P1:ICD 0521829666pre CB970/Nafziger 0521829666 October20,2005 13:35 ECONOMIC DEVELOPMENT Fourth Edition In this fourth edition of his textbook, E. Wayne Nafziger analyzes the economic development of Asia, Africa, Latin America, and East- CentralEurope.Thetreatmentissuitableforstudentswhohavetaken a basic college course in the principles of economics. This compre- hensive and clearly written text explains the growth in real income perpersonandincomedisparitieswithinandamongdevelopingcoun- tries. The author explains the reasons for the fast growth of Pacific Rimcountries,Brazil,Poland,and(recently)India,andtheincreasing economicmiseryanddegradationoflargepartsofsub-SaharanAfrica. The book also examines China and other postsocialist economies as low-andmiddle-incomecountries,without,however,overshadowing theprimaryemphasisonthethirdworld.Thetext,writtenbyascholar activeineconomicresearchindevelopingcountries,isrepletewithreal- world examples. The exposition emphasizes the themes of poverty, inequality,unemployment,theenvironment,anddeficienciesofpeople in less-developed countries, rather than esoteric models of aggregate economicgrowth.Theguidetothereadings,throughbibliographyas wellasWebsiteswithlinkstodevelopmentresources,makesthisbook usefulforstudentswritingresearchpapers. E.WayneNafzigerisUniversityDistinguishedProfessorofEconomics atKansasStateUniversity.Heistheauthorandeditorofsixteenbooks andnumerousjournalarticlesondevelopmenteconomics,incomedis- tribution,developmenttheory,theeconomicsofconflict,theJapanese economy,andentrepreneurship.Hisbook,InequalityinAfrica:Polit- icalElites,Proletariat,Peasants,andthePoor (CambridgeUniversity Press), was cited by Choice as an Outstanding Academic Book for 1989–1990. Professor Nafziger is also the author of The Debt Crisis in Africa (1993) and the editor (with Frances Stewart and Raimo Vayrynen) of the two-volume War, Hunger, and Displacement: The Origins of Humanitarian Emergencies (2000). He has held research positions at the U.N. University’s World Institute for Development Economics Research, the Carter Center, the East–West Center, and in Nigeria,India,Japan,andBritain. i P1:ICD 0521829666pre CB970/Nafziger 0521829666 October20,2005 13:35 ii P1:ICD 0521829666pre CB970/Nafziger 0521829666 October20,2005 13:35 Economic Development FOURTH EDITION E. Wayne Nafziger Kansas State University iii cambridge university press Cambridge, New York, Melbourne, Madrid, Cape Town, Singapore, São Paulo Cambridge University Press The Edinburgh Building, Cambridge cb2 2ru, UK Published in the United States of America by Cambridge University Press, New York www.cambridge.org Information on this title: www.cambridge.org/9780521829663 © E. Wayne Nafziger 2006 This publication is in copyright. Subject to statutory exception and to the provision of relevant collective licensing agreements, no reproduction of any part may take place without the written permission of Cambridge University Press. First published in print format 2005 isbn-13 978-0-511-14048-8 eBook (NetLibrary) isbn-10 0-511-14048-7 eBook (NetLibrary) isbn-13 978-0-521-82966-3 hardback isbn-10 0-521-82966-6 hardback Cambridge University Press has no responsibility for the persistence or accuracy of urls for external or third-party internet websites referred to in this publication, and does not guaranteethatanycontentonsuchwebsitesis,orwillremain,accurateorappropriate. P1:ICD 0521829666pre CB970/Nafziger 0521829666 October20,2005 13:35 To H. M. A. Onitiri, Aaron Gana, B. Sarveswara Rao, M. Jagadeswara Rao, R. Sudarsana Rao, and Hiroshi Kitamura v P1:ICD 0521829666pre CB970/Nafziger 0521829666 October20,2005 13:35 vi P1:ICD 0521829666pre CB970/Nafziger 0521829666 October20,2005 13:35 Contents ListofFiguresandTables. .