Development economics is a branch of economics which deals with economic aspects of the development process in low income countries. Its focus is not only on methods of promoting economic development, economic growth and structural change but on improving the potential for the mass of the population, for example, through health and workplace conditions, whether through public or private channels. Development economics involves the creation of theories and methods that aid in the determination of policies and practices and can be implemented at either the domestic or international level; this may involve restructuring market incentives or using mathematical methods such as intertemporal optimization for project analysis, or it may involve a mixture of quantitative and qualitative methods. Unlike in many other fields of economics, approaches in development economics may incorporate social and political factors to devise particular plans. Unlike many other fields of economics, there is no consensus on what students should know.
Different approaches may consider the factors that contribute to economic convergence or non-convergence across households and countries. The earliest Western theory of development economics was mercantilism, which developed in the 17th century, paralleling the rise of the nation state. Earlier theories had given little attention to development. For example, the dominant school of thought during medieval feudalism, emphasized reconciliation with Christian theology and ethics, rather than development; the 16th- and 17th-century School of Salamanca, credited as the earliest modern school of economics did not address development specifically. Major European nations in the 17th and 18th century all adopted mercantilist ideals to varying degrees, the influence only ebbing with the 18th-century development of physiocrats in France and classical economics in Britain. Mercantilism held that a nation's prosperity depended on its supply of capital, represented by bullion held by the state, it emphasised the maintenance of a high positive trade balance as a means of accumulating this bullion.
To achieve a positive trade balance, protectionist measures such as tariffs and subsidies to home industries were advocated. Mercantilist development theory advocated colonialism. Theorists most associated with mercantilism include Philipp von Hörnigk, who in his Austria Over All, If She Only Will of 1684 gave the only comprehensive statement of mercantilist theory, emphasizing production and an export-led economy. In France, mercantilist policy is most associated with 17th-century finance minister Jean-Baptiste Colbert, whose policies proved influential in American development. Mercantilist ideas continue in the theories of economic neomercantilism. Following mercantilism was the related theory of economic nationalism, promulgated in the 19th century related to the development and industrialization of the United States and Germany, notably in the policies of the American System in America and the Zollverein in Germany. A significant difference from mercantilism was the de-emphasis on colonies, in favor of a focus on domestic production.
The names most associated with 19th-century economic nationalism are the American Alexander Hamilton, the German-American Friedrich List, the American Henry Clay. Hamilton's 1791 Report on Manufactures, his magnum opus, is the founding text of the American System, drew from the mercantilist economies of Britain under Elizabeth I and France under Colbert. List's 1841 Das Nationale System der Politischen Ökonomie, which emphasized stages of growth, proved influential in the US and Germany, nationalist policies were pursued by politician Henry Clay, by Abraham Lincoln, under the influence of economist Henry Charles Carey. Forms of economic nationalism and neomercantilism have been key in Japan's development in the 19th and 20th centuries, the more recent development of the Four Asian Tigers, most China. Following Brexit and the United States presidential election, 2016, some experts have argued a new kind of "self-seeking capitalism" popularly known as Trumponomics could have a considerable impact on cross-border investment flows and long-term capital allocation The origins of modern development economics are traced to the need for, problems with the industrialization of eastern Europe in the aftermath of World War II.
The key authors are Paul Rosenstein-Rodan, Kurt Mandelbaum, Ragnar Nurkse, Sir Hans Wolfgang Singer. Only after the war did economists turn their concerns towards Asia and Latin America. At the heart of these studies, by authors such as Simon Kuznets and W. Arthur Lewis was an analysis of not only economic growth but structural transformation. An early theory of development economics, the linear-stages-of-growth model was first formulated in the 1950s by W. W. Rostow in The Stages of Growth: A Non-Communist Manifesto, following work of Marx and List; this theory modifies Marx's stages theory of development and focuses on the accelerated accumulation of capital, through the utilization of both domestic and international savings as a means of spurring investment, as the primary means of promoting economic growth and, development. The linear-stages-of-growth model posits 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 "the traditional society, the pre-conditions for take-off, the take-off, the drive to maturity, the age of high mass-consumption" Simple versi
Heterodoxy is a term that may be used in contrast with orthodoxy in schools of economic thought or methodologies, that may be beyond neoclassical economics. Heterodoxy is an umbrella term; these might for example include anarchist, Marxian, evolutionary, Austrian, social, post-Keynesian, ecological economics among others. Economics may be called conventional economics by its critics. Alternatively, mainstream economics deals with the "rationality–individualism–equilibrium nexus" and heterodox economics is more "radical" in dealing with the "institutions–history–social structure nexus". Many economists dismiss heterodox economics as "fringe" and "irrelevant", with little or no influence on the vast majority of academic mainstream economists in the English-speaking world. A recent review documented several prominent groups of heterodox economists since at least the 1990s as working together with a resulting increase in coherence across different constituents. Along these lines, the International Confederation of Associations for Pluralism in Economics does not define "heterodox economics" and has avoided defining its scope.
