BASIC CONTEXT & PERSPECTIVES

Sophremiano Rem B. Antipolo, PhD, EdD, CES

 BASIC SCIENTIFIC AND
METHODOLOGICAL
CONSIDERATIONS
Structure of Scientific Revolution
(On Paradigm Shift) Source: Thomas Kuhn
Scientific disciplines, once they have emerged
from pre-paradigmatic stage, undergo periods of
normal science which allow them to obtain a
high degree of precision and progress rapidly.
However, in the course of research, scientists
inevitably stumble upon anomalies (a.k.a.
messes) which the paradigm is unable to
explain.
 If the paradigm repeatedly fails to explain the
anomaly, a crisis ensues and alternative theories
develop.
People working under different paradigms cannot
fully communicate because they have different
standards of evidence and mean different things
while using the same words.
In reality, if people do not level off the ground,
they would not be able to understand or not
communicate at all.
This brings us to discussing the:

Two-fold Functions of Econ Theory

1. To explain the nature of economic
activity; and
2. To predict what will happen to the study
economy
Positive Vs. Normative Economics

Positive Economics
Concerned with answering the question
what is? (Remember your High School
definition of the word Definition?
Completely objective -- limited to the
cause-and-effect relationships of activity or
reality.
Normative Economics
Concerned with answering the question
what ought to be?
Value judgments must be made -- possible
objectives must be ranked, and choices
must be made among those objectives.
Economic policy making is essentially
normative in character.
Relationship between Positive and
Normative Economics
If policy making is to be effective in improving
human welfare, it must obviously be rooted in
sound positive scientific analysis.
Policy makers should be cognizant of the full
range of consequences of the policies that will be
recommended.
Reflection: This applies not only to public sector governance
but to private and corporate governance as well by
bringing theory closer to reality.
END OF BASIC CONTEXT
AND PERSPECTIVE
 HOUSEHOLD INCOME

FACTORS OF PRODUCTION

Business
Household
Firm

GOODS/SERVICES

BUSINESS RECEIPTS
 Business
Household
Firm

Money
Savings Market Investments

Monetary Policies
 Business
Household
Firm

Government
Taxes Government
Expenditures

Fiscal Policies
 EXPORT REVENUE

EXPORTS

Philippines ROW

IMPORTS

IMPORT BILLS
 THE END
FOR TEACHING DEMO
PURPOSES
Measuring Aggregate Income:
Gross National Product (GNP)
GNP
a measure of the total value of final goods
and services produced by the economy,
say, in a given year.
NB: We are not concerned here with the
details of national income accounting (This
belongs to the NSCB).
Analyzing the GNP Components:
Natl Income Determination
Eq1: Agg S = Agg Demand
Model
Y = C + I + G + (X-M)
where: Y = National Income
C = Consumption
I = Investment
G = Govt Expenditure
X = Export
M= Import
The Consumption Function
Using simple linear equations:
Equation 2
Y = C
But: C = a + bY
where: a = level of C at Y=0
b = marginal propensity to
consume
= C/Y
Analyzing C-function
Simplifying
Equation 2: Y = C
Y = a + bY
Y - bY = a
Y[1-b] = a
Y = a/1-b
or: Y = [a] [1/1-b]
where:[1/1-b] = multiplier = k
Example: Multiplier Value
when Y = C
If mpc = b = 0.2, compute for k.
Solution:
k = [1/1-b]
k = 1/1-0.2
k = 1/0.8
Thus: k = 1.250 (Note this k-value as
our reference. Compare later when
Y-model has an added component.
Expanding the Agg Demand:
Incorporating S & I
Eq 3: S = I (Leakage=Injection)
Eq 4: Y = C + S (at eqm: S =I)
Thus: Y = C + I
But: I = e + iY
where: e = level of I at Y = 0
i = marginal propensity to
invest
= I/Y
Incorporating S and Investment
in the Y-determination model
Substituting & Simplifying Eq.4:
(cont)
Y = C + I
Y = a + bY + e + iY
Y -bY -iY = a+e
Y [1-b-i] = a+e
Y = [a+e]/[1-b-i]
Or: Y = [a+e] [1/1-b-i]
where: [1/1-b-i] = new multiplier =k
Example: Multiplier Value
When there is S & I
Find the new value of k if b=0.2 and i = 0.1?
Solution:
k = 1/1-b-i
k = 1/1-0.2-0.1
k = 1/0.7
Thus: k = 1.428
(Note: the new k is HIGHER)
 Elaborate on the components G, X, and M
to emphasize INJECTIONS TO AN
ECONOMY; Example to Mindanao
Economy.
WHAT IS MEANT BY
DEVELOPMENT

