LECTURE ONE DE-II PPT.pptx

C O U R S E T I T L E : D E V E L O P M E N T E C O N O M I C S - I I
C O U R S E C O D E : E C O N 2 0 7 2
C R E D I T H O U R S : 3 H R S
I N S T R U C T O R : Y E R O S A N S H . B . ( M S C I N D E V E L O P M E N T
E C O N O M I C S )
WOLLEGA UNIVERSITY GIMBI CAMPUS
COLLEGE OF BUSINESS AND ECONOMICS
DEPARTMENT OF ECONOMICS
By: Yerosan S.B. (MSc.) 9/30/2023
1

COURSE CONTENT
1. POPULATION GROWTH AND ECONOMIC
DEVELOPMENT
2. HUMAN CAPITAL: EDUCATION AND HEALTH IN
ECONOMIC DEVELOPMENT
3. RURAL-URBAN INTERACTION, MIGRATION AND
UNEMPLOYMENT
4. AGRICULTURE AND ECONOMIC DEVELOPMENT
5. INTERNATIONAL TRADE AND ECONOMIC
DEVELOPMENT : THE TRADE POLICY DEBATE AND
INDUSTRIALIZATION
6. FOREIGN AID, DEBT, FINANCIAL REFORM AND
DEVELOPMENT
2

CHAPTER - ONE
POPULATION GROWTH AND ECONOMIC DEVELOPMENT
1. What is the impact of population growth?
2. List tools used to measure popn growth?
3. What development requires?
4. What are the basic concepts related to population
growth.
3

Introduction:
 Being in 21st century, whether large number of
population has advantage or disadvantage is still open
for argument.
 The various tools measuring population growth are:
Birth rate (BR) and
Death rate (DR)
These are used to show the two directional r/n ship b/n
the PG and EG.
4

Cont,...
9/30/2023
By: Yerosan S.B. (MSc.)
5
 Birth rate (or crude birth rate):
 The annual number of births per 1,000 total population.
 Death rate (or crude death rate):
 The annual number of deaths per 1,000 total population.
 Crude Death Rate is the rate at which people, are dying in a
population over a given period of time (recall period).
 This is inclusive of all age and sexes.
 This rate can be reported several ways, but most often in
emergencies is shown as deaths / 10,000 people / day.


Cont’d,…
 Development entails/requires the improvement in
people’s levels of living.
Their incomes,
Health,
Education, and
General well-being—and
It also encompass/includes their capabilities,
 Self-esteem,
 Self-Respect, dignity, and
 Freedom to choose.
6

Basic concepts related to population growth
 The basic concepts related to population
growth were:
1. Age specific fertility rate
2. Total fertility rate
3. Birth rate
4. Death rate
5. Age distribution:
7

Basic concepts related to population growth
1) Age specific fertility rate(FR):- the average
number of children born for each specific age group
2) Total fertility rate (TFR):- is the average
number of children a woman would give birth
to during her lifetime if she were to pass through
her childbearing years (15-49 years)
3) Birth rate (BR): -is the number of children born alive
each year per 1000 people affected by aggregate fertility
rate and age distribution of the population.
8

cont’d
9/30/2023
9
What factors determine BRs?
Birth rate is determined by:
1. Age distribution in the short run.
If the population is very young (reproductive age) then
there will be high birth rate. This is the case in LDCs.
In countries with younger age population the BR can
significantly be higher even if TFR is low.
2. Total fertility rate is the only factor that determines
the overall birth rate in the long run.
Doubling time a period that a given population or other
quantity takes to increase by its present size.
It is very short for LDCs compared to DCs.

Cont’d
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10
4) Death rate: -is the number of deaths each year per
1000 population.
 It is also affected by age distribution,
 It is high in DCs and low in LDCs;
 This is bcz; high old age in DCs, younger popn in LDCs
Population growth = birth rate – death rate
Higher birth rate and lower death rate this
further creates “echo effect” that keeps population
growth high.