ICAPE defines its mission as "promoting pluralism in economics." In defining a common ground in the "critical commentary," one writer described fellow heterodox economists as trying to do three things: identify shared ideas that generate a pattern of heterodox critique across topics and chapters of introductory macro texts. One study suggests four key factors as important to the study of economics by self-identified heterodox economists: history, natural systems and power. A number of heterodox schools of economic thought challenged the dominance of neoclassical economics after the neoclassical revolution of the 1870s. In addition to socialist critics of capitalism, heterodox schools in this period included advocates of various forms of mercantilism, such as the American School dissenters from neoclassical methodology such as the historical school, advocates of unorthodox monetary theories such as Social credit. Other heterodox schools active before and during the Great Depression included Technocracy and Georgism.
Physical scientists and biologists were the first individuals to use energy flows to explain social and economic development. Joseph Henry, an American physicist and first secretary of the Smithsonian Institution, remarked that the "fundamental principle of political economy is that the physical labor of man can only be ameliorated by… the transformation of matter from a crude state to a artificial condition...by expending what is called power or energy."The rise, absorption into the mainstream of Keynesian economics, which appeared to provide a more coherent policy response to unemployment than unorthodox monetary or trade policies contributed to the decline of interest in these schools. After 1945, the neoclassical synthesis of Keynesian and neoclassical economics resulted in a defined mainstream position based on a division of the field into microeconomics and macroeconomics. Austrians and post-Keynesians who dissented from this synthesis emerged as defined heterodox schools. In addition, the Marxist and institutionalist schools remained active.
Up to 1980 the most notable themes of heterodox economics in its various forms included: rejection of the atomistic individual conception in favor of a embedded individual conception. From 1980 mainstream economics has been influenced by a number of new research programs, including behavioral economics, complexity economics, evolutionary economics, experimental economics, neuroeconomics; as a consequence, some heterodox economists, such as John B. Davis, proposed that the definition of heterodox economics has to be adapted to this new, more complex reality:...heterodox economics post-1980 is a complex structure, being composed out of two broadly different kinds of heterodox work, each internally differentiated with a number of research programs having different historical origins and orientations: the traditional left heterodoxy familiar to most and the'new heterodoxy' resulting from other science imports. There is no single "heterodox economic theory". What they all share, however, is a rejection of the neoclassical orthodoxy as representing the appropriate tool for understanding the workings of economic and social life.
The reasons for this rejection may vary. Some of the elements found in heterodox critiques are listed below. One of the most broadly accepted principles of neoclassical economics is the assumption of the "rationality of economic agents". Indeed, for a number of economists, the notion of rational maximizing behavior is taken to be synonymous with economic behavior; when some economists' studies do not embrace the rationality assumption, they are seen as placing the analyses outside the boundaries of the Neoclassical economics discipline. Neoclassical economics begins with the a priori assumptions that agents are rational and that they seek to maximize their individual utility (or prof
Economic growth is the increase in the inflation-adjusted market value of the goods and services produced by an economy over time. It is conventionally measured as the percent rate of increase in real gross domestic product, or real GDP. Growth is calculated in real terms - i.e. inflation-adjusted terms – to eliminate the distorting effect of inflation on the price of goods produced. Measurement of economic growth uses national income accounting. Since economic growth is measured as the annual percent change of gross domestic product, it has all the advantages and drawbacks of that measure; the economic growth rates of nations are compared using the ratio of the GDP to population or per-capita income. The "rate of economic growth" refers to the geometric annual rate of growth in GDP between the first and the last year over a period of time; this growth rate is the trend in the average level of GDP over the period, which ignores the fluctuations in the GDP around this trend. An increase in economic growth caused by more efficient use of inputs is referred to as intensive growth.
GDP growth caused only by increases in the amount of inputs available for use is called extensive growth. Development of new goods and services creates economic growth; the economic growth rate is calculated from data on GDP estimated by countries' statistical agencies. The rate of growth of GDP per capita is calculated from data on GDP and people for the initial and final periods included in the analysis of the analyst. In national income accounting, per capita output can be calculated using the following factors: output per unit of labor input, hours worked, the percentage of the working age population working and the proportion of the working-age population to the total population. "The rate of change of GDP/population is the sum of the rates of change of these four variables plus their cross products."Economists distinguish between short-run economic changes in production and long-run economic growth. Short-run variation in economic growth is termed the business cycle. Economists attribute the ups and downs in the business cycle to fluctuations in aggregate demand.
