Economic development involves structural change and growth. A structural change accompanying economic growth usually involves human development. It is natural to measure performance of a country's level of economic development with per capita product or per capita income. A person produces more in advanced country than in developing country because the economic system in advanced countries provides him with better environments to work.
A well-developed economic system performs better than a poorly-developed one. It is because of this that some economies record positive growth of income per capita continously while others show persistently poor performance, with their income per capita staying at a low or subsistence level with occasional ups and downs around it. For example, GDP per capita of U.K. and Africa rose from 974 dollars and 422 dollars, respectively, in 1600 to 20,127 US dollars and 1,489 dollars, respectively, in 2001 while that of the world on average increased from 595 dollars in 1600 to 6,049 dollars in 2001(Maddison 2003). Despite of growth ㅐin absolute terms, Africa has falln further behind the world on average while the UK has forged ahead.
Characteristics of economic systems matters. It is not only the difference of individual propensity to save and individual company's willingness to take risks that determine the growth performance of an economy. But, systemic charateristics which includes not only institutions suchas ownership of land and demographic feature such as longevity but also ofthe size of markets matter. Market size matters because division of labor is limited by the extent of markets as Adam Smith has explained. Individual choices regarding savings, the number of children they would like to give birth to affects the sizes of facor markets. Interaction between individual actions and aggregate sizes of markets, i.e., spillover effects, auses non-linearity of the relationship between aggregate inputs and outputs. One of the outcomes of such non-linear relationship is stages of economic development. New division of labor at th
al s one of the main challenges poses to development economics by the question: how can an underdeveloped country transform its economic system into a well-performing one? or, how can a Sub-Saharan country develop its underdeveloped economy? There are several competing but not necessarily incompatible paradigms to explain the mechanism of economic development. Mainstream development economics equates economic development with industrialization and argue that markets, when left uninterrupted, work freely would work to bring about economic development, i.e., industrialization. These arguments usually neglect to check whether there are institutional infrastructure for thr market to appear. In contrast, others argue that economic liberalization may be big-push industrialization efforts or market liberalization can be premature. The reasons include lack of market institutions or lack of commercialization due to traditional cultures and institutions. This line of argument leads to stages-of-economic-development (SED)theories; a primitive economy develop discretely or stage by stage.
In macroeconomic growth theory, stages of economic development is defined as multiple steady states as in Azariades and Drazen (1990). According to them, initial average quality of labor in an economy determines the speed of economic productivity growth afterwards. Multiple stationary states come into existence when aggregate production function undergoes a change in its returns to scale.
In two-sector growth model by Jorgenson (1961 1967), sectors develops in a unique sequence: agriculture need to develop to a threshold level before industry starts to develop sustainably. The reason is that agricultural productivity need to be enhanced enough to feed workers in newly established industry. In this model, exogenous technical progress in agriculture is the key to agricultural and then industrial development.
In multi-sector growth model by Goodfriend and McDermott(1995), multiple steady states comes into existence as economic development is made possible by advent of specialization, trade, and risk-taking and, after commercialization increases the returns to human capital accumulation above a threshold, by human capital accumulation.
The reality resembles mixture of the multiple steady states in the overlapping generations model by AD(1990) and sequential development of multisector economy in GM(1995). Here, economic development starts with specilization and commercialization of subsistence family farming and proceeds to factor (especially human capital) accumulation over generations which makes the initial level of average labor quality at a time exceeds a threshold. In terms of two-sector model, specialization means agricultural development together with commercialization; human capital accumulation made possible by agricultural development feeds into industrialization process. Given these characterization, a natural sequence of stages would be a primitive economy, a commercialized agriculture economy, and industrial economy.
Given that African and British individuals have largely the same individual development potential at birth, the large gap in growth performance poses a puzzle. Economic growth theory explains it ing the remarkably different growth performance is a big challenge to development economics. Some African countries like The Zimbabㅕwe recorded ups of GDP per capita till mid-1980s and ever since downs.
The contrast between a trend-like growth of income per capita and stagnation at a subsistence income level.
the growth was not shared evenly among countries and continents. For example,
It is a usual practice to divide economies into three groups or stages: low-income, middle-income, and high-income countries to represent underdeveloped, developing, and developed countries.
A major issue in development economics is to explain why and how Development economics is a social science which looks into the mechanism of economic development.
Some studies posit that economic development result from some fortuitous combination of factor accumulation and technological progress. Most growth accounting and growth regression exercises take this approach to decompose growth performance. This approach helps identify the factors that had driven up or weighed down on economic growth ex post. But, it is silent about the interaction between factor accumulation and productivity growth. Anothe Nobelaureate North stresses that institutions which determines incentives for individuals to accumulate factors as well as to innovate.
affect both factor accumulation and technological Economist The key to economic development. process with a model incorporating one final goodcan be described Most of the theories Given the different stages of economic development to which an economy in the world belongs, such a mechanism is that it needs to be tailored to the needs of to recognize on developing countries can catch up income per capita of developed countries. In the level and changes in the level of GDP per capita. An economy showing trend-like increase in GDP per capita is considered to have succeeded in economic development. In contrast, some countries especially in Sub-Saharan Africa show long-term stagnation of GDP per capita. Although they recorded some ups and downs, they eventually returns to subsistence level of GDP per capita.
The methodology of growth accounting, growth regressions, and growth diagnostics tries to explain the changes in GDP per capita in terms of exogenous or endogenous factor accumulation anc technological progress. However, It still remains a challenge for development economists to explain why some economies adamantly stay in stagnation while others jump start and continue to grow.