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. page xiii AbbreviationsandMeasures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. xvii PrefacetotheFourthEdition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..xix PART I. PRINCIPLES AND CONCEPTS OF DEVELOPMENT 1Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 NatureandScopeoftheText,1/OrganizationoftheText,3/Howthe OtherTwo-ThirdsLive ,3/Globalization,Outsourcing,andInformation Technology,6/India’sandAsia’sGoldenAgeofDevelopment,8/Critical QuestionsinDevelopmentEconomics,10/LimitationsofStandard EconomicApproaches,11/GuidetoReadings,12 2TheMeaningandMeasurementofEconomicDevelopment . . . . . . . . . ..15 ScopeoftheChapter,15/GrowthandDevelopment,15/Classificationof Countries,20/ProblemswithUsingGNPtoMakeComparisonsoverTime, 25/ProblemsinComparingDevelopedandDevelopingCountries’GNP, 27/Comparison-ResistantServices,30/Purchasing-PowerParity(PPP),30/ MeasurementErrorsforGNPorGDPAdjustedforPurchasingPower,33/ ABetterMeasureofEconomicDevelopment?,34/WeightedIndicesfor GNPGrowth,39/“Basic-Needs”Attainment,42/Developmentas FreedomandLiberation,44/SmallIsBeautiful,46/AreEconomicGrowth andDevelopmentWorthwhile?,46/Conclusion,48/GuidetoReadings,51 3EconomicDevelopmentinHistoricalPerspective . . . . . . . . . . . . . . . . . ..53 ScopeoftheChapter,53/AnEvolutionaryBiologicalApproachto Development,53/AncientandMedievalEconomicGrowth,54/World LeadersinGDPperCapita,1500tothePresent,55/Beginningsof SustainedEconomicGrowth,56/TheWestandAfro-Asia:The19th CenturyandToday,57/CapitalismandModernWesternEconomic Development,57/EconomicModernizationintheNon-WesternWorld, 61/GrowthintheLast100to150Years,74/ThePowerofExponential Growth–TheUnitedStatesandCanada:TheLate19thand20thCenturies, 77/EconomicGrowthinEuropeandJapanafterWorldWarII,81/ vii P1:ICD 0521829666pre CB970/Nafziger 0521829666 October20,2005 13:35 viii Contents RecentEconomicGrowthinDevelopingCountries,81/TheConvergence Controversy,88/Conclusion,91/GuidetoReadings,93 4CharacteristicsandInstitutionsofDevelopingCountries . . . . . . . . . . . ..95 ScopeoftheChapter,95/VaryingIncomeInequality,95/Political Framework,95/AnExtendedFamily,97/PeasantAgriculturalSocieties, 97/AHighProportionoftheLaborForceinAgriculture,97/AHigh ProportionofOutputinAgriculture,97/InadequateTechnologyand Capital,102/LowSavingRates,102/ADualEconomy,103/Varying DependenceonInternationalTrade,104/RapidPopulationGrowth,105/ LowLiteracyandSchoolEnrollmentRates,106/AnUnskilledLabor Force,107/PoorlyDevelopedEconomicandPoliticalInstitutions,107/ Conclusion,119/GuidetoReadings,120 5TheoriesofEconomicDevelopment. . . . . . . . . . . . . . . . . . . . . . . . . ..123 ScopeoftheChapter,123/TheClassicalTheoryofEconomicStagnation, 124/Marx’sHistoricalMaterialism,126/Rostow’sStagesofEconomic Growth,128/ViciousCircleTheory,131/BalancedVersusUnbalanced Growth,132/CoordinationFailure:TheO-RingTheoryofEconomic Development,137/TheLewis–Fei–RanisModel,138/Baran’sNeo- MarxistThesis,142/DependencyTheory,144/TheNeoclassical Counterrevolution,149/TheNeoclassicalGrowthTheory,153/TheNew (Endogenous)GrowthTheory,155/Conclusion,157/GuidetoReadings, 161/AppendixtoChapter5:TheHarrod–DomarModel, 162 PART II. POVERTY ALLEVIATION AND INCOME DISTRIBUTION 