Economic

Development
Dr. Emerson G. Cabudol
Copyright 2022
COPYRIGHT

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 ECONOMIC
GROWTH
AND
DEVELOPMENT
Chapter 1

Image from: Pixabay, public

domain.
Lesson Objectives
• Describe the concepts of economic growth and
development.
• Discuss the relationship between economic growth,
development, and public policy.
• Explain the determinants of productivity, a key factor for
economic growth and development.
• Critique the O-Ring theory of production and
development.
• Evaluate the Solow model of long-term growth.
Lesson Objectives
• Discuss the economic development of the Philippines.
• Explain the targets of the world for economic growth and
development.
• Use the rule of 70 in estimating growth of a factor in the economy.
• Discuss the role of industrial production and trade to East Asian
economic growth and development.
• Appreciate Boston Consulting Group’s (BCG) view on Association
of Southeast Asian Nations (ASEAN economic development.
Lesson Key Concepts and
Examples
Indicators of Economic Growth and Development

• Saving and Investment

• Diminishing Returns and Catch-Up Effect
• Investment From Abroad
• Education
• Health and Nutrition
• Property Rights and Political Stability
Indicators of Economic Growth and
Development
• Free Trade
• Research and Development
• Population Growth
 • assets that are • knowledge, skills
utilized to produce and abilities (KSA)
goods and humans develop
Productivity services

Physical Human
Capital Capital

Natural
Technology
Resources

• refers to the • Innovation and

bounty of the land advances to make
and water used in life easier and
production more efficient
production

Productivity means the amount of goods and services produced

from each unit of labor. It is obvious to see that the key factor in
defining the standard of living are the advances in productivity
• assets that are • knowledge, skills,
utilized to and abilities
produce goods (KSA) humans
and services develop

Physical Human
Capital Capital

Natural
Technology
Resources

• refers to the • innovation and

bounty of the land advances to
and water used in make life easier
production and more efficient
production
O-Ring Theory of Development

• O-ring theory of economic development

was proposed by economist Michael
Kremer in 1993 that explains a production
is composed of a set of tasks and each
task must be carried out proficiently for
each one of the tasks to have value.
Solow Model of Economic Growth
Where,

y = f ( K ); y = c + i
(in a closed economy)
y = GDP per worker
K = capital per worker
D = depreciation rate
s = national savings rate
c = consumption per worker
i = investment per worker
ΔK = i – dK
In a steady state (ss), ΔK = 0
Therefore, i = dk, sy = dk
If I = sy, c + i,
Then y = c + sy, hence,
c=(1–s)y
 y=f(K)

D = d K, Depreciation Line
Y / n, Output per

ss One of the most

Worker

B popular models that are used

to understand long-term
I=s*f(K) growth is with the use of the
A Solow model.
The model was
developed by Robert Solow,
an American economist and a
Nobel Prize Winner in
Economic Sciences (Nobel
Prize, 1987) and in 1956,
wherein, gross domestic
product per worker, capital
per worker, depreciation rate,
savings and investment rates
K / n, Capital per Worker are factored in the analyzing
growth.
 We can use the Solow model on the REMEMBER
following assumptions: that we are analyzing
y = f ( K ); y = c + i
with a closed economy in mind, where (in a closed economy)

savings is equal to investment. Labor, L and y = GDP per worker

K = capital per worker
capital, k, are sustainable for each other, D = depreciation rate
s = national savings rate
capital depreciates at a fixed rate, as well as c = consumption per worker
i = investment per worker
the population, it grows on a constant rate, ΔK = i – dK
In a steady state (ss), ΔK = 0
there is full employment of labor there are Therefore, i = dk, sy = dk

diminishing return to an individual output and If I = sy, c + i,

Then y = c + sy, hence,
the most notable is that there is no c=(1–s)y

technological progress going on.

Economic Development in the Philippines
• the Philippines ranks 132nd out of estimated 211 countries or
states in terms of per capita GDP
• inflation of the country increased from 4% in July, 2021 to 4.9%
in August, 2021 (PSA, 2021)
• power breakdowns limit the room for development
• leftists and separatists, like the New People’s Army (NPA) and
the Moro National Liberation Front (MNLF), Moro Islamic
Liberation Front (MILF), and of course, the Abu Sayyaf
• the COVID-19 pandemic greatly affected the tourism industry,
although this is true not only in the country
Economic Growth and the World

The United Nations Department of Economic and Social Affairs

(UN-DESA) released the 17 Sustainable Development Goals
(SDG) adopted by all member countries of the UN, one of them,
SDG 8, “promote sustained, inclusive and
sustainable economic growth, full and productive
employment and decent work for all.”
• There are many challenges that the world is facing right now, and one
major problem is the pandemic and its aftermath, an unprecedented
happening that is shaking the modern economy.
• We are now facing the worst economic recession since the great
depression, a decline of the GDP per capita by 4.2%, risk of losing
livelihoods of around 1.6 billion workers in the informal economy, tourism
slowed down and some even stopped, considering that some countries’
GDP relies heavily on income coming from tourists.
Rule of 70

• The power of approximation to determine how fast a variable

can double compounded without really compounding.
• This technique may be used in the fast computation of savings,
investments, GDP per capita, population and so on.

For example, rate of 5%, mathematically, we will use the formula,

y*= 2y, that is13.86 years With the rule of 70, = 14 years, that is
a very close approximation. Hence, a growth rate of 10%, , it will
double in around 7 years.
ACTIVITY / EXERCISE
Read the article ‘East Asian Miracle’ Through Industrial
Production and Trade Lenses, focus on industrial production
for Asian economic development.

Reflect on the article. Why is the title, ‘East Asian Miracle’ Through Industrial
Production and Trade Lenses? What are the crucial lessons for developing
countries on export-oriented manufacturing growth?
Conclusion
• Economic growth and development
• Productivity in relation to economic growth and development
• O-ring theory
• Solow model of long-term growth
• Economic development in the Philippines and the world
• Rule of 70
REFERENCE
Cabudol, Emerson G. (2022). Economic
Development. Quezon City: Rex Book
Store, Inc.