is not an economic topic).
If you chose to do so, you can either chose from
the more specific topics I will offer to you next
time or we can agree on a more detailed topic of
your own connected to the main topics
In any case, the demands for an essay
submitted to me are as follows
Demands
Scope of the essay (minimum):
2,000 words
(without front page, content and resources)
 Obligatory structure:
 Front page (title, name of author, year)
 Content
 Introduction, definition of the problem
 Discussion
 SWOT analysis
 Conclusion
 Resources

SWOT analysis
I hope that all of you know the meaning
of SWOT analysis, but just in case:
Internal
Weaknesses
Opportunities
Threats
External
Negative
Positive
Strengths
Course evaluation
Total points possible
In that:
 Oral examination
 Essay
In that:
 Scope, form
 Topic relevance, resources
 SWOT analysis
 Conclusion
 Level complex
80
30
50
10
10
10
10
10
Resulting marks
(according to points)
0 – 20…………..D
21 - 40…………..C
41 - 60………….B
61 - 80………….A
Essay topics
In the following slides, you will see the
offered topics from which you can chose,
which will be supplied also as a printed list
at the end of the lecture.
The principle is that each topic will be
chosen by only 1 student.
If you want to propose another topic, please
discuss it with me first.
Essay topics

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

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Theory of economic development
Comparison of the CR and US with regard to
economic development level
Economic level indicators (GDP, workforce in
different sectors, shares of sectors in foreign trade)
development in the CR
Economic flows among sectors of the national
economy in the CR (or US)
History and methods of computation of the
aggregate economic indicators (GDP, GNP)
Alternative indicators to GDP and their utilization in
economic practice
Essay topics



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Agriculture in economic development
Position of agriculture in developing and developed
countries: selected example
Position of Czech agriculture in national economy:
main indicators and their development
Position of agriculture in the economy of the CR and
USA: comparison
Command driven and market economy: Czech
experience
Strong and weak points of economic transformation
Coupon (voucher) privatisation in the CR: Was it
successful or not?
Essay topics



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
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Restitution process: Was it really the process of past
wrongs mitigation?
Population decrease problem in the CR and the social
security system: How to solve it?
Tax reforms in the post-communist countries: Flat tax
yes or no?
Transformation, restitution,
privatisation in agriculture
Transformation of Czech agriculture: Strong and weak
points
Restitutions in agriculture of the CR: What is still
missing?
The role of agricultural cooperatives in the CR: Why is
their public image low?
Essay topics
Structural changes in Czech agriculture
Position of „New“ member countries in the frame of
the Common Agricultural Policy EU
Development of economic integration in Europe
Czech accession to the EU, its impacts: Why are
Czech farmers not satisfied?
Food
consumption and nutrition policy
Development
of food consumption: Comparison of
the CR and US
New phenomena in the CR: Farmers Markets,
internet sale of farm products, “milkmats“
Organic farming in the CR
Fair Trade with food products in the CR and US
Essay topics




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Agricultural policy comparison
Development of the EU CAP and its perspectives
Agricultural market: Protection or liberal trade?
Multifunctional agriculture in the EU: Strong and weak
points
Comparison of agricultural policy of the EU and US
 Position of women in Czech economy and
society



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Economic position of Czech women compared to U.S.
Position of woman in labour market: reasons and
possible solutions
Harmonisation of family and job: How it can be reached
so that women had a real choice?
Tools of positive discrimination for women: Yes or no?
Main concepts
What does the word
economics mean ?
In its original meaning, it
comes from Greek words
oikos = house
 nomos = order, rule,
management

Main Concepts
 So
it depends on what we mean by
the “house“. It can be :