In contrast, economic growth is concerned with the long-run trend in production due to structural causes such as technological growth and factor accumulation. Increases in labor productivity have been the most important source of real per capita economic growth. "In a famous estimate, MIT Professor Robert Solow concluded that technological progress has accounted for 80 percent of the long-term rise in U. S. per capita income, with increased investment in capital explaining only the remaining 20 percent."Increases in productivity lower the real cost of goods. Over the 20th century the real price of many goods fell by over 90%. Economic growth has traditionally been attributed to the accumulation of human and physical capital and the increase in productivity and creation of new goods arising from technological innovation. Further division of labour is fundamental to rising productivity. Before industrialization technological progress resulted in an increase in the population, kept in check by food supply and other resources, which acted to limit per capita income, a condition known as the Malthusian trap.
The rapid economic growth that occurred during the Industrial Revolution was remarkable because it was in excess of population growth, providing an escape from the Malthusian trap. Countries that industrialized saw their population growth slow down, a phenomenon known as the demographic transition. Increases in productivity are the major factor responsible for per capita economic growth – this has been evident since the mid-19th century. Most of the economic growth in the 20th century was due to increased output per unit of labor, materials and land; the balance of the growth in output has come from using more inputs. Both of these changes increase output; the increased output included more of the same goods produced and new goods and services. During the Industrial Revolution, mechanization began to replace hand methods in manufacturing, new processes streamlined production of chemicals, iron and other products. Machine tools made the economical production of metal parts possible, so that parts could be interchangeable.
See: Interchangeable parts. During the Second Industrial Revolution, a major factor of productivity growth was the substitution of inanimate power for human and animal labor. There was a great increase in power as steam powered electricity generation and internal combustion supplanted limited wind and water power. Since that replacement, the great expansion of total power was driven by continuous improvements in energy conversion efficiency. Other major historical sources of productivity were automation, transportation infrastructures, new materials and power, which includes steam and internal combustion engines and electricity. Other productivity improvements included mechanized agriculture and scientific agriculture including chemical fertilizers and livestock and poultry management, the Green Revolution. Interchangeable parts made with machine tools powered by electric motors evolved into mass production, universally used today. Great sources of productivity improvement in the late 19th century were railroads, steam ships, horse-pulled reapers and combine harvesters, steam-powered factories.
The invention of processes for making cheap steel were important for many forms
Education economics or the economics of education is the study of economic issues relating to education, including the demand for education, the financing and provision of education, the comparative efficiency of various educational programs and policies. From early works on the relationship between schooling and labor market outcomes for individuals, the field of the economics of education has grown to cover all areas with linkages to education. Economics distinguishes in addition to physical capital another form of capital, no less critical as a means of production – human capital. With investments in human capital, such as education, three major economic effects can be expected: increased expenses as the accumulation of human capital requires investments just as physical capital does, increased productivity as people gain characteristics that enable them to produce more output and hence return on investment in the form of higher incomes. Investments in human capital entail an investment cost.
In European countries most education expenditure takes the form of government consumption, although some costs are borne by individuals. These investments can be rather costly. EU governments spent between 3% and 8% of GDP on education in 2005, the average being 5%. However, measuring the spending this way alone underestimates the costs because a more subtle form of costs is overlooked: the opportunity cost of forgone wages as students cannot work while they study, it has been estimated that the total costs, including opportunity costs, of education are as much as double the direct costs. Including opportunity costs investments in education can be estimated to have been around 10% of GDP in the EU countries in 2005. In comparison investments in physical capital were 20% of GDP, thus the two are of similar magnitude. Human capital in the form of education shares many characteristics with physical capital. Both require an investment to create and, once created, both have economic value. Physical capital earns a return because people are willing to pay to use a piece of physical capital in work as it allows them to produce more output.
To measure the productive value of physical capital, we can measure how much of a return it commands in the market. In the case of human capital calculating returns is more complicated – after all, we cannot separate education from the person to see how much it rents for. To get around this problem, the returns to human capital are inferred from differences in wages among people with different levels of education. Hall and Jones have calculated from international data that on average that the returns on education are 13.4% per year for first four years of schooling, 10.1% per year for the next four years and 6.8% for each year beyond eight years. Thus someone with 12 years of schooling can be expected to earn, on average, 1.1344 × 1.1014 × 1.0684 = 3.161 times as much as someone with no schooling at all. Economy-wide, the effect of human capital on incomes has been estimated to be rather significant: 65% of wages paid in developed countries is payments to human capital and only 35% to raw labor.
