Overview

Why are some countries rich and others poor? Development economics tries to answer this trillion-dollar question. It’s not just about money; it’s about health, education, and freedom.

Core Idea

Institutions: The rules of the game. Countries with inclusive institutions (property rights, rule of law, democracy) tend to prosper. Countries with extractive institutions (corruption, dictatorship) tend to fail.

Formal Definition (if applicable)

Human Capital: The stock of habits, knowledge, social and personality attributes embodied in the ability to perform labor so as to produce economic value (e.g., education, health).

Intuition

Giving a man a fish feeds him for a day. Teaching him to fish feeds him for a lifetime. But what if he has no fishing rod (capital)? What if the lake is polluted (environment)? What if a warlord steals his fish (politics)? Development is complex.

Examples

  • Microfinance: Small loans to the poor to start businesses (e.g., Grameen Bank).
  • Conditional Cash Transfers: Giving money to poor families if they send their kids to school.
  • The Resource Curse: Countries with abundant natural resources often have less economic growth and worse development outcomes.

Common Misconceptions

  • “Foreign aid is the solution.” (Aid can help, but it can also fuel corruption and dependency if not managed well.)
  • “Poor people are lazy.” (The poor are often incredibly hardworking entrepreneurs, just trapped in bad systems.)
  • Poverty Trap: Mechanisms that make it very difficult for people to escape poverty.
  • Sustainable Development Goals (SDGs): UN goals to end poverty and protect the planet.
  • Gini Coefficient: A measure of inequality.

Applications

  • NGOs: Designing effective interventions.
  • World Bank / IMF: Lending and policy advice.
  • Government: Education and health policy.

Criticism / Limitations

One-size-fits-all solutions (like the “Washington Consensus”) often fail because they ignore local context and culture.

Further Reading

  • Banerjee & Duflo, Poor Economics
  • Acemoglu & Robinson, Why Nations Fail