Cont’d
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11
5) Age distribution: - is the list of proportion of a
population in different age category.
 The age distribution of LDCs is significantly greater in < 15
age group than that of DCs as population pyramid speaks.
 This explains high children and over all dependency
ratio in LDCs.
 Dependency ratio = is the ratio of dependent group
or non-working age (<15+> 64) to independent group
or working age (15-64).
DR = DG (<15+> 64) /IDG (15-64)

Trends of Population Growth and Age
Structure
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 World Population Growth throughout History
When people first started to cultivate food through agriculture
some 12,000 yrs ago, -was not more than 5 million.
2000 yrs ago, -nearly 250 mil., less than 1/5 of the
population of China today.
1750–1950 1.7bil. people were added to the planet’s numbers.
After 4 decades , bringing to around 5.3 billion.
The world entered the 21st century with over 6 billion people.
Finally, it provides projections to 2050, when world
population is expected to reach 9.2 billion.
 Approximately 300 years ago, population grew at an annual rate
not much greater than zero (0.002%, or 20 per million).

Cont’d
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13
Naturally, this overall rate was not steady;
There were many ups and downs as a result of natural
catastrophe and variations in growth rates among
regions.
 By 1750, the PG rate had accelerated to 0.3% per year.
 By the 1950s, about 1.0% (triple) per year.
 By 1970, when it peaked at 2.35%.
 Today the WPGR remains at a historically high rate of about
1.1% per year, but the rate of increase is slowing.
 However, PGR in Africa is still an extremely high 2.3% per year.

Table 1.1 Estimated World Population Growth Rate
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.
Year Estimated population
(in millions)
Estimated annual
increase (in percent)
Doubling time
(in years)
10,000B.C.E. 5
1C.E. 250 0.04 1750
1650 545 0.04 1750
1750 728 0.29 241
1800 906 0.45 155
1850 1171 0.53 132
1900 1608 0.65 107
1960 2576 0.91 77
1970 3698 2.09 33
1980 4448 1.76 39
1990 5292 1.73 40
2000 6090 1.48 47
2010 6892 1.22 57
2060 (projected) 9,200 0.675 103

Cont’d
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15
We see that before 1650, it took nearly 36,000 years, or
about 1,400 generation, for the world population to
double.
Today it would take about 58 years, or two generations,
for world population to double at current growth rates.
Moreover, whereas it took 1,750 years (68 gen) to add
480 million people(250-728 Mil.) to the world’s
population between year 1 and the onset of the
Industrial Revolution,

Cont’d
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16
The reason for the sudden change in overall
population trends is that:
 Combined effects of famine,
 Disease,
 Malnutrition,
 Plague, and
 war conditions that resulted in high and fluctuating
death rates.

Cont’d
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17
 In short, PG today is primarily the result of a rapid
transition from a long historical era characterized by high
BR & DRs
 To one in which DRs have fallen sharply but BRs have
fallen more slowly, especially in LDCs.

Structure of the World’s Population
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 The world’s population is very unevenly distributed
by:
Geographic region,
Fertility,
Mortality levels, and
Age structures.

Structure of the World’s Population
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 Geographic Region: More than 3/4 of the world’s people
live in LDCs;
 Less than one person in four lives in DCs
 Fertility and Mortality Trends: The rate of population
increase is quantitatively measured as the percentage yearly net
relative increase (or decrease, in which case it is
negative) in population size:
 Due to natural increase and net international
migration.

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20
From 1990 to 2008, population grew was;
 @ LIC grew at 2.2% per year,
 @ MIC 1.3% and
 @ HIC grew at 0.7% per year.
MIC show greater variance, with some having achieved
lower birth rates closer to those prevailing in rich
countries.
Eg. · In SSA, the annual birth rate is 39 per 1,000—four
times the rate in high-income countries.
Cont’d

.
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21
 By contrast, the proportion of people over the age of 65
is much greater in the DCs
 In LIC, there are 66 children under 15 for each 100 working-age.
 While in MIC, there are 41 and
 In HIC just 26.
In contrast, LIC have just 6 people over 65 per 100
working-age adults, compared with 10 in MIC and
23 in HIC.
Thus the total dependency ratio is:
 72/100 in LIC,
 51/100 in the MIC and
 49/100 per 100 in HICs.

Age Structure and Dependency Burdens:
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 Population is relatively youthful in the developing world.
 Children <15 ages constitute more than 30% of the total
population of LDCs but just 17% for DCs.
 In countries with such an age structure;
 The youth dependency ratio—the proportion of
youths (under age 15) to economically active
adults (ages 15 to 64)—is very high.

Cont’d
9/30/2023
23
 In general, the more rapid the PGR, the greater the
proportion of dependent children in the TP
 The more difficult it is for people who are working to
support those who are not.
 This phenomenon of youth dependency also leads to
an important concept, the hidden momentum of
population growth.