The higher productivity of well-educated workers is one of the factors that explain higher GDPs and, higher incomes in developed countries. A strong correlation between GDP and education is visible among the countries of the world, as is shown by the upper left figure, it is less clear, how much of a high GDP is explained by education. After all, it is possible that rich countries can afford more education. To distinguish the part of GDP explained with education from other causes, Weil has calculated how much one would expect each country’s GDP to be higher based on the data on average schooling; this was based on the above-mentioned calculations of Jones on the returns on education. GDPs predicted by Weil’s calculations can be plotted against actual GDPs, as is done in the figure on the left, demonstrating that the variation in education explains some, but not all, of the variation in GDP; the matter of externalities should be considered. When speaking of externalities one thinks of the negative effects of economic activities that are not included in market prices, such as pollution.
These are negative externalities. However, there are positive externalities – that is, positive effects of which someone can benefit without having to pay for it. Education bears with it major positive externalities: giving one person more education raises not only his or her output but the output of those around him or her. Educated workers can bring new technologies and information to the consideration of others, they can act as an example. The positive externalities of education include the effects of personal networks and the roles educated workers play in them. Positive externalities from human capital are one explanation for why governments are involved in education. If people were left on their own, they would not take into account the full social benefit of education – in other words the rise in the output and wages of others – so the amount they would choose to obtain would be lower than the social optimum. A 2013 study assesses demand- and supply-side factors that affect educational access and attainment in development countries, it shows that addressing demand-side factors, such as geographic gaps between rural and urban areas, higher levels of population growth and child labour, can have greater impact on increasing levels of education in developing countries than supply-side factors, such as constructing additional school facilities, hiring more teachers etc.
The dominant model of th
A market is one of the many varieties of systems, procedures, social relations and infrastructures whereby parties engage in exchange. While parties may exchange goods and services by barter, most markets rely on sellers offering their goods or services in exchange for money from buyers, it can be said that a market is the process by which the prices of goods and services are established. Markets facilitate enable the distribution and resource allocation in a society. Markets allow any trade-able item to be priced. A market emerges more or less spontaneously or may be constructed deliberately by human interaction in order to enable the exchange of rights of services and goods. Markets supplant gift economies and are held in place through rules and customs, such as a booth fee, competitive pricing, source of goods for sale. Markets can differ by products or factors sold, product differentiation, place in which exchanges are carried, buyers targeted, selling process, government regulation, subsidies, minimum wages, price ceilings, legality of exchange, intensity of speculation, concentration, exchange asymmetry, relative prices and geographic extension.
The geographic boundaries of a market may vary for example the food market in a single building, the real estate market in a local city, the consumer market in an entire country, or the economy of an international trade bloc where the same rules apply throughout. Markets can be worldwide, see for example the global diamond trade. National economies can be classified as developed markets or developing markets. In mainstream economics, the concept of a market is any structure that allows buyers and sellers to exchange any type of goods and information; the exchange of goods or services, with or without money, is a transaction. Market participants consist of all the buyers and sellers of a good who influence its price, a major topic of study of economics and has given rise to several theories and models concerning the basic market forces of supply and demand. A major topic of debate is how much a given market can be considered to be a "free market", free from government intervention. Microeconomics traditionally focuses on the study of market structure and the efficiency of market equilibrium.
However, it is not always clear how the allocation of resources can be improved since there is always the possibility of government failure. A market is one of the many varieties of systems, procedures, social relations and infrastructures whereby parties engage in exchange. While parties may exchange goods and services by barter, most markets rely on sellers offering their goods or services in exchange for money from buyers, it can be said that a market is the process by which the prices of goods and services are established. Markets enables the distribution and allocation of resources in a society. Markets allow any trade-able item to be priced. A market sometimes emerges more or less spontaneously or may be constructed deliberately by human interaction in order to enable the exchange of rights of services and goods. Markets of varying types can spontaneously arise whenever a party has interest in a good or service that some other party can provide. Hence there can be a market for cigarettes in correctional facilities, another for chewing gum in a playground, yet another for contracts for the future delivery of a commodity.