household
enterprise
industry/sector
country, state
the Earth
the Universe…
Development level
What does the concept of "development" mean in
the context of economy and its sectors?
Development implies structural transformation.
Structural change occurs when the relative share of
GDP and employment accounted for by the primary,
secondary and tertiary sectors change. Structural change
results in a change in GDP and employment figures for a
given sector or industry.
The process of development requires structural change.
Typically economies develop by shifting resources from
agricultural & mining to manufacturing and eventually into
the tertiary (services) sector.
Development level
According to that, originally the following types of sectors of
the economy were recognised:
(1) Primary Sector
This contain activities directly related to natural resources eg agriculture,
forestry, fishing, mining, quarrying, and mining. Primary industry tends
to dominate the economies of developing nations, but as secondary and
tertiary industries are developed, its share of the economic output tends
to decrease.
(2) Secondary Sector
Secondary activities relate to goods production in the economy, including
the processing of materials produced by the primary sector eg energy
production and construction.
(3) Tertiary Sector
Tertiary activities relate to services such as banking, finance, insurance,
retail, and education, transport, information, and communications
services.
Development level
With regard to the further development,
these were further extended to:
primary sector
secondary sector
tertiary sector
quaternary sector
and some authors even define
quinary sector
Development level
According to Matt Rosenberg :
Primary Sector
The primary sector of the economy extracts or harvests products
from the earth. The primary sector includes the production of raw
material and basic foods. Activities associated with the primary sector
include agriculture (both subsistence and commercial), mining,
forestry, farming, grazing, hunting and gathering, fishing, and
quarrying. The packaging and processing of the raw material
associated with this sector is also considered to be part of this sector.
In developed and developing countries, a decreasing proportion of
workers are involved in the primary sector. About 3% of the U.S. labor
force is engaged in primary sector activity today, while more than
two-thirds of the labor force were primary sector workers in the midnineteenth century.
Development level
Secondary Sector
The secondary sector of the economy manufactures finished goods. All
of manufacturing, processing, and construction lies within the secondary
sector. Activities associated with the secondary sector include metal
working and smelting, automobile production, textile production, chemical
and engineering industries, aerospace manufacturing, energy utilities,
engineering, breweries and bottlers, construction, and shipbuilding.
Tertiary Sector
The tertiary sector of the economy is the service industry. This sector
provides services to the general population and to businesses. Activities
associated with this sector include retail and wholesale sales,
transportation and distribution, entertainment (movies, television, radio,
music, theater, etc.), restaurants, clerical services, media, tourism,
insurance, banking, healthcare, and law.
In most developed and developing countries, a growing proportion of
workers are devoted to the tertiary sector. In the U.S., more than 80% of
the labor force are tertiary workers.
Development level
Quaternary Sector
The quaternary sector of the economy consists of intellectual
activities. Activities associated with this sector include government,
culture, libraries, scientific research, education, and information
technology.
Quinary Sector
Some consider there to be a branch of the quaternary sector called
the quinary sector, which includes the highest levels of decision
making in a society or economy. This sector would include the top
executives or officials in such fields as government, science,
universities, nonprofit, healthcare, culture, and the media.
Some authors (e.g. Australian) relate that the quinary sector refers to
domestic activities such as those performed by stay-at-home
parents or homemakers. These activities are typically not measured
by monetary amounts but it is important to recognize these activities
in contribution to the economy.
Traditional & Modern Sectors
The Traditional sector refers to established age-old
procedures e.g. agriculture methods and common land
ownership.
The Modern sector refers to a system based on
specialisation, commuting, use of latest technologies
Many urban areas in developing countries are dualistic:
modern formal activity exists side by side with large
informal sector:
Traditional manufacturing may exist next door to
modern manufacturing;
Commercial farms may exist alongside subsistence
family holdings.
Formal & Informal Sectors
Economic activities declared to the government make
up the formal sector of the economy. Undeclared
economic activity makes up the informal (shadow)
sector of the economy.
The characteristics of the informal sector include
• self-employment
• small scale enterprise
• labour intensive production using simple
technology
• monopolistic competition
• complete absence of official regulation
Classical production
function
Q = f (C, L)
Q ….. product
C ….. capital
L ….. labour
Used, among other, also by Karl Marx,
who (of course) stressed the equality of
labour to capital or even primary
importance of labour over capital .
As a matter of fact
Marx stressed labour for the reason we
could understand, if we remember the
definition of value added (or surplusvalue, as Marx called it).
As it is created both by the inputs of capital
and labour, Marx’s basic idea was that
profit should be distributed evenly among
the owners of both these production
factors
Intermediate
consumption
Labour
Fixed
capital
consumption
Profit
Qualitatively new elements
new generation information
technologies
feedback  growing yields bring
innovation growth
globalisation  growing role of net
industries
accelerated production factors
mobility
effective production factors utilisation
Aggregate production
function
( Solow, R.M., 1956 )
Q = f (C, L, e)
Q
C
L
e
….. product
….. capital
….. labour
….. technological development
NEW ECONOMY
The notion emerging since the end of the
90ies, used for example to explain the longterm success of the U.S. economy ( low
inflation rate, low unemployment and high
productivity growth rate up to the recent
time )
Impact of information and communication
technologies (ITC) on the results of economic
activities
Different opinions and approaches to the
problem
Problem of sectors based on
biological processes
Q = f (C, L, B, e)
Q
C
L
B
….. product
….. capital
….. labour
….. biological factors (land,
animals..)
e ….. technological
development
Some economists also stress
the role of human capital
Q = f (C, L, HC, B, e)
Q ….. product
C ….. capital
L ….. labour
HC …. human capital (education,
promotion, flexibility..)
B ….. biological factors (land, plants,
animals..)
e ….. technological development
What is Human Capital
The term ‘Human Capital’ (HC) was
first circulated in the 50s and is now
generally used as an all-encompassing
term for “the knowledge, skills,
competencies and other attributes
embodied in individuals or groups of
individuals acquired during their life
and used to produce goods, services or
ideas in market circumstances.”
As the father of the idea, the
economist Jacob Mincer is usually
regarded
Jacob Mincer (1922-2006)
was an outstanding U.S. economist of
Polish origin (born in Polish
Tomaszow).
He was most notable for his ideas of
the role of human capital in
economics. His papers on labour
economics use so-called Mincerian
Equations, which utilise human
capital as a variable to explain the
determination of wages in a
statistical estimation.
He spent most his life as a professor
of economics at the Columbia
University (from which he received
his Ph.D.)
Human capital
can be summed up in a formula devised by
Thomas Davenport:
(ability, knowledge, skill, talent +
behaviour)
x effort x time =
quality of labour,
i.e. human capital
Social capital
Social capital describes the pattern and
intensity of networks among people and
the shared values which arise from
those networks.
While definitions of social capital vary,
the main aspects are citizenship,
neighbourliness, trust and shared
values, community involvement,
volunteering, social networks and civic
participation.
Definition
of Social Capital
"….the rules, norms, obligations,
reciprocity and trust embedded in social
relations, social structures and society’s
institutional arrangements which
enable members to achieve their
individual and community objectives.“
Narayan (1997) Voices of the Poor: Poverty and Social Capital in
Tanzania, World Bank, Washington D.C., USA.
However,
most economic theories regard as the
main drive of development just
economic development, measured by
the economic performance.
This is usually understood as the level of
the created value added, i.e. GDP
According to the historical experience,
economic theories speak of business
(economic development cycles)
Types of economic/business
cycles
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The main types of business cycles enumerated by Joseph
Schumpeter and others in this field have been named after
their discoverers or proposers:
the Kitchin inventory cycle (3–5 years, Joseph Kitchin),
the Juglar fixed investment cycle (7–11 years, Clement Juglar)
the Kuznets infrastructural investment cycle (15–25 years,
Simon Kuznets, Nobel Prize Laureate)
the Kondratiev wave (45–60 years, Nikolai Kondratiev)
the Forrester cycles (200 years, Jay Wright Forrester).
the Toffler civilisation cycles (1000-2000 years, Alvin Toffler)
Even longer cycles are occasionally proposed, often as
multiples of the Kondratiev cycle.
Most cycle theorists agree,
however,
with the "Schumpeter-Freeman-Perez" paradigm of five
waves so far since the industrial revolution, and the sixth
one to come. These five cycles, so-called Kondratiev
Waves, are
1. The Industrial Revolution--1771
2. The Age of Steam and Railways--1829
3. The Age of Steel, Electricity and Heavy
Engineering--1875
4. The Age of Oil, the Automobile and Mass
Production--1908
5. The Age of Information and Telecommunications-1971
According to this theory, we are currently at the turningpoint of the 5th Kondratiev.
Theories of Development
Economics
The origins of modern development economics
are often traced to the need for, and likely
problems with the industrialization of eastern
Europe in the aftermath of World War II .
The most well-known are:
 Linear-stages-of-growth model
 Structural-change theory
 International dependence theory
Linear-stages-of-growth
model
An early theory of development economics, the linear-stages-ofgrowth model was first formulated in the 1950s by
W.W.Rostow
The linear-stages-of-growth model states that there are a series
of five consecutive stages of development which all countries
must go through during the process of development. These
stages are:





traditional society
pre-conditions for take-off
take-off
drive to maturity
age of high mass-consumption
Such theories have been criticized for not recognizing that, while
necessary, capital accumulation is not a sufficient condition for
development. That is to say that this early and simplistic
theory failed to account for political, social and institutional
obstacles to development
Structural-change theory
It deals with policies focused on changing the economic
structures of developing countries from being primarily
comprised of subsistence agricultural practices to being a
“more modern, more urbanized, and more industrially
diverse manufacturing and service economy.
There are two major forms of structural-change theory:
 W. Lewis’ two-sector surplus model, which views
agrarian societies as consisting of large amounts of surplus
labor which can be utilized to spur the development of an
urbanized industrial sector
 Hollis Chenery’s patterns of development approach,
which is the empirical analysis of the sequential process
through which the economic, industrial and institutional
structure of an underdeveloped economy is transformed
over time to permit new industries to replace traditional
agriculture as the engine of economic growth.
International dependence
theory
It gained prominence in the 1970s as a reaction to the failure of
earlier theories to lead to widespread successes in
international development .
Unlike earlier theories, international dependence theories have
their origins in developing countries and view obstacles to
development as being primarily external in nature, rather
than internal.
These theories view developing countries as being economically
and politically dependent on more powerful, developed
countries which have an interest in maintaining their
dominant position. There are three different, major
formulations of international dependence theory:



neocolonial dependence theory
false-paradigm model
dualistic-dependence model.
Growth indicator controversy
As the main indicator of economic growth, or
even as the general national well-being,
per capita Gross Domestic Product
is used by most developmental economists .
However, these measures are criticized as not
measuring economic growth well enough,
especially in countries where there is much
economic activity that is not part of measured
financial transactions, both in developed as
well as developing countries
Deriving of GDP
Gross
output
Intermediate
consumption
Gross value
added
= GDP
Depreciation
Labour input
Profit
N
D
P
GDP or GNP
Example:
In the developing country XY,
a foreign company developed its activities and reaches a
remarkable profit, namely because of cheap labour.
However, GDP is calculated with regard to the area
where value added has been created, therefore it
increases GDP of the country XY.
GDP
If GDP is defined
IC Labour
as
D
Profit
what share of the value added then
really remains in the country XY ?
GDP or GNP
Of course
Where
?
in the CR !
Activities not included into GDP
Environmental impacts and
depletion of non-renewable resources
 Economic activities not entering the
market:
 “shadow“ economy
 household activities
 unpaid labour
 voluntary social activities
Free time and individual health care
Let us imagine the following situation :
Two women of 35, both secondary school graduates,
mothers of 2 children.
Mother A :
 is a housewife
 does the household
activities by herself
 uses minimum of paid
services
 is active in humanitarian
NGO
 takes care of her children
and their education
 her children are successful
in school, active in hobbies,
have no problems
Mother B :
 works in erotic club
 household chores are done
through paid services
 no voluntary public activities
 is a heavy smoker
 has not enough time for
children, who have problems in
school
 they are also game addicts
and spend a lot of money on it
 eventually they employ social
workers and institutions
The question is:
Which of the two mothers
contributes more - directly or
indirectly - to the GDP creation
and therefore to the economic
growth ?
The right answer:
Mother B
Alternative solutions
NEW - Net Economic Welfare
GPI - Genuine Progress
Indicator
HDI – Human Development
Index
SEEA - System of Economic and
Environmental Accounts
GPI includes
Economic value of civil activities and voluntary work
Ecomic value of unpaid household activities and
child care
Costs of underemployment
Value of free time
 Natural resources utilisation
Environmental impacts both positive and negative
Socio-economic impacts ( income re-distribution,
life costs security index)
Human and social capital (health, education,
criminality)
Example of GPI estimate in the USA:
HDI – Human Development
Index
Is combined from three partial
indicators:
 life expectancy – represents the average length
of life and the health state of population ( connected
also to
 education level – reflects the knowledge level of
population, 2/3 weight is adult population literacy index
and 1/3 combined has the combined indicator of basic ,
secondary and university education
average real GDP per capita per year
in USD PPP – expresses average life standard
It can reach values between 0 -1
The main question then is:
If GDP does not really express the full
level of development, why are we not
utilising the mentioned alternative
indicators instead?
The answer is simple:
While GDP can be mofre or less
precisely computed, other indicators
are either incomplete (like HDI), or
they can be only estimated (like GPI)
Thank you for attention!