Marketing issues...........

Sometimes market failures lead to a 

need for public policy intervention

•The Big Push:  A Graphical 

Model, 

6 

assumptions

 One factor of production - labor

Two sectors – traditional, modern

Technology - Same production function 

for each sector

–Domestic Demand - Consumers 
spend

an equal amount on each good

–Int’l Supply and Demand - Closed 

economy

–Market Structure - Perfect 
competition

with traditional firms operating, 

limit 

pricing monopolist with a modern 

firm 

operating

•Other cases in which a big push 
may 

be necessary

–Intertemporal effects

•1st period = invest simultaneously; 2nd 

period = income is increased by 

higher 

wages & profits

–Urbanization effects

•Rural – cottage industry; Urban – 

manufacturing (demand for manufactured 

goods)

–Infrastructure effects

•When one sector 

industrializes à higher 

demand for infrastructure 
services 

–Training effects

•Underinvestment in training and 

education – 

firms are afraid that trained 
people will work 

elsewhere and people don’t know 
what skills 

to acquire

Focuses on the sequential process 

through which the economic, industrial 

and institutional structure of an 

underdeveloped country is transformed 

over time to permit new industries to 

replace agriculture.

Savings and investment accumulation 

of physical and human capital, and 

interrelated structural changes in the 

economic structure of a country 

(transformation of production, changes 

in the composition of consumer 

demand, international trade, changes 

in socioeconomic factors like growth 

and distribution of population and 

urbanization) are needed

•Conclusions and 

implications

   The model does not recognize 
differences between countries

Observing developed country patterns 
such as the decline in the share of 
agriculture may lead developing 
country policymakers to neglect that 
sector, policymakers might suggest 
the 
development of an advanced university 
system even before the majority of the 
population has gained basic literacy

Common Characteristics of developing countries

1.Lower levels of living and productivity

2.Lower levels of human capital

3.Higher levels of inequality and absolute 

   poverty

4.Higher population growth rates

5.Greater social fractionalization

6.Larger rural population- rapid migration to 

   cities

7.Lower levels of industrialization and 

   manufactured exports

8.Adverse geography

9.Underdeveloped financial and other markets

10.Colonial legacies - poor institutions etc.
The natural development economics

1.Traditional Economics is concerned with the efficient, least-cost allocation of scarce productive resources and with the optimal growth of these resources over time so as to produce an ever-expanding range of goods and services

2.Political economy is concerned with the relationship between politics and economics, with a special emphasis on the role of power in economic decision making

•A verbal description of the Todaro model

–Migration is a rational decision

–The decision depends on expected rather than actual wage differentials

–The probability of obtaining a city job is inversely related to the urban unemployment rate

–High rates of migration are outcomes of rural urban imbalances

•Five Policy Implications

–Reduction of urban bias

–Imbalances in expected income opportunities is crucial

–Indiscriminate educational expansion fosters increased migration and unemployment

–Wage subsidies and scarcity factor pricing can be counterproductive

–Programs of integrated rural development should be encouraged