RAMOS, Mary Louise M.

4ECON2

1.
The HarrodDomar model is used in development economics to explain an
economy's growth rate in terms of the level of saving and productivity of capital.
It suggests that there is no natural reason for an economy to have balanced
growth. The model was developed independently by Sir Roy F. Harrod in 1939
and Evsey Domar in 1946. The HarrodDomar model was the precursor to the
exogenous growth model. As we know that one of the principal strategies of
development is mobilisation of domestic and foreign saving in order to generate
sufficient investment to accelerate economic growth. The economic mechanism
by which more investment leads to more growth can be described in terms of
Harrod-Domar growth model, often referred to as the AK model.
The main principles of the model were that the rate of an economies growth
depends upon the level of saving and the productivity of investment i.e. the
capital output ratio. For example, if $20 worth of capital equipment produces
each $1 of annual output, a capital-output ratio of 20 to 1 exists. Using the
model it is possible to describe reasons for economic growth. Economic growth
depends upon the amount of labour and capital. As LDC's often have an
abundant supply of labour it is the lack of capital that stifles their growth and
development. More physical capital therefore generates growth. Therefore net
investment leads to more capital accumulation, which generates higher output
and therefore income. This higher income will therefore in turn allow higher
saving levels.The key to economic growth is expanding investment levels (both
fixed and human) capital using polices which encourage technological advances.
Although the HarrodDomar model was initially created to help analyze the
business cycle, it was later adapted to explain economic growth. Its implications
were that growth depends on the quantity of labor and capital, more investment
leads to capital accumulation, which generates economic growth. The model also
had implications for less economically developed countries; labor is in plentiful
supply in these countries but physical capital is not, slowing economic progress.
LEDCs do not have sufficient average incomes to enable high rates of saving,
and therefore accumulation of the capital stock through investment is low.
There are, however, limitations with regards to this model. First, economic
growth model and economic development are not the same. Economic growth is
necessary but not sufficient condition for development. Second, the HarrodDomar model was formulated primarily to protect the developed countries from
chronic unemployment, and was not meant for developing countries. It is
practically difficult to stimulate the level of domestic savings particularly in the
case of LDCs where incomes are low. It also fails to address the nature of
unemployment that exists in different countries. In developed countries, the
unemployment is cyclical unemployment, which is due to insufficient effective
demand; whereas in developing countries, there is disguised unemployment.
Borrowing from overseas to fill the gap caused by insufficient savings causes
debt repayment problems later. The law of diminishing returns would suggest
that as investment increases the productivity of the capital will diminish and the
capital to output ratio rise. Harrod-Domar models rely greatly on a capital theory
of value. While labor can be introduced into the system, the two factors capital

and labor should always remain in fixed proportion. This is a highly unrealistic
assumption. Capital accumulation has a dual character that is on the one hand it
generates income, and on the other it increases the capacity of the economy.
This duality in the character of capital accumulation puts at the centre of the
problem of steady growth. The increased capacity may result in larger output
and may thus contribute to prosperity. Alternatively it may result in
unemployment and thus may become a cause of poverty and sufferings. What
actually happen will depend on the behaviour of income. The Harrod-Domar
model assumes all the sufficient conditions required for proper economic growth
are a healthy and educated workforce, a good infrastructure (roads, water,
electricity etc), political stability, and the existence of working financial
institutions such as banks to channel savings into investment etc. yes these are
fulfilled in European countries. Most of them are lack in underdeveloped
countries. Assumptions with regard to the constancy of propensity to save and
capital-output ratio are at variance with the reality. In the long run both
propensity to save and capital-output ratio are likely to change.
In the Harrod-Domar growth model, steady-state growth was unstable. In the
popular term of the day, it was a "knife-edge" in the sense that any deviation
from that path would result in a further move away from that path. However,
Robert M. Solow (1956), Trevor Swan (1956) and, a bit later, James E. Meade
(1961) contested this conclusion. They claimed that the capital-output ratio of
the Harrod-Domar model should not be regarded as exogenous. In fact, they
proposed a growth model where the capital-output ratio, v, was precisely the
adjusting variable that would lead a system back to its steady-state growth path,
i.e. that v would move to bring s/v into equality with the natural rate of growth
(n). The resulting model has become famously known as the "Solow-Swan" or
simply the "Neoclassical" growth model. In fact, as we will see, the assumptions
embedded in this model imply that, in the long run, and in the absence of
technological growth , economies do not grow in per-capita terms. As economics
papers put it, the possibility of aggregate growth arises only from either
population growth or growth in factor productivity. Since neither factor is
supposed to depend on the decision of economic agents, this is known as an
Exogenous Growth Model. The model focuses on explaining the first
characteristic, long-term growth. A stochastic version of growth models is
needed if we want the model to re-produce the statistical characteristics of
business cyclical fluctuations in actual economies. We will also consider a
stochastic version of the SolowSwan growth model. This model describes the
time evolution of an economy in which there is growth from some initial, known
conditions.
One of the key thinkers in twentieth century Development Studies was W.W.
Rostow, an American economist and government official. Prior to Rostow,
approaches to development had been based on the assumption that
"modernization" was characterized by the Western world (wealthier, more
powerful countries at the time), which were able to advance from the initial
stages of underdevelopment. Accordingly, other countries should model
themselves after the West, aspiring to a "modern" state of capitalism and a
liberal democracy. Using these ideas, Rostow penned his classic Stages of
Economic Growth in 1960, which presented five steps through which all countries
must pass to become developed: 1) traditional society, 2) preconditions to takeoff, 3) take-off, 4) drive to maturity, and 5) age of high mass consumption.
Rostow's Stages of Growth model is one of the most influential development
theories of the twentieth century. It was, however, also grounded in the historical

