What Are The Two Branches Of Economics

By | April 22, 2023

What Are The Two Branches Of Economics – Definition of economics. Economics is the subject of social science that determines the distribution of limited resources to satisfy the unlimited needs and wants of a given society.

This is a small economy analysis. He looks at individuals and companies. and the conditions under which they make purchasing, consumption and production decisions.

What Are The Two Branches Of Economics

What Are The Two Branches Of Economics

It is a study of aggregate economic variables such as gross domestic product (GDP) growth, unemployment, inflation, etc. It looks at the national dimension.

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The list in Figure 1 is not exhaustive, as there are other subfields of economics, including many that are emerging, such as “space economics,” which deals with outer space. As these other sub-disciplines are not the subject of this course (with the exception of development economics), they are not mentioned further.

However, it should be noted that there is a number of overlaps between these subdisciplines. For example, some of the topics we will cover in this course will also include aspects of the sub-disciplines of environmental economics and social economics (to name a few).

Having briefly discussed some fundamental aspects of economics (just a few), we can now return to the definition of development economics.

“Development economics is a branch of economics that focuses on improving fiscal, economic, and social conditions in developing countries” (Bird, 2019).

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This is only one definition. As cited by Mackenzie and Puffhausen (2017), the content of development economics teaching varies from college to university, although there are a number of commonalities. By the same token, there may be several other definitions of development economics, but this is enough. Following the great economist Amartya Sen, we can also see development as well-being.

As a complex subject, development economics can be distinguished from a wider range of related sub-disciplines of economics, as discussed earlier. To do this, there are a number of characteristics of development economics. Here we take three characteristics from Dietz Vollrath’s blog (2019) and list them. It is the setting, focus and nature of the output.

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Regulation – This happens very consciously in developing countries. However, this statement is controversial because many of the problems that developing countries face are also present in developed countries, albeit to a lesser extent. The 2008 financial crisis, for example, led to homelessness in some developed countries as a result of foreclosures as thousands of people were unable to make mortgage payments, but in some developing countries the impact was not as severe as many were/were not. good relations with the international community. financial market. Therefore, development economics is also relevant in developed countries. In terms of ethics and institutions, controversial actions such as share buybacks[1] are actually much more concentrated in developed countries.

What Are The Two Branches Of Economics

Focus – He is strongly concerned with the discovery of cause and effect relationships. Examples are the impact of deworming on children’s health or the impact of land reform on welfare.

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. We can interpret this to mean that the subject mainly deals with practical problems and realities in the field, which may not necessarily correspond to the theory. We can interpret this to mean that because of imperfect markets in developing countries, the results do not always reflect the hypothetical view. Given that development economics may be more important in developing countries, culture, values ​​and norms in these settings may drive certain decisions/behavior rather than economic theory. While in developed countries one would expect the incumbent government to behave rationally, which would please taxpayers to the extent that voters (who are also taxpayers) could vote it back into power in the next election, the same expectation could be; will not be implemented in developing countries. A developing country may find itself in a poor institutional environment so that the government can still secure an electoral victory even if taxpayers are unhappy. Here are some reasons.

After all, in some developing countries, elections can be held in principle (in theory), but this process is ineffective and just a show.

We have discussed the nature of development economics as a discipline or some of the attributes that define it. Now let’s consider some features of developing countries. We have already discussed some of them in the previous section. Some of the most important characteristics of developing countries are listed below and explained below.

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Due to their low industrial base, developing countries can also be classified as low-income countries. Thus, the term “low and middle income countries” can also refer mainly to developing countries. HDI is discussed in more detail in Lesson 3.

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Developing countries are characterized by a very low capital base. It also means that a unit of capital can do more than in developed countries. Developed countries are characterized by capital saturation, which means that investor funds/borrowing funds are so abundant in their supply in the market that the investor does not always have the opportunity to get the first chance at the project with the highest return. Developing countries, on the other hand, lack capital, and many good projects can take years before any funds are raised. Thus, capital in developing countries is likely to finance the best “high yield” projects.

(holding other factors constant). Second, in a relatively non-technological environment, small amounts of capital can lead to increased investment in technology, which can have important multiplier effects on productivity, income, and wealth. Investing in an oxen plow in a rural area of ​​a developing country can protect the beneficiary family from hunger and also potentially allow them to sell their surplus produce in the market. It would not be the same in a developed country where an oxen plow might be a relic found only in museums.

With little or no expansion of complementary labor technologies, labor productivity (unit labor productivity) in developing countries is also very low. However, job complementarity is only part of the story. Human capital theory tells us that developing Western countries have fewer children per family, which allows them to invest more in learning and education per child, while societies in many developing countries still invest more children in the family. thereby reducing. the amount of money that can be invested per child; Hence the low productivity.

What Are The Two Branches Of Economics

Institutions are associated with the rule of law, transparency, respect for property rights, and corruption (among other things). Rutan and Hayami (1984) define institutions as organizational or social rules that help facilitate coordination by helping members of a society/organization develop expectations that form the basis of interaction. Corruption, transparency and the rule of law are important themes in the discourse of development because without them there will be no or no development. As Demsetz (1967) puts it, “property rights determine what benefits and harms people can receive, and thus who must pay whom, in order to change the actions people take.” According to Demsetz (1967), property rights function by allowing greater internalization of externalities through the proper management of incentives. Externalities (discussed in more detail in later topics) are scenarios where people are affected by a transaction they are not a party to. These effects can be both positive and negative. For example, if politicians can unfairly receive “protection fees” from businesses, property rights are poorly defined and the institutions of such jurisdiction are poorly designed.

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Perfect markets will be discussed in more detail later in Lesson 3 (section 3.8). The three defining conditions of perfect markets are free entry and exit, multiple buyers and sellers, and perfect (widely available) information. Perfect markets are free markets without any external barriers or constraints. However, low rates of technology diffusion in developing countries can lead to market imperfections. Market imperfections are distorted markets that do not reflect true market equilibrium. For example, for certain political purposes, the government may impose certain ideological training programs (diplomas and degrees) in a way that does not correspond in any way to the dictates of the market, thereby creating market distortions, causing a surplus of graduates. they are not in demand in the market. Due to low technological penetration (such as the Internet), a recent graduate in a developing country may struggle to find a position that matches their profile, while in a developed country there may be job matching programs or even phone apps that meet the requirements. graduate profile. jobs to create an almost “ideal information” scenario.

Developing countries are also not as technologically advanced as their developed counterparts. The industrial revolution has not happened in many developing countries of the world, and “catch-up” is called the “game” in which developing countries are currently engaged. However, importing technology is expensive. Where developing countries do manage to import technology, it is usually in the form of finished products or components for assembly. Despite the high costs of the technology, developing countries also have a long way to go in terms of scaling up