There can be black markets, where a good is exchanged illegally, for example markets for goods under a command economy despite pressure to repress them and virtual markets, such as eBay, in which buyers and sellers do not physically interact during negotiation. A market can be organized as an auction, as a private electronic market, as a commodity wholesale market, as a shopping center, as a complex institution such as a stock market and as an informal discussion between two individuals. Markets vary in form, scale and types of participants as well as the types of goods and services traded; the following is a non exhaustive list: Food retail markets: farmers' markets, fish markets, wet markets and grocery stores Retail marketplaces: public markets, market squares, Main Streets, High Streets, souqs, night markets, shopping strip malls and shopping malls Big-box stores: supermarkets and discount stores Ad hoc auction markets: process of buying and selling goods or services by offering them up for bid, taking bids and selling the item to the highest bidder Used goods markets such as flea markets Temporary markets such as fairs Physical wholesale markets: sale of goods or merchandise to retailers.
Public economics is the study of government policy through the lens of economic efficiency and equity. At its most basic level, public economics provides a framework for thinking about whether or not the government should participate in economic markets and to what extent it should do so. In order to do this, microeconomic theory is utilized to assess whether the private market is to provide efficient outcomes in the absence of governmental interference. Inherently, this study involves the analysis of government taxation and expenditures; this subject encompasses a host of topics including market failures and the creation and implementation of government policy. Public economics builds on the theory of welfare economics and is used as a tool to improve social welfare. Broad methods and topics include: the theory and application of public finance analysis and design of public policy distributional effects of taxation and government expenditures analysis of market failure and government failure.
Emphasis is on analytical and scientific methods and normative-ethical analysis, as distinguished from ideology. Examples of topics covered are tax incidence, optimal taxation, the theory of public goods; the Journal of Economic Literature classification codes are one way categorizing the range of economics subjects. There, Public Economics, one of 19 primary classifications, has 8 categories, they are listed below with JEL-code links to corresponding available article-preview links of The New Palgrave Dictionary of Economics Online and with similar footnote links for each respective subcategory if available: JEL: H – Public Economics JEL: H0 – General JEL: H1 – Structure and Scope of Government JEL: H2 – Taxation and Revenue JEL: H3 – Fiscal Policies and Behavior of Economic Agents JEL: H4 – Publicly Provided Goods JEL: H5 – National Government Expenditures and Related Policies JEL: H6 – National Budget and Debt JEL: H7 – State and Local Government. In 1971, Peter A. Diamond and James A. Mirrlees published a seminal paper which showed that when lump-sum taxation is not available, production efficiency is still desirable.
This finding is known as the Diamond–Mirrlees efficiency theorem, it is credited with having modernized Ramsey's analysis by considering the problem of income distribution with the problem of raising revenue. Joseph E. Stiglitz and Partha Dasgupta have criticized this theorem as not being robust on the grounds that production efficiency will not be desirable if certain tax instruments cannot be used. One of the achievements for which the great English economist A. C. Pigou is known, was his work on the divergences between marginal private costs and marginal social costs. In his book, The Economics of Welfare, Pigou describes how these divergences come about:...one person A, in the course of rendering some service, for which payment is made, to a second person B, incidentally renders services or disservices to other persons, of such a sort that payment cannot be extracted from the benefited parties or compensation enforced on behalf of the injured parties. In particular, Pigou is known for his advocacy of what are known as corrective taxes, or Pigouvian taxes: It is plain that divergences between private and social net product of the kinds we have so far been considering cannot, like divergences due to tenancy laws, be mitigated by a modification of the contractual relation between any two contracting parties, because the divergence arises out of a service or disservice to persons other than the contracting parties.
It is, possible for the State, if it so chooses, to remove the divergence in any field by "extraordinary encouragements" or "extraordinary restraints" upon investments in that field. The most obvious forms which these encouragements and restraints may assume are, of course, those of bounties and taxes. Externalities arise when consumption by individuals or production by firms affect the utility or production function of other individuals or firms. Positive externalities are education, public health and others while examples of negative externalities are air pollution, noise pollution, non-vaccination and more; the government can intervene in the market, using an emission tax for example to create a more efficient outcome. Pigou describes as positive externalities, examples such as resources invested in private parks that improve the surrounding air, scientific research from which discoveries of high practical utility grow. Alternatively, he describes negative externalities, such as the factory that destroys a great part of the amenities of neighboring sites.
In 1960, the economist Ronald H. Coase proposed an alternative scheme whereby negative externalities are dealt with through the appropriate assignment of property rights; this result is known as the Coase theorem. Public goods, or collective consumption goods, exhibit two properties. Something is non-rivaled if one person's consumption of it does not deprive another person, a firework display is non-rivaled - since one person watching a firework display does not prevent another person from doing so. Something is non-excludable. Again, since one cannot prevent people from viewing a firework display it is non-excludable. Conceptually, another example of public good is the service, provided by law enforcement organizations, such as sheriffs and police. Cities and towns are served by only one