Rem B. Antipolo
TRADITIONAL
ECONOMIC MEASURES
Traditionally, development means
the capacity of a national economy
to generate & sustain an annual
increase in GNP at rates of
about 5 to 7% or more.
 An alternative index of
development is the rate of
growth of per capita GNP to
account for the nations ability
to expand output at a rate faster
than the growth of population.
 Also, development is seen in terms
of the alteration of the structure of
production & employment so that
agricultures share declines & that
of manufacturing and services
increases.
Social Indicators: Supplementing
the Traditional Economic Measures
The earlier econ measures of
development have been
supplemented by casual reference
to social indicators such as gains
in literacy, schooling, health
conditions, etc.
Social Indicators of Development
Attempts at measuring
development thru social indicators
include:
1. DAPs Social Indicators
2. UNDPs HDI
3. UNDPs Philippine HDI
NEW ECONOMIC VIEW:
Dethronement of GNP
Experience of 50s & 60s, when 3rd
world nations did realize growth
targets but quality of life (QOL) of
masses remained unchanged, signaled
that something was wrong with the
definition of development.
 Many economists clamored for
dethronement of GNP & the
elevation of direct attacks on
poverty, inequitable income
distribution, & rising
unemployment.
 Thus, in the 70s, economic
development came to be redefined
in terms of reduction in poverty,
inequality & unemployment
Redistribution from growth
became a slogan.
Dudley Seers, asserted:
The questions to ask is: What has
been happening to poverty? to
unemployment? to inequality? If all
three have declined, then beyond
doubt this has been a period of
development for the country
concerned.
 But if two or three of these
indicators have increased over
time, then it is difficult to call it
development even if per capita
GNP has doubled.
Rev. William F. Masterson,
1975 RM Awardee, stressed:

While increased national production

is necessary & urgent, it has no
validity if not made more equitably
available to the masses who are the
instruments & measures of
development
THREE CORE VALUES OF
DEVELOPMENT
Taking the cue from Seers et.
al., at least three core values
should serve as a conceptual
basis & practical guideline for
understanding the deeper
meaning of development.
Three Core Values
of Development
1. Sustenance: The ability to
meet basic needs
2. Self-Esteem: To be a person
3. Freedom From Servitude: To
be able to choose.
The three objectives of Devt:
Flowing from 3 core values
1. To increase availability and
widen the distribution of basic
life-sustaining goods;
2. To raise levels of living; and
3. To expand the range of economic
& social choices.
HUMAN DEVELOPMENT
INDEX (HDI)

Rem B. Antipolo
HUMAN DEVELOPMENT
INDEX (HDI)
Human development is the end,
economic growth the means. This is the
argument why the UNDP supported the
development of HDI.
The HDI is used to measure how well a
country has performed, not only in terms of
economic growth, but also in terms of
social indicators.
 The social indicators include peoples
ability to:
1. Lead a long and healthy life;
2. Acquire knowledge and skills; and
3. Have access to the resources needed to
afford a decent standard of living.
 Accordingly, HDI looks at the following
three development outcomes:
1. The state of health which is measured by
life expectancy;
2. The level of knowledge and skills which is
measured by adult literacy and enrolment
rates; and
3. The level of real income per capita.
 The criteria in the use of HDI:
HIGH - an HDI of 0.800 and above

MEDIUM - an HDI of 0.500 to 0.790

LOW - an HDI below 0.500

HDI: PHIL. vs. OTHER SEA
NATIONS, 1995 & 2000
Country 1995 2000
Indonesia 0.690 0.670
Malaysia 0.830 0.770
Philippines 0.680 0.740
Singapore 0.900 0.880
Thailand 0.840 0.740

Source: UNDP, HDRs 1996 & 2000

HDI: Mind vs. Phil, 1994 & 2000
Region 1994 2000
IX 0.458 0.486
X0.523 0.534
XI 0.507 0.514
XII 0.482 0.489
XIII 0.502 0.508
ARMM 0.390 0.392
MINDANAO 0.477 0.487
PHILIPPINES 0.660 0.625
MEASUREMENT OF PHILIPPINE
NATIONAL WELFARE

