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
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•
•
•
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.