Development Economics Theories: Classical & Contemporary

This paper try to analyzes and look the development of development economics theories, from classical until contemporary. And try to view of each theory from their perspective. The biggest part of this paper is dominated by review and summary of that theory, and just a few of analyzes. The purpose of my written is to explain any theory that affected the development of it. The Methode of this paper is by review and analyzes article and paper from the expert of this case and based of every major school of economics.

The paper starts with an introduction of the development economics as major. Then the definitions of development economics, review of classical theory and contemporary ones ( their perspective and their debates) and at the end I try to summary two major school (classical and contemporary) in a brief review.

Finally, even though this paper have a lot of weakness, but hopefully it is sufficient to review the mainstream theories.

Keywords :
development economics, classical theory, neo-classical theory, contemporary theory, welfare

As we know, the study of economic divided into two major branch, microeconomics and macro-economics. Micro-economics view the economics behaviours as individual actors and attempted to understand decision making in the face of scarcity and the consequences of these decisions. While macro-economics view economic as a whole and attempted to understanding the interaction between economic aggregates such as national income, employment and inflation.

The study of economics still also divided into subdisciplines like international economics, development economics, welfare economics, etc. So, development economics is one of this subdisciplines. In development of this economics study, thinkers start to appear in number. They were gave big ideas to development of study.

In the late 18th century, the classical thinkers like Adam Smith, David Ricardo, etc appear and then the others thinkers appear and made the schools of economic thought. After classical economics, then appear Keynessian and Post Keynessian economics, then Neoclassical economics, untill contemporary economics now. Their thinking in this study absolutely influence in how our view on economic and what perspective that we used.

“Development economics is a branch of economics that deals with the study of (i) macro – the causes of long term economic growth, and (ii) micro – the incentive issues of individual households and firms, especially in developing countries.”
- Wikipedia, The Free Encyclopedia

From definitions above, we can conclude that the study of development economic concerned with the condition of walfare or wellbeing population. More specifically, this study also using mathematical methods to measure the degree of a condition through qualitative and quantitative methods.

Classical Development Economics Theory
Classical development economics arose during 1950s. The thinkers such Adam Smith, David Ricardo,Thomas Robert Malthus. Some of The Thinkers are :

· Adam Smith
He was the thinker that shock the world with his liberal idea. In his famous book “An Inquiry into the Nature and causes of the Wealth of Nation” he built a framework of classical economics based on his main idea about a system of natural liberty. Self interest is the more important to control economics through , what he called, “the invisible hand”. His big ideas made a lot of people called him “father of modern economics”.

· David Ricardo
He was born in London and he was one of the most influential of the classical economist. He gave a lot of big ideas in economics, like the concept of Comparative Advantage, Ricardian Equivalence, The Iron Law of Wages, and he was one of thinkers that opponent with protectionism for national economics. The main purpose in study of economics for Ricardo is people development (walfare) through economics development.

· Thomas Robert Malthus
Malthus have a lot of similarity with Ricardo. Both of them was influentally by the Adam Smith ideas, but Malthus have a different perspective from Ricardo. In Malthus perspective, the main actor in economics development is not people, but the capitalist. If they are given a freedom and success, it will affected people around them. In simply words, the capitalist for wellbeing of population.

Three major idea of classical theory need to be underlined that differ them from contemporary theory:
1. Emphasized the importance and the power of institutional to rule the domestic market and gain the welfare.
2. Emphasized the constraints as well as the opportunities to prospective late industrializers arising from their unavoidable interaction with countries that had already industrialized.
3. Optimism about the scope that state planning.

Classical development economics theory critized by neo-liberal from the 1970s onwards. The criticism centered on the willingness and ability of politicians and civil servants to live up to the role ascribed to them. Development economists also criticized by historians and other social scientists for failing to adapt their theories sufficiently to diverse local contexts, and for being over-preoccupied with industrial development, economic growth and capital constraints. From third world countries, also critized that classical economists were much concerned to identify the social processes that create prosperity, but it was not until the emergence of independence nations in Asia and Africa that economic development became a specialized field.

Neo-Classical Development Economics Theories
The premise of neo-classical growth theory is that it is possible to do a reasonable job of explaining the broad patterns of economic change across countries, by looking at it through the lens of an aggregate production function. The aggregate production function relates the total output of an economy (ex. a country) to the aggregate amounts of labor, human capital and physical capital in the economy, and some simple measure of the level of technology in the economy as a whole.

One of the neo-classical thinkers is John Maynard Keynes. After the Great Depression, he wrote a book “The General Theory of Employment, Interest, and Money”. He concerned on investment of capital for the economic growth and national stability. But this idea was rejected by post-keynessian economists. They believe that fixed investment is the determinant in economic , but they believe that a capitalist economy has no natural or automatic tendency towards full employment, therefore they emphasize the need for government fiscal policy to support institutions to support employment and incomes.

Neoclassical theory is important in providing tools to understand individual situations, but as general its hard to apply universally. Many assumptions in neoclassical economics do not hold in developing countries
- Markets do not exist
- Information, externality, and economies to scale
- Monopoly
- State-ownership and non-profit maximizing

Contemporary Development Economics Theory
In contemporary development economics there are two models of development, The Harris-Todaro Model and The Harold-Domar Model. The Harris-Todaro Model is an economic model used in development economics or welfare economics to explain some of the issues in rural-urban migration. that an equilibrium will be reached when the expected wage in urban areas, adjusted for the unemployment rate, is equal to the marginal production of an agricultural worker.

The Harrod-Domar model is used in economics to explain an economy’s growth rate in terms of the level of saving and productivity of capital. It suggests there is no natural reason for an economy to have balanced growth

The other contemporary theory is Rostow Theory. Rostow was an expert not only in study of economics, but also in sociology. On his work “The Stages of economic Growth, a Non – Communist Manifesto” , he explain the idea about how development prosses in economic for people. Development was the linear prosess from primitive to modern.

The contemporary issue dealt with development economics now is the gap between poorer and richer nations. The facts around us shown that there is something wrong with conditions of economic. And people start to ask, is development economics theories that promise the prosperity for everyone goes on his track ? One of the contemporary thinkers that concerned with that problem is nobel winner, Amartya Sen. His contributions which are of special interest to us in development studies is a development ethics that can help guide development policy and practice. He was critisized and then reconstruction of welfare economics, i.e. the concepts and theories in economics about when we can say that people and societies are better off: especially his ‘capability approach’.

Each theory has some strengths and some weaknesses. A new theory apeear when its fell that there is something wrong with old theory. In study of developments economics, after classical theory appear contemporary theory. Contemporary theory attempt to find a concept that appropriate with conditions and context now. Study of development economics as a wholet basically on two assumptions: economic theory can give us important insights into development, and a unified approach to the whole subject of development will be more fruitful than a singular or one perspective (theory).

1. Robert A. Isaak, International Political Economic, diterjemahkan sebagai Ekonomi Politik Internasional, PT Tiara Wacana Yogya, Yogyakarta
2. Suherman Rosyidi, Pengantar Teori Ekonomi, Rajawali Press, Jakarta
Articles / Papers :
1. James Copestake, “Theories of Economic Development” ,Department of Economics and International Development, University of Bath, UK August 1999
2. Partha Dasgupta, “Economic Development, Environmental Degradation and the Persistence of Deprivation in Poor Countries”, November 2002
3. Abhijit V. Banerjee and Esther Duflo, “Growth Theory Through the Lens of Development Economics”, March 2004
4. ISS Journal Volume 1, number 1, December 1999

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