Source: Mahar Mangahas

Powerpoint Format: Rem B. Antipolo
Basic Legal Basis
The most useful guide to a statement of
social concerns is the Phil. Constitution --
specifically Article II [Declaration of
Principles & State Policies] and Article IV
[The Bill of Rights]
Article II declares that security of the
state is important [Section2]
Basic Philippine Social Indicators
1. Health & Nutrition. There is a basic concern for
longer life & for freedom from hunger,
malnutrition, & disease during life;
2. Learning. There is a basic concern for the
enhancement of human capability, both thru
formal schooling of greater quantity and better
quality, & through the acquisition of knowledge
& skills on the job.
3. Income & Consumption. There is a basic
desire for freedom from poverty, for greater
consumption, and for protection against
inflation.
4. Employment. The people have a right to
be able to work and to be fairly
compensated for it.
5. Non-human Productive Resources. Since
natural resources are extremely difficult to
reproduce, there is a basic concern that the rate
of exploitation does not prejudice future
generations.
6. Housing, Utilities, & the Environment. There is a
basic concern for proper housing, safe water,
electricity, and clean air to breathe.
7. Public Safety and Justice. There is a basic
concern for peace and order and for speedy,
equitable and efficient justice.
8. Political Values. There is a basic concern for
democratic government, with freedom to
participate in it & to dissent from its actions.
9. Social Mobility. There is a basic concern for an
open society & for equality of opportunities to
choose ones role in it.
DEVELOPMENT THEORIES

Rem B. Antipolo
LEADING THEORIES
1.Linear Stages Model
2. Structural Change Models
3. International Dependence Models
4. Neoclassical Counter-revolution
5. New Growth Models
 Most influential advocate : Walt
W. Rostow
According to Rostow, the
1. LINEAR STAGES THEORY
transition from underdevelopment
can be described in terms of a
series of stages through which all
countries must proceed.
 Rostow argued that all
economies lie within one of the
five categories:
1.Traditional society;
2.Pre-conditions to take-off into
self-sustaining growth;
3.Take-off;
4. Drive to maturity; and
5. Age of high mass consumption
 One of the principal tricks of
development was: the
mobilization of domestic &
foreign saving in order to
generate sufficient investment
to accelerate growth.
HARROD-DOMAR MODEL
Two (2) equations should
remind us of the
macroeconomic fundamentals:
1. K/ Y = ICOR = k; and
2. S = I
The Equation : Y/Y = s/k
where: Left-hand is GNP growth rate.
Harrod-Domar model states that: the
GNP growth rate is determined jointly
by the national savings ratio (s), and
the national capital-output ratio (k).
The logic of the model is
simple:
In order to grow, an economy
must save & invest a certain
proportion of their GNP. The
more they can save & invest,
the faster they can grow.
 Ex: if we assume that the national
capital-output ratio of one LDC is
3 & the aggregate saving ratio is
6%, then,
Y/Y = s/k = 6%/3 = 2%
 Now, if s can be increased from
6% to 15% (thru increased Taxes,
foreign aid, & Consumption-
sacrifices), the GNP growth rate:
Y/Y = s/k = 15/3=5%
Criticisms of the Stages Model
The tricks of development
embodied in the theory did not
always work.
Reason: More S and I are
not the only necessary
conditions for growth.
Illustration: Marshall Plan
worked for Europe because
European countries receiving
aid possessed the necessary
structural, institutional, and
attitudinal conditions.
2. STRUCTURAL CHANGE
Two well-known models: (1)
two-sector model by Arthur
Lewis; and (2) patterns of
development empirical analysis
by Hollis Chenery.
Lewis Theory of Development
In the Lewis model, an LDC
consists of two sectors:
1.A traditional, overpopulated
rural subsistence sector with
zero marginal labor productivity.
By zero marginal productivity,
Lewis classified the traditional
rural sector as a surplus labor
economy in the sense that it can be
withdrawn from the agriculture
sector without any loss of output.
2. A high-productivity modern
urban industrial sector into
which labor from rural-
agriculture sector is gradually
transferred.
 The primary focus of the model
is on both the process of labor
transfer and the growth of
output & employment in the
modern sector.
 The speed with which this
expansion occurs is determined
by the rate of investment (I) &
capital accumulation in the
modern sector.
 Such I is made possible
by the excess of modern
sector profit over wages ,
assuming that capitalists
re-invest all their profits.
 Finally, the wage level in
industrial sector is assumed to
be constant and determined as
a given premium over a fixed
average wage in the rural-
agriculture sector.
Structural Change & Patterns of Devt
(by: Hollis Chenery)

Like the Lewis model, the

patterns-of-development
analysis of structural change
focuses on the sequential
process through which the
economic, industrial, and
institutional structure of a
developing economy is
transformed over time to permit
new industries (replacing
traditional agriculture) as the
engine of economic growth.
 The best-known model of
structural change is the one
based on the empirical work
of Harvard economist Hollis
Chenery.
 Chenery examined patterns
of development for
numerous 3rd world
countries during the post-
war period.
 His empirical studies (both cross-
sectional & time series) of
countries at different levels of per
capita income led to the
identification of several
characteristic features of
development process:
These include the following:

