Introduction to Economic

Development

02-POVERTY-DEVELOP-2019-INTRO

1
What Do We Mean by Development?
 1. Traditional Economic Measures

 Key: national income (GNI, GDP)

 Gross national income (GNI): The total domestic and

foreign output claimed by residents of a country. It comprises
gross domestic product (GDP) plus factor incomes accruing to
residents from abroad, less the income earned in the domestic
economy accruing to persons abroad

 Gross domestic product (GDP): The total final output of

goods and services produced by the country’s economy, within
the country’s territory, by residents and nonresidents,
regardless of its allocation between domestic and foreign
claims
2
 Development: has traditionally meant achieving
sustained rates of growth of income per capita to
enable a nation to expand its output at a rate faster than
the growth rate of its population

 Levels and rates of growth of “real” per capita gross

national income (GNI) (monetary growth of GNI per
capita minus the rate of inflation) are then used to
measure the overall economic well-being of a
population

3
 2. The New Economic View of Development

 The questions to ask about a country’s development are

therefore: What has been happening to poverty? What has
been happening to unemployment? What has been
happening to inequality? If all three of these have declined
from high levels, then beyond doubt this has been a period of
development for the country concern

 Key: Development must therefore be conceived of as a

multidimensional process involving major changes in social
structures, popular attitudes, and national institutions, as well
as the acceleration of economic growth, the reduction of
inequality, and the eradication of poverty

4
 3. Amartya Sen’s “Capability” Approach

 Key: Functionings and capabilities

 Functionings are ‘beings and doings’, that is, various states

of human beings and activities that a person can undertake

 Capabilities (possibility?) are a person's real freedoms or

opportunities to achieve functionings

 Thus, while travelling is a functioning, the real opportunity to

travel is the corresponding capability. The distinction between
functionings and capabilities is between the realized and the
effectively possible
5
 Some Important “Beings”: Being able to live long, Being well-
nourished, Being healthy, Being literate, Being well-clothed,
Being mobile, Being able to take part in the life of the
community

 Sen’s summary:

 The well-being of people depends upon many things other than

increased income or resources. All such things are sidelined when
an economic measure like the GDP is taken to indicate
development

 The basic objective of development should be to create an

enabling environment for people to live long, healthy, and
creative lives

6
Income and Happiness: Comparing Countries

7
The Three Objectives of Development
 1. To increase the availability and widen the distribution
of basic life-sustaining goods such as food, shelter, health,
and protection

 2. To raise levels of living, including, in addition to higher

incomes, the provision of more jobs, better education, and
greater attention to cultural and human values, all of which will
serve not only to enhance material wellbeing but also to
generate greater individual and national self-esteem

 3. To expand the range of economic and social choices

available to individuals and nations by freeing them from
servitude and dependence not only in relation to other people
and nation-states but also to the forces of ignorance and
human misery
8
Millennium Development goals (MDGs)
 Eight goals adopted by the United Nations in 2000

 Eradicate extreme poverty and hunger

 Achieve universal primary education
 Promote gender equality and empower women
 Reduce child mortality
 Improve maternal health
 Combat HIV/AIDS, malaria, and other diseases
 Ensure environmental sustainability
 Develop a global partnership for development

9
Defining the Developing World
 In the World Bank’s classification system, 210 economies
with a population of at least 30,000 are ranked by their levels
of gross national income (GNI) per capita

 These economies are then classified as:

 1. low-income countries (LICs)
 2. Middle-income countries
 2.1. lower-middle-income countries (LMCs)
 2.2. Upper-middle-income countries (UMCs)
 3. High-income countries
 3.1. High-OECD countries
 3.2. Other high-income countries

 Often, LMCs and UMCs are informally grouped as the middle-

income countries 10
 Least developed countries:
 A United Nations designation of countries with low
income, low human capital, and high economic
vulnerability
 As of 2010 included 49 countries, 33 of them in Africa, 15
in Asia, plus Haiti

 Low-income countries (LICs): In the World Bank

classification, countries with a gross national income per capita
of less than $976 in 2008