6Poverty,Malnutrition,andIncomeInequality . . . . . . . . . . . . . . . . . . ..165 InformationSparsity,165/ScopeoftheChapter,167/Povertyas Multidimensional,167/$1/dayand$2/dayPoverty,171/Globaland RegionalPoverty,173/ConceptsandMeasuresofPoverty:AmartyaSen’s Approach,176/TheLorenzCurveandGiniIndex(G):Measuresofthe DistributionofIncome,179/TheWorldBank,InstituteforInternational Economics,andSala-i-Martin:ThreeViewsofPovertyandInequality,181/ EarlyandLateStagesofDevelopment,186/Low-,Middle-,and High-IncomeCountries,188/SlowandFastGrowers,191/Women, Poverty,Inequality,andMaleDominance,191/Accompanimentsof AbsolutePoverty,194/IdentifyingPovertyGroups,195/CaseStudiesof Countries,196/PoliciestoReducePovertyandIncomeInequality,202/ IncomeEqualityVersusGrowth,210/Poverty,Inequality,andWar,212/ Conclusion,214/GuidetoReadings,217 7RuralPovertyandAgriculturalTransformation . . . . . . . . . . . . . . . . . ..220 ScopeoftheChapter,221/Agriculture’sRoleinTransformingthe Economy,221/MajorRuralGroupsinPoverty,222/RuralPovertyby P1:ICD 0521829666pre CB970/Nafziger 0521829666 October20,2005 13:35 Contents ix WorldRegion,223/RuralandAgriculturalDevelopment,223/ Rural–UrbanDifferentialsin19th-CenturyEuropeandPresent-DayLDCs, 224/AgriculturalProductivityinDCsandLDCs,224/TheEvolutionof LDCAgriculture,226/MultinationalCorporationsandContractFarming, 228/GrowthofAverageFoodProductioninSub-SaharanAfrica,Other LDCs,andDCs,229/FoodinIndiaandChina,232/LDCFoodDeficits, 235/FoodOutputandDemandGrowth,237/Fish,Meat,andGrains, 238/FactorsContributingtoLowIncomeandPovertyinRuralAreas, 239/PoliciestoIncreaseRuralIncomeandReducePoverty,245/ AgriculturalBiotechnology,264/Conclusion,266/GuidetoReadings,268 PART III. FACTORS OF GROWTH 8PopulationandDevelopment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..271 ScopeoftheChapter,271/WorldPopulationThroughoutHistory, 271/PopulationGrowthinDevelopedandDevelopingCountries,272/ WorldPopulation:RapidbutDeceleratingGrowth,273/TheDemographic Transition,277/IsPopulationGrowthanObstacletoEconomic Development?,284/StrategiesforReducingFertility,297/Conclusion, 304/GuidetoReadings,306 9Employment,Migration,andUrbanization.. . . . . . . . . . . . . . . . . . . ..308 TheProductionFunction,308/EmploymentProblemsinLDCs,309/Scope oftheChapter,310/DimensionsofUnemploymentandUnderemployment, 310/UnderutilizedLabor,311/LaborForceGrowth,Urbanization,and IndustrialExpansion,311/DisguisedUnemployment,314/Rural–Urban Migration,316/WesternApproachestoUnemployment,319/Causesof UnemploymentinDevelopingCountries,321/PoliciesforReducing Unemployment,325/Conclusion,330/GuidetoReadings,332 10Education,Health,andHumanCapital . . . . . . . . . . . . . . . . . . . . . . . ..334 ScopeoftheChapter,334/InvestmentinHumanCapital,335/Economic ReturnstoEducation,335/NoneconomicBenefitsofEducation,337/ EducationasScreening,338/EducationandEquality,339/Educationand PoliticalDiscontent,342/SecondaryandHigherEducation,342/ EducationviaElectronicMedia,344/PlanningforSpecializedEducation andTraining,345/AchievingConsistencyinPlanningEducatedPeople, 346/VocationalandTechnicalSkills,347/ReducingtheBrainDrain,348/ SocializationandMotivation,350/HealthandPhysicalCondition,352/ MortalityandDisability,354/AIDS,355/Conclusion,357/Guideto Readings,359 11 CapitalFormation,InvestmentChoice,InformationTechnology, andTechnicalProgress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..361 ScopeoftheChapter,362/CapitalFormationandTechnicalProgressas SourcesofGrowth,362/ComponentsoftheResidual,364/Learningby