and political context in which he wrote. Stages of Economic Growth was

published in 1960, at the height of the Cold War, and with the subtitle "A NonCommunist Manifesto," it was overtly political. Rostow was fiercely anticommunist and right-wing; he modeled his theory after western capitalist
countries, which had industrialized and urbanized. As a staff member in President
John F. Kennedy's administration, Rostow promoted his development model as
part of U.S. foreign policy. Rostow's model illustrates a desire not only to assist
lower income countries in the development process, but also to assert the Unites
States' influence over that of communist Russia.
2.
Marx believed there was class conflict between the working class (proletariat)
and owning (bourgeois). The proletariat does most of the work for the benefit of
the bourgeois in exchange for a wage. This causes man to become alienated
from his labor; man no longer produces for himself instead he produces for the
sake of another. Essentially, it is the bourgeois who profit from the work of the
proletariat (in terms of capital accumulation); the rich get richer and the poor get
poorer. Essentially this labor relation will spread through the whole world (ex:
globalization), thereby causing the proletariat to unite and cause a revolution to
overthrow the bourgeois. Marx's theory is reflected in the modern economy
because of globalization and because in order for a communist revolution
capitalism has to spread throughout the entire world first, thereby creating class
unity between the proletariat class. Also greater income equality can also be
seen in the modern economy.
Marx and Engels use equivalent commodity exchange as a point of focus to
expose the underlying unfair and unequal nature of equivalent exchange under
the capitalist economic system. At the same time, they completed the
fundamental transformation of the capitalistic view of equity based on historical
materialism. The conclusion and basic idea that equity is only the conceptualized
and sanctified manifestation of the current existing economic relations or a
reflection of its conservative or revolutionary sides were reached. Carefully
studying the Marx and Engels equity theory can provide important theoretical
guidance for the establishment and improvement of the socialistic market
economy and the construction of a socialistic harmonious society. Marx and
Engels theory of equity developed the useful parts of the old equity theory and
discarded the useless, resulting in fundamental paradigm shifts in philosophy
and social sciences.
Utilitarianism has been criticized over the last two centuries for leading to
conclusions that seem unjust. For example, it can permit hurting people who are
already unfortunate if the benefit to those who are more fortunate is sufficiently
great. Most modern philosophers (e.g., MacIntyre, 1984; Sen & Williams, 1982;
Williams, 1985) think that these kinds of criticisms have stuck. On the other
hand, economists and other social scientists (e.g., Landes & Posner, 1987;
Shavell, 1987) often accept some form of utilitarianism. Some philosophers (e.g.,
Hare, 1981; Singer, 1979) think that recent, more carefully developed, forms of
utilitarianism can answer the criticisms, so that the theory now represents the
most defensible and complete normative approach to questions of policy as well
as individual moral decision making. In general, these writers deal with apparent
counterexamples by either reinterpreting them as consistent with a more
thorough utilitarian analysis (e.g., Singer, 1977) or arguing that a generally good
intuitive principle (e.g., `do no harm') is being overgeneralized. The latter reply