The Hidden Momentum of PG
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 The most important consequence of echo effect is
that PG has an enormous/massive inertia which is
called population inertia.
 Imagine that a country has had high PGR implementing
a policy to bring down TFR.
 Therefore, even TFR were reduced substantially, the
higher number of young people would lead to a large
number of births.
The two basic reasons for this are:
1. High birth rate cannot be altered overnight.
2. The age structure of LDCs.

Figure 1 Population Pyramids of DCs, LDCs & in
Case of Ethiopia
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25

The Demographic Transition
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Demographic transition: is the process by which
fertility rates eventually decline to replacement levels.
The demographic transition has three stage
All contemporary developed nations have more or less
passed through the same three stages of modern
population history.
These three sages are:
1st stage: High Fertility and Mortality
2nd stage: Declining Mortality
3rd stage: Declining Fertility

Stage I: High Fertility and Mortality
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 Before their economic modernization, developed
countries for centuries had stable or very slow-growing
populations as a result of a combination of high BR and
almost equally high DR.
Stage II: Declining Mortality
 Stage II began when modernization, associated with
better public health methods, healthier diets, higher
incomes, and other improvements, led to a marked
reduction in mortality;
 That gradually raised life expectancy from under 40 years to
over 60 years.
 However, the decline in death rates was not immediately
accompany by a decline in fertility.

Stage III: Declining Fertility
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 Finally, stage 3 was entered when the forces and
influences of modernization and development
caused;
 The beginning of a decline in fertility; eventually, falling birth rates
converged with lower death rates, leaving little or no population growth.
Stage IV: During stage four :
 There are both low BRs and low DRs.
 BRs may drop to well below replacement level as has happened
in countries like
 Germany,
 Italy, and
 Japan, leading to a shrinking population,
 A threat to many industries that rely on population growth.

9/30/2023
29
 As the large group born during stage two ages, it creates
an economic burden on the shrinking working
population.
 DR may remain consistently low or increase
slightly
 Due to increases in lifestyle
 Due to diseases
 Due to low exercise levels and high obesity and
 An aging population in DCs

Cont,…
9/30/2023
30
Figure1.4. the Demographic Transition in Western Europe
.
By the late 20th century, BR and DR in DC leveled off at lower
rates.
Some scholars break out, from stage four, a "stage five" of
below-replacement fertility levels.
Others hypothesize a different "stage five" involving an
increase in fertility.

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31

The Causes of High Fertility in Developing Countries
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32
Causes of high fertility in LDCs are:
1) The Malthusian “population trap,” and a
contemporary and highly influential
2) neoclassical microeconomic model, the household
theory of fertility.

1, The Malthusian Population Trap
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Thomas Malthus put forward a theory of the
relationship between PG and ED (1798).
Malthus postulated:
population to grow at a geometric/regular rate,
doubling every 30 to 40 years.
At the same time, because of diminishing returns to the
fixed factor, land, food supplies could expand only
at a roughly arithmetic rate.
It results, food production would actually start to
decline.
The idea that rising population and diminishing returns to fixed
factors result in a low levels of living (population trap)

Figure 2: The Malthusian Population Trap
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34
 .

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35
Malthus therefore deal with that the only way to avoid :
 chronic low levels of living or
 absolute poverty Was:
For people to engage in “moral restrain/control” and
limit the number of their children.
Modern economists have given a name to the Malthusian idea
of a population
 The low-level of equilibrium population- traps or,
 To live at subsistence levels of income.
 More simply, the Malthusian population traps.
 Generally, MPT is a condition where the population
will stop growing due to the shortage of food supply.
1, The Malthusian Population Trap

9/30/2023
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The MPT provides a theory of the r/n ship b/n PG & ED
CRITICISMS:
1) Impact of technological progress
2) Currently no positive correlation between population
growth and levels of per capita income in the data
3) Microeconomics of family size; individual and not
aggregate variables
4) Population is endogenous & is a decreasing function of
PCI, But Malthus said and increasing function
Criticisms of the Malthusian Model

relevance of Malthusian :
9/30/2023
37
 Malthusian and neo-Malthusian theories as applied to
contemporary developing nations have severely limited
relevance :
They do not take adequate account of the role
and impact of technological progress.
They are based on a hypothesis about a macro
r/n ship b/n PG and levels of PCI
They focus on the wrong variable, PCI, as the
principal determinant of PGRs.
Finally, Neo Malthusian is the advent/beginning of
population control programs to ensure resources for
current and future populations