1. a shift from agricultural to

industrial production;
2. the steady accumulation of
physical & human capital;
3.The change in consumer demand
from emphasis on food & basic
necessities TO the desires for
diverse manufactured goods;
4.The growth of cities & urban
industries as people migrate
from farms and small towns;
5. The decline in family size &
overall population growth as
children lose their economic value
as parents substitute quality
(education) for quantity.
Conclusions & Implications:
Structural change economists
argue that despite variations,
one can identify certain patterns
occurring in almost all
countries during the
development process.
 Further, they argue that these
patterns may be affected by the
choice of development policies
as well as the international
trade & foreign assistance
policies of developed nations.
 The structural change analysts
are basically optimistic that
the correct mix of economic
policies will generate
beneficial patterns of self-
sustaining growth.
 Incontrast, the international
dependence analysts are
PESSIMISTIC.
We will discuss this model
next.
3. INTERNATIONAL
DEPENDENCE MODELS

During the 70s, international

dependence models gained
increasing support,
especially among the 3rd
world intellectuals.
 This resulted from the
disenchantment with both
the stages and structural
change models.
Three Major Streams of Thought :

1. Neocolonial Dependence
Model
2. False-Paradigm Model
3. Dualistic-development
Thesis
Neocolonial Dependence Model
Attributes the existence &
continuance of underdevelopment
primarily to the historical
evolution of a highly unequal rich-
poor country relationship.
 Because rich nations are intentionally
exploitative, the coexistence of rich &
poor nations (in an international system
dominated by such unequal power
relationship between the center (DCs)
and periphery (LDCs) is virtually
impossible.
The False-Paradigm Model
A less radical international-
dependence approach to development,
False-Paradigm model attributes
underdevelopment to faulty and
inappropriate advice provided by well-
meaning but uninformed experts from
developed countries & multilateral
agencies.
4. Neoclassical Counter-revolution:
Challenges the Statist model
1. Free-market analysis
2. Public Choice theory
or new political economy
3. Market-friendly approach
Free-Market Analysis
Argues that markets alone are
efficient-- product markets
provide the best signals for
investments in new activities;
labor markets respond to these
new industries in appropriate
ways, producers know best
what to produce, & product
as well as factor prices
reflect the scarcity value of
goods and services.
New Political Economy
Goes even further to argue that
governments can do nothing right.
Assumes politicians, bureaucrats,
citizens, & states act solely from a
self-interest perspective, using power
and authority of government for their
own selfish ends.
 To conclude,good
government is minimal
government.
Market-Friendly Approach
Recognizes the many imperfections in
the LDC product & factor markets
and that governments do have a key
role in facilitating the operation of
markets through market-friendly
interventions.
 How? By investing in physical
& social infrastructure, health
care facilities, and educational
institutions & by providing a
suitable climate for private
enterprises.
5. NEW GROWTH MODEL
Though still eclectic and not
quite as fully developed as the
earlier four (4) approaches, the
New Growth Theory represents
a key component of the
emerging development theory.
 This theory provides a framework
for analyzing endogenous growth,
persistent GNP growth that is
determined by the system
governing the production process
rather than by forces outside of the
system.
 The principal motivations of
the New Growth Model are
to explain both growth rate
differentials across countries
and a greater proportion of
the growth observed.
 A useful way to contrast the new
growth with traditional
neoclassical theory is to recognize
that endogenous growth theories
can be expressed by the simple
equation: Y = AK
 Y = AK
where:
A= any factor that affect tech
K= physical & human capital
 The potentially high rates of return to
Investment (I) offered by a developing
economy with low capital-labor ratios
are greatly eroded by lower levels of
complementary Investment in human
capital (education), infrastructure,
and R&D.
 Thus, the endogenous or new growth
models suggest AN ACTIVE ROLE
for public policy in promoting
economic development through direct
and indirect investments in human
capital formation.
 Though in many ways new growth
theory remains strongly rooted in
the neoclassical tradition, it
represents a departure from strict
adherence to a dogma of free
markets and passive governments.
Summary:
RECONCILING DIFFERENCES
The existence of controversy --
ideological, theoretical, or
empirical -- makes the study of
development economics or
development administration
BOTH CHALLENGING AND
EXCITING.
 Development studies has no
universally accepted doctrine.
Instead, we have a continually
evolving pattern of insights that
together provide the basis for
examining the possibilities of
contemporary development of the
diverse LDCs.
 Each of the approaches to
understanding development
has something to offer.
THE END
NEXT

THE EVOLVING
DEVELOPMENT
PARADIGMS