challenges the critics to provide some other justification than their intuitive
judgment about what is just. So far, the critics have not met this challenge and
have, instead, retained a degree of faith in human intuition that recent
psychological findings (reviewed by Baron, 1988a) would lead us to question.
Human judgments and decisions have been compared to normative models that
specify how judgments and decisions should be made. Such comparisons often
find discrepancies between people's goals and the decisions meant to achieve
those goals. These discrepancies are often called `biases,' and the informal ways
of thinking that lead to them are called `heuristics.' Evidence of biases is useful
because we can often find ways of teaching people better ways of thinking,
better heuristics, or we can learn when we need to work around the biases by
using more formal methods of analysis. In these ways, the discovery of human
error leads to ways to improve the human condition.
Equity judgments are often based on these kinds of intuitions or naive theories.
In showing that these judgments depart from the normative standard, we must
not jump to the conclusion that they should not be used. Instead, we are led to
ask whether any alternative set of intuitions or ways of making judgments can
bring us closer to the normative model. Often, the answer to this question will be
affirmative, but we cannot assume that it is in all cases. In this sense, showing
that something is non-normative makes only a prima facie case that it is
irrational. The rest of the case involves showing that a better way can be found.
3.
The Philippine Archipelago has been known for its beautiful, white sandy
beaches, reputable and historical land areas, and an overall blessed country for
its vast terrestrial and aquatic resources. With a marine area five times the size
of its land area located near the Pacific Ocean and the South China Sea, it is no
doubt that even the most extinct and sometimes, unidentified creatures lives in
underwater paradise. According to the National Oceanographic and Atlantic
Administration of the USA government, an ocean-based economy is
economically and environmentally sustainable. Despite and due to all of these
bounties, the country has been one of the main targets for raw resources that
required an immediate shift from agricultural to industrial developments. Mining,
and some even are illegal, have caused numerous landslides that in turn,
affected the livelihood of those living in the near areas in the provinces. The
Poverty of the Commons does not only apply to those coastal areas, but also to
those whose lives depend on the crops that are now covered in mud from the
landslide incidents. Sustainable development is very much possible in the
country, and this includes extreme proper governance from the right people.
Acceleration of growth in the economy has been seen and proven, but there is
also evidence that environmental quality is fast deteriorating which shouldnt be
the case. If this trend continues to happen in the country, then the pride we used
to have for the bountiful environment would slowly decrease followed by an
unstable economic growth.
In development economics, three questions can be asked in connection with
human well-being in an economy: (i) How are people doing? (ii) How have they
been doing in recent years? (iii) What should they do? The first question
describes the current state of affairs, the second question evaluates recent
performance, and the third question seeks to evaluate choices. No matter which
of the three questions we ask, however, we need to have an appropriate

measure of human well-being. In recent years, debates on how to measure of

human well-being have been influenced by two dichotomies: the constituents
versus the determinants of human well-being, and current versus sustainable
well-being. In publications from international organizations, much emphasis has
been placed on the former dichotomy (e.g., UNDP 1994). It is, however, the case
that the most well-known indices of social well-beinggross domestic product
(GDP) per capita and the human development index (HDI) of the United Nations
Development Programme (UNDP)are, for all practical purposes, measures of
current well-being. Given the attention sustainable development continues to
receive in international discourse, an index is needed with which to check
whether current policies are consistent with sustainable development.

One saddening about these harmful global changes is that most victims are from
impoverish countries who have little to no source of clean, fresh waters and food.
News around the world about oil spills that affect coastal seas have been the
cause of many marine life contaminations, and in turn, deaths of those who
depend on those seas. With the increasing carbon emissions from multi-national
corporations that causes the holes in the ozone layer that then brings more heat
enough to melt the Arctic ice caps, many nations have felt the devastation of
floods and tsunamis. Unfortunately, it has become a great challenge, even until
now, to reach the required amount of worldwide cooperation. There has been an
inconsistent and unstable share of action participation towards a green economy.
The ideas are there, the policies and proposals are also there, but it is the lack of
proper communication and greed that has blocked life-saving changes. Up to
what extent do the people need in order for them to receive a wake-up call for
the environment?
In our economy, the problem lies with the lack of economic capital that is needed
for the countrys growth and development. What the world need right now is a
framework that will provide us sustainable growth without degrading our
environment and poverty reduction like the Integral Framework of Ek, Ck, and
Nk. This Framework will help use how to utilize properly our resources. The
integral, transcultural approach enabled us to provide sufficient space for the
rich diversity innovative economic theory from all our realms- as well as from the
moral core-that can now help us to gradually rebuild our economies as well as a
global economic system. Sadly, the economic capital is the only things that most
of the country considers as their catalyst for growth. They had foregone the
importance of natural capital and cultural capital.
The Rio+20 summit on environmental sustainability in late June 2012 did not
produce any breakthrough agreements or commitments, but it provided an
international platform to shed light on pressing issues in the quest to secure
global sustainable development. Rio+20 saw several positive outcomes, the
most high-profile of which was the decision to establish Sustainable
Development Goals (SDGs) next year. The SDG topics will encompass all three
aspects of sustainable development--economic, social and environmental--and
will seek to perpetuate momentum in international development work beyond
the poverty-eradicating mission of the Millennium Development Goals, which will
lapse in 2015.
Rio+20 also saw other accomplishments. Governments, private companies, and
multilateral agencies committed themselves to voluntary pledges worth $513
billion toward a series of development projects. Eight international development

banks agreed to invest $175 billion to sustainable public transport systems over
the next decade. Private sector companies pledged to contribute $50 billion to a
plan to provide energy to the entire global population by 2030. However, the
degree to which these pledges will be fulfilled remains uncertain, particularly in a
time of persistent global economic downturn. What Rio+20 achieved, however,
was bringing attention to the fact that the path to a green economy lies at the
national and local level. Public and private stakeholders and civil society
demonstrated a willingness to pursue a more sustainable course, regardless of
the outcomes of an international agreement. In light of the conference's
deadlocks, the focus shifted away from the vision of an international legal
framework aiming to solve global environmental problems through global
governance and toward the promotion of domestic and local action.