2) The Microeconomic Household Theory of Fertility
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38
 In the application of this theory to fertility analysis,
First two or three as “consumer goods”
Additional children as “investment goods”:
Work on family farm, microenterprise
Old age security motivation

9/30/2023
39
 The consumer behavior assumes that an individual with
a given set of tastes or preferences for a range of
goods tries to maximize the satisfaction.
 The usual income and substitution effects are assumed to
apply.
 That is, if other factors are held constant, the desired
number of children can be expected to vary directly with
household income.
 This direct relationship may not hold for poor societies;
2) The Microeconomic Household Theory of Fertility

Cont....
9/30/2023
40
Demand for Children Equation can be;
Where;
The strength of demand for children where
Function of the given level of household income (Y)
The “net” price of children
The prices of all other goods
The tastes for goods relative to children

Cont,...
9/30/2023
41
Under standard neoclassical conditions, we would expect
the following (expressed both mathematically and in
words):
 The higher the Y, the greater the demand for children.
 The higher the Pc, the lower the quantity demanded.
 The higher the Px, relative to children, the greater
the quantity of children demanded.
 The greater the strength of tastes for goods relative to
children, the fewer children demanded.

Cont,...
9/30/2023
42
c
h
e I4
G1
OtherGoods
g
f
a
G2
a'
I1
c1 c2 c3 b'' d b b' No. of Children
h
I3
I2

Cont,...
9/30/2023
43
 The number of desired (surviving) children, , is
measured along the horizontal axis, and the total
quantity of goods consumed by the parents, , is
measured on the vertical axis.
 Any point (or combination of goods and children) on a
“higher” indifference curve that is, on a curve farther
out from the Origin represents a higher level of
satisfaction than any point on a lower indifference
curve.
 But each indifference curve is a “constant satisfaction”
locus.

Cont,..
9/30/2023
44
 According to the demand-based theory of fertility, the
household chooses from among all attainable
combinations the one combination of goods and children
that maximizes family satisfaction on the basis of its
subjectively determined preferences.
 Therefore, children & goods will be demanded.

The Demand for Children in Developing Countries
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45
 The economic theory of fertility assumes that the
household demand for children is determined by:
Family preferences for a certain number of
surviving (usually male) children
In regions of high mortality, parents may produce
more children than they actually desire in the
expectation that some will not survive,
The price or “opportunity cost” of rearing these
children, and by levels of family income.

Cont,...
9/30/2023
46
Children in poor societies are seen partly as economic
investment goods.
There is an expected return in the form of both child
labor and the provision of financial support for
parents in old age.
However, in many developing countries, there is a strong
intrinsic psychological and cultural determinant of
family size,
So the first two or three children should be viewed as
“consumer” goods for which demand may not be very
responsive to relative price changes.

Cont’d
9/30/2023
47
 Where the principal benefits are the expected income
from :
1) Child labor, usually on the farm, and
2) Eventual financial support for elderly parents.
Balanced against these benefits are the two principal
elements of cost:
A) The opportunity cost of the mother’s time
 the income she could earn if she were not at home caring
for her children) and
B) The cost of educating children.

Cont’d
9/30/2023
48
Households in developing countries generally do not
act in a “unitary” manner depicted with this traditional
model.
Instead, men and women have different objective
functions;
 Eg., husbands may prefer to have more children than
wives.
Household behavior is then explained as a result of
bargaining between husbands and wives.

Cont’d
9/30/2023
49
Implications. Fertility lower if;
 –Raise women’s education, role, and status
 –More female nonagricultural wage employment
 –Rise in family income levels
 –Reduction in infant mortality
 –Development of old-age and social security
 –Expanded schooling opportunities
This fact alone underlines the importance of
educating women and improving public health
and child nutrition programs in reducing fertility
levels.

The Consequences of High Fertility: Some
Conflicting Perspectives
9/30/2023
50
For many years, development economists and other
social scientists have debated the seriousness of the
consequences of rapid PG
In other hand, Population growth
Might be an asset or a burden for a country.
It depends on the country’s state of development.
If a country is developing like Ethiopia, an increase in
population may result in disproportionate growth of
subsistence food & number of population.

