What is Economic Development? Econ growth & econ development • Economic growth: increases in output and incomes over time. • Economic development: process leading to improved standards of living for a population as a whole. • 1950-1960s: Econ. growth over long periods of time will provide economic and social benefits for the entre population. Trickle down theory: benefits of growth will be spread out over the most people in an economy. • Late 1960s-early 70s: The income gap between rich and poor countries more than double in the period 1970-75. Economic growth did not always worked to eliminate widespread poverty. • 1970s: Ec. Development as a process with many dimensions: A process where increases in real per capita output and incomes are accompanied by improvements in standards of living of the population and reductions in poverty, increased access to goods and services that satisfy basic needs, decrease in unemployment and reductions of serious inequalities in income and wealth. • Human development. Due to Amartya Sen, who sees improvements in human well-being as arising from a process of expanding freedoms: A process of expanding human freedoms: the freedom to satisfy hunger, to be adequately fed, to be free of preventable illnesses, to have adequate clothing and shelter, access to clean water and sanitation, to receive an appropriate education, to be able to find work,…” Income poverty and human poverty • Income poverty: when income falls below a nationally or internationally determined poverty line. • Human poverty: deprivations and the lack of opportunities that allow individuals to lead a long, healthy creative life and to enjoy a decent standard of living, freedom, dignity, self-esteem and the respect of others. Measuring Development • The level of economic development cannot be reflected in any single measure. • An indicator is a measurable variable that indicates the state or level of something that is being measured. For ex GDP per capita is an indicator of the level of output or income per person. • A composite indicator is a summary measure of several dimensions or goals of development. Individual Indicators • World Development Indicators (World Bank). 900 indicators providing information about: – People: demography, labour, income,… – Environment – Economy: national accounts, trade,… – States and markets: tax & trade policies, information & technology,… – Global links: investment & trade, aid, financial flows,… • MDGs and indicators. The Millenium Declaration established specific goals and targets to be achieved within a period of 15 years and specifies indicators to be used to monitor country progress. Eight goals, 18 targets, 48 indicators. Indicators of level of income • GDP is an indicator of the value of output • • • • produced within a country. GNI is an indicator of the income received by the residents of a country. Question: when will these two indicators be similar? And when will they differ? GNI per capita is a better indicator of the standards of living of a country because... GDP per capita is a better indicator of the level of output per person produced in a country • Ireland’s GNI is about 81% of its GDP. Why? Which measure best reflects standards of living in that country? • Lesotho’s GNI is almost 50% larger than its GDP due to large amount of worker remittances. Other cases where those play an important role: Bangladesh, India, Mexico, Pakistan, Philippines. However, they are balanced out by profit repatriation by multinational firms. • GDP per capita in terms of PPPs. • Different countries have different price levels. • • The same amount of money in a low-price country has greater purchasing power than in a high-price country. Therefore, we need a method to convert currencies that takes into account price level differences. Purchasing power parities (PPPs): the amount of a country’s currency that is needed to buy the same quantity of local g&s that can be bought with US$1 in the US. It makes buying power of currencies equal to the buying power of US$1. • For the poorer countries, GDP figures based on PPPs are higher than those based on exchange rates. For the wealthier countries, GDP figures based on PPPs are lower than those based on exchange rates. Health indicators • Health indicators measure attributes of populations related to health. 1. Life expectancy at birth (average number of years of life in a population). – Highest in Japan: 82 years – Lowest in Zambia: 40 years 2. Infant mortality (n. of deaths of infants until age of one, per 1000 live births). 3. Maternal mortality (n. of women who die per year as a result of pregnancy –related causes) • US stands out for its lower life expectancy (78) and higher infant (6.7) and maternal (11) mortalities compared to other more developed countries. • Sri Lanka, with GNI/cap less than one third of Russia’s, surpasses Russia in life expectancy by six years. • So, high GNI means healthier population? • Is low GNI the most important cause of poor health outcomes? Education Indicators • They measure levels of educational attainment. 1. Adult literacy rate: % people aged 15 or more who can read and write. 2. Primary school enrolment: % of school aged children who are enrolled in primary school. 3. Secondary school enrollment: % of children enrolled in secondary school. • In general, as income increases, all three indicators tend to increase. There are exceptions (low incomes and high level of education) due to: 1. Countries of the former Soviet Union and other former communist countries have very good education outcomes because of the high priority placed on education historically (Georgia, Moldova, Tajikistan…). 2. Effort of some governments to provide education services to their populations: Swaziland, Bolivia, Indonesia, Zambia, Burundi, Uganda. • Primary education is an important precondition for economic growth and development. Due to scarce resources, secondary education is less of a priority for low-income countries. Therefore, countries with very good achievements in primary education tend to lag behind in secondary enrolment. Composite indicators Since 1990, the United Nations Development Programme (UNDP) publishes the Human Development Report, which includes four composite indicators: 1. 2. 3. 4. Human Development Index (HDI) Human Poverty Index (HPI) Gender-related Development Index (GDI) Gender Empowerment Measure (GEM) HDI • It measures average achievement in three dimensions: http://hdr.undp.org/en/statistics/hdi/ 1. A long and healthy life, measured by life expectancy at birth. 2. Knowledge, measured by: • Mean of years of schooling for adults aged 25. • Expected years of schooling. 3. A decent standard of living, measure by GNI per capita (in US$ PPP). • Each dimension expressed as a value between 0 (lowest possible value for the dimension) and 1 (highest). • The composite index is the average over the three dimensions. • Each country receives an HDI value from 0 to 1, and countries are ranked according to their HDI values.