Development Economics

dan Economic Growth

Theory
DR. Sofyan Syahnur, SE, M.Si
FEB Universitas Syiah Kuala

Pelatihan Perencanaan & Penganggaran, BAPPENAS, 2022

Adam Smith’s
Economic growth

Output per
capita

D
C
B
A
0
1 Time 2
 Harrod-Domar’s Growth
Model
The aggregate demand (AD=Y) = C + I
Jika I merupakan perubahan the stock of capital (ΔK), maka
diperoleh:
Y = C + ΔK  (asumsinya ΔK selalu meningkat krn I, no
depreciation)
Asumsi constant technical capital-output ratio (COR)  K/Y=µ
atau Y=(1/µ)K = AK
Konklusi H-D Tingkat pertumbuhan output adalah proporsional
secara langsung terhadap tingkat tabungan dan konstan COR
merupakan perubahan output proporsional terhadap
perubahan the stock of capital atau
ΔY= =(1/µ)ΔK = AΔK
Asumsi S=I  σ merupakan bahagian pendaptan yang ditabung,
sehingga ΔK=I=S= σY, sehingga ΔY= AσY = σ/µY
ΔY/Y = gy = σ/µ
 Solow’s Neoclassical
Growth Model
The Production Function:

Y = f (K,L)
1. Solow mengasumsikan setiap faktor produksi berlaku
diminishing of returns.
2. Solow mengasumsikan fungsi produksi mengalami Constant
Return to Scale (CRS), artinya jika semua input meningkat
dalam kelipatan tertentu, output akan meningkat dalam
kelipatan yang sama pula (cY= f (cK,cL).
(If all inputs are doubled, in which case c is equal to 2,
output Y will also exactly double). Jika diketahui c=1/L,
maka Y/L = f (K/L, 1) atau y = f(k).

Kondisi tersebut dapat digambarkan sebagai berikut:

Solow growth model Y0

Y= f(k)

Output per head

Capital per head k

The Consumption Function:

Y = C + I  dibagi dengan L, maka y = c + i dan

C = Y – S = (1 – σ ) Y  c = y – s = (1 –σ )y , sehingga kita
mendapatkan:

y = (1 –σ )y + i  i = σy

The Stock of Capital

ΔK = I – δK atau Δk = i – δk = σy – δk = σ f(k) – δk

Sehingga : Δk  σ f(k) > δk atau σ f(k) < δk atau Solow’s

growth adalah:

gk = Δk /k = {σ f(k) /k} - δ
 f
Y= f(k)
D
Y*
Solow growth model Y0 (δ)k
Output per head E
σf(k )
C
sY0 A > > <<
B

Capital per head k0 K* K1 k

Steady state
 The rate of Saving and the Steady State

f
Y= f(k)
D
Y*
Solow growth model Y0 (n+δ)k
Output per head E σ1f(k )
σf(k )
C
<<
sY0 A >>
B

Capital per head k0 K* K1 k

Δk = i –δk=σf(k) - δk
 The Population Growth and Steady State

Y= f(k)
(n+δ)k 1
D
Y*
Solow growth model Y0 (n+δ)k
Output per head

C σf(k )

sY0 A > > <<

B

Capital per head k0 k1 K* k

Δk = i –δk=σf(k) - δk
 Technological Progress and the Solow Model
Y= f(k)1

Y= f(k)
D
Y*
Solow growth model Y0 (n+δ)k
Output per head

C σf(k )

sY0 A > > <<

B

>> < <

Capital per head k0 K* k
Growth with Technological Progress and the Growth Path Y= f(k)1

Y1

Y= f(k)
D
Y*
Y0 (n+δ)k

Output per head

C σf(k )

sY0 A > > <<

B

>> < <

Capital per head k0 K* k

T
Solow‘s Growth, The Optimal level of Saving, and the Golden Rule

Y= f(k) Output Curve

D
Y* E
Solow growth model Y0 (n+δ)k Depreciation Curve
Output per head

C σf(k ) Saving Curve

sY0 A > > <<

B

Steady State

>> < <

Capital per head k0 K* k
 Growth and Policy

• Can we grow faster?

• The previous discussions explained how GDP and GDP

growth are determined by the savings rate, the rate of
population growth, and the rate of technical progress.

• How do society‘s choices affect these parameters?

• The difference between endogenous growth and

neoclassical theory of growth.
 Y
Y= f(k)
D
Y*
Solow growth model Y0 (n+d)k

Output per head

C sy (actual
<
sY0 A >> < investment)

>> < <

Capital per head k0 K* k
Y f(k)
Endogenous growth
sf(k)

(n+d)k
Output per head

Capital per head k

 Development Objective (Concept),
Theory, and Strategy
Development Theory
Hypotheses about promoting and obstructing conditions

Development
Process Development
Initial Situation
Objectives

Development Strategy
Means to promote change towards the
objective
The International Division of Labour (Capital) and Transnational
Corporations
A Simplified Model of Resource Circulation Within a Transnational Corporation

Parent company

Money capital Profit remittances,etc.

Branch/
Subsidiary Investment

Money capital
-and loans and equity capital paid Money capital
up by local investors

Exports

Imports Inputs labour Commodities

Production processes
1. A certain amount of money is transferred from a parent
company in an industrial country to a branch in a developing
country.

2. The buying of the inputs required for the production

processes: labour, raw materials, means of production, fuels,
intermediate goods, know-how, etc.

be imported from the parent company with over-pricing (the

parent company charges prices above those prevailing in the
world market)
3. The products are sold in the domestic or foreign markets.

If the subdiary sells commodities or services to the parent

company, this provides the corporation with yet another
opportunity for the transferring of resources.

The commodities and services may be sold at prices

significantly below those prevailing in the world market
under-pricing.
• A real dilemma: on one hand the developing countries need the
corporations, on the other they have a long list of „bad“
experiences with them.

• The developing countries need and can benefit from TNC

participation in industrial development:

1. provide large and much needed financial resources for

industrial investment (access to international capital markets and
financial institutions) transferred to most host contries only
little capital.
2.offer sophisticated technology, know-how, management
skillshigh prices, increasing import needs, a number of
restrictions
3. access to superior distribution and marketing networks
suitable for increasing Third World exports preffered to sell
to the domestic markets in the host country (high profits) than
in the world markets (high competition)
4. create employment
5.contribute to diversifying and deepening the industrial
structure
• TNCs has become greater in recent years, both
globally and especially in relation to the developing
countries.

• These large corporations have increased their control

over world investments, production, trade, and
technology transfers.