Cont’d
9/30/2023
51
 While for advanced country, having advanced
technology and improved supply of food, increase in
population contribute to production than
consumption so population become an asset.
 On the one hand, we must recognize that population
growth is not the only, or even the primary, source of
low levels of living, eroding self-esteem, and limited
freedom in developing nations

It’s Not a Real Problem
9/30/2023
52
 We can identify three general lines of argument on the part of
people who assert that population growth is not a cause for
concern:
1) The problem is not population growth but other issues.
2) PG is a false issue deliberately created by DCs country agencies
and institutions to keep LDCs in their dependent condition.
3) For many LDCs and regions, PG is in fact desirable/attractive.

cont’d
9/30/2023
53
 Many observers from both rich and poor nations argue
that the real problem is not population growth per se;
But one or all of the following four issues.
1. Underdevelopment
2. World Resource Depletion and Environmental
Destruction
3. Population Distribution
4. Subordination of Women

1. Underdevelopment.
9/30/2023
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 According to this argument,
 underdevelopment is the real problem, and
 development should be the only goal.
If correct strategies are pursued and lead to;
 higher levels of living,
 greater self-esteem, and
 expanded freedom, population will take care of itself.

2. World Resource Depletion and Environmental
Destruction
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55
Population can only be an economic problem in relation to
 the availability and utilization of scarce natural and
material resources.
The fact is that DCs, with less than 1/4 of the world’s
population, consume almost 80% of the world’s resources.
In terms of the depletion of the world’s limited
resources,
The addition of another child in the developed
countries is as significant as the birth of many times
as many additional children in the underdeveloped
countries.
According to this argument, developed nations should
limit their excessively high consumption standards
instead of asking less developed nations to restrict
their population growth.

3. Population Distribution.
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According to this third argument;
 It is not the number of people per se that is causing popn
problems but their distribution in space.
 Gov’t should therefore strive not to moderate the rate of
popn growth
 But rather to bring about a more natural spatial
distribution of the population in terms of available
land and other productive resources.

4. Subordination of Women
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Women often bear the disproportionate burdens of
poverty, poor education, and limited social mobility.
According to this argument, population growth is a
natural outcome of women’s lack of economic
opportunity.
If women’s health, education, and economic well-being
are improved along with their role and status in both the
family and the community,
This empowerment of women will inevitably
lead to smaller families and lower population
growth.

It Is a Real Problem
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58
 Positions supporting the need to curtail population
growth because of the negative:
 Economic ,
 Social, and
 Environmental consequences are typically based on
one of the following arguments.

The Extremist Argument: Population and Global
Crisis
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 Unrestrained population increase is seen as the major
crisis facing humankind today.
 It is regarded as the principal cause of :
 Poverty,
 Low levels of living,
 Malnutrition,
 Ill health,
 Environmental degradation, and
 A wide array of other social problems.

The Theoretical Argument: Population-Poverty Cycles and the
Need for Family-Planning Programs
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 The population-poverty cycle theory is the main argument
advanced by economists who hold that too rapid population
growth yields:
Negative economic consequences and thus should be a real
concern for LDCs.
Intensify and exacerbate the economic, social, and psychological
problems associated with the condition of underdevelopment.
To retard the prospects for a better life for the already born by
reducing savings rates at the household and national levels.
 Population growth is thus seen as both a cause and a
consequence of underdevelopment!

Some Policy Approaches
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Three areas of policy can have important direct and
indirect influences on the well-being of present and
future world populations:
General and specific policies that LDCs and DCs Gov’t
can initiate to :
1. Influence and perhaps even control their PG
and distribution ==>(LDCs)
2. Lessen their disproportionate consumption of
limited world resources ==>(DCs)
3. To help developing countries achieve their
population objectives ==>(DCs)

Other Empirical Arguments: Seven Negative
Consequences of Population Growth
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 Economic Growth
 Poverty and Inequality
 Education
 Health
 Food
 Environment
 International Migration

END OF LECTURE-1
THANK YOU!
9/30/2023
63
@ YEROSAN S. BENTI (MSc.)

WHAT IS NEXT?
CHAPTER- 2
By: YEROSAN SH. BENTI
(MSc.)
9/30/2023
64
@ YEROSAN S. BENTI (MSc.)

LECTURE ONE DE-II PPT.pptx

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