To address this issue, I propose a stage-by-stage approach to economic development.
A well-developed economic system performs better than a poorly-developed one. It is because of this that some economies record positive growth of income per capita continously while others show persistently poor performance, with their income per capita staying at a low or subsistence level with occasional ups and downs around it. For example, GDP per capita of U.K. and Africa rose from 974 dollars and 422 dollars, respectively, in 1600 to 20,127 US dollars and 1,489 dollars, respectively, in 2001 while that of the world on average increased from 595 dollars in 1600 to 6,049 dollars in 2001(Maddison 2003). Despite of growth ㅐin absolute terms, Africa has falln further behind the world on average while the UK has forged ahead.
Characteristics of economic systems matters. It is not only the difference of individual propensity to save and individual company's willingness to take risks that determine the growth performance of an economy. But, systemic charateristics which includes not only institutions suchas ownership of land and demographic feature such as longevity but also ofthe size of markets matter. Market size matters because division of labor is limited by the extent of markets as Adam Smith has explained. Individual choices regarding savings, the number of children they would like to give birth to affects the sizes of facor markets. Interaction between individual actions and aggregate sizes of markets, i.e., spillover effects, auses non-linearity of the relationship between aggregate inputs and outputs. One of the outcomes of such non-linear relationship is stages of economic development. New division of labor at th
al s one of the main challenges poses to development economics by the question: how can an underdeveloped country transform its economic system into a well-performing one? or, how can a Sub-Saharan country develop its underdeveloped economy? There are several competing but not necessarily incompatible paradigms to explain the mechanism of economic development. Mainstream development economics equates economic development with industrialization and argue that markets, when left uninterrupted, work freely would work to bring about economic development, i.e., industrialization. These arguments usually neglect to check whether there are institutional infrastructure for thr market to appear. In contrast, others argue that economic liberalization may be big-push industrialization efforts or market liberalization can be premature. The reasons include lack of market institutions or lack of commercialization due to traditional cultures and institutions. This line of argument leads to stages-of-economic-development (SED)theories; a primitive economy develop discretely or stage by stage.
In macroeconomic growth theory, stages of economic development is defined as multiple steady states as in Azariades and Drazen (1990). According to them, initial average quality of labor in an economy determines the speed of economic productivity growth afterwards. Multiple stationary states come into existence when aggregate production function undergoes a change in its returns to scale.
In two-sector growth model by Jorgenson (1961 1967), sectors develops in a unique sequence: agriculture need to develop to a threshold level before industry starts to develop sustainably. The reason is that agricultural productivity need to be enhanced enough to feed workers in newly established industry. In this model, exogenous technical progress in agriculture is the key to agricultural and then industrial development.
In multi-sector growth model by Goodfriend and McDermott(1995), multiple steady states comes into existence as economic development is made possible by advent of specialization, trade, and risk-taking and, after commercialization increases the returns to human capital accumulation above a threshold, by human capital accumulation.
The reality resembles mixture of the multiple steady states in the overlapping generations model by AD(1990) and sequential development of multisector economy in GM(1995). Here, economic development starts with specilization and commercialization of subsistence family farming and proceeds to factor (especially human capital) accumulation over generations which makes the initial level of average labor quality at a time exceeds a threshold. In terms of two-sector model, specialization means agricultural development together with commercialization; human capital accumulation made possible by agricultural development feeds into industrialization process. Given these characterization, a natural sequence of stages would be a primitive economy, a commercialized agriculture economy, and industrial economy.
Given that African and British individuals have largely the same individual development potential at birth, the large gap in growth performance poses a puzzle. Economic growth theory explains it ing the remarkably different growth performance is a big challenge to development economics. Some African countries like The Zimbabㅕwe recorded ups of GDP per capita till mid-1980s and ever since downs.
The contrast between a trend-like growth of income per capita and stagnation at a subsistence income level.
the growth was not shared evenly among countries and continents. For example,
It is a usual practice to divide economies into three groups or stages: low-income, middle-income, and high-income countries to represent underdeveloped, developing, and developed countries.
A major issue in development economics is to explain why and how Development economics is a social science which looks into the mechanism of economic development.
Some studies posit that economic development result from some fortuitous combination of factor accumulation and technological progress. Most growth accounting and growth regression exercises take this approach to decompose growth performance. This approach helps identify the factors that had driven up or weighed down on economic growth ex post. But, it is silent about the interaction between factor accumulation and productivity growth. Anothe Nobelaureate North stresses that institutions which determines incentives for individuals to accumulate factors as well as to innovate.
affect both factor accumulation and technological Economist The key to economic development. process with a model incorporating one final goodcan be described Most of the theories Given the different stages of economic development to which an economy in the world belongs, such a mechanism is that it needs to be tailored to the needs of to recognize on developing countries can catch up income per capita of developed countries. In the level and changes in the level of GDP per capita. An economy showing trend-like increase in GDP per capita is considered to have succeeded in economic development. In contrast, some countries especially in Sub-Saharan Africa show long-term stagnation of GDP per capita. Although they recorded some ups and downs, they eventually returns to subsistence level of GDP per capita.
The methodology of growth accounting, growth regressions, and growth diagnostics tries to explain the changes in GDP per capita in terms of exogenous or endogenous factor accumulation anc technological progress. However, It still remains a challenge for development economists to explain why some economies adamantly stay in stagnation while others jump start and continue to grow.
To address this issue, I propose a stage-by-stage approach to economic development.