 Middle-income countries: In the World Bank classification,

countries with a GNI per capita between $976 and $11,906 in
2008

11
 High-income countries: higher than 11,906 usd
Classification of Economies by
Region and Income, 2013

12
13
14
Basic Indicators of Development:
Real Income, Health, and Education

 Real income per capita:

 Gross national income (GNI)
 Gross domestic product (GDP)
 Purchasing power parity (PPP): Calculation of GNI using a
common set of international prices for all goods and
services, to provide more accurate comparisons of living
standards

 Health: as measured by life expectancy, undernourishment,

and child mortality

 Educational attainments: as measured by literacy and

schooling

15
Nations of the World, Classified by GNI Per Capita

16
Income Per Capita in Selected Countries, 2011

17
Holistic Measures of Living Levels and Capabilities

 The most widely used measure of the comparative status of

socioeconomic development is presented by the United
Nations Development Program (UNDP): Human Development
Index (HDI)

 The HDI attempts to rank all countries on a scale of 0 (lowest

human development) to 1 (highest human development) based
on three goals or end products of development:
 Longevity: as measured by life expectancy at birth
 Knowledge: as measured by a weighted average of adult
literacy (two-thirds) and gross school enrollment ratio (one
third)
 Standard of living: as measured by real per capita gross
domestic product adjusted for the differing purchasing
power parity of each country’s currency to reflect cost of
living 18
 The New Human Development Index:

19
2013 New Human Development Index and its
Components for Selected Countries

20
Characteristics of the Developing
World: Diversity within Commonality
 1. Lower Levels of Living and Productivity: Shares of
Global Income, 2008. Developing regions lag far behind the
developed world in productivity measured as output per worker

21
 Developing regions lag far
 behind the developed world
 in productivity measured as
 output per worker

22
2. Lower Levels of Human Capital (Human capital—
health, education, and skills—is vital to economic growth
and human development)

 Under-5 Mortality Rates, 1990 and 2012

23
 Primary School Enrollment and Pupil-Teacher Ratios, 2010

24
3. Higher Levels of Inequality and Absolute Poverty

 Absolute poverty: The situation of being unable or only

barely able to meet the subsistence essentials of food,
clothing, shelter, and basic health care

 The incidence of extreme poverty varies widely around the

developing world. The World Bank estimates that the share of
the population living on less than $1.25 per day is 9.1% in
East Asia and the Pacific, 8.6% in Latin America and the
Caribbean, 1.5% in the Middle East and North Africa, 31.7%
in South Asia, and 41.1% in sub-Saharan Africa

25
Number of People Living in Poverty by
Region, 1981–2008

26
4. Higher Population Growth Rates
 Crude birth rate: The number of children born alive each year
per 1,000 population

 Crude Birth Rates Around the World, 2012

27
 By contrast, the proportion of people over the age of 65 is much
greater in the developed nations

 Both older people and children are often referred to as an

economic dependency burden

 Dependency burden: The proportion of the total population

aged 0 to 15 and 65+, which is considered economically
unproductive and therefore not counted in the labor force.

 In low-income countries, there are 66 children under 15 for each

100 working-age (15–65) adults, while in high-income countries
just 26

 In contrast, low-income countries have just 6 people over 65 per

100 working-age adults, compared with 23 in high-income 28
countries => then ?????
5. Greater Social Fractionalization
 Low-income countries often have ethnic, linguistic, and other
forms of social divisions, sometimes known as fractionalization

 Fractionalization: Significant ethnic, linguistic, and other

social divisions within a country

 The greater the ethnic, linguistic, and religious diversity of a

country, the more likely it is that there will be internal strife
and political instability

 Some of the most successful development experiences—

South Korea, Taiwan, Singapore, and Hong Kong—have
occurred in culturally homogeneous societies

29
6. Larger Rural Populations but Rapid
Rural-to-Urban Migration

30
7. Lower Levels of Industrialization and
Manufactured Exports

31
8. Adverse Geography
 Landlocked economies, common in Africa, often have lower
incomes than coastal economies

 Developing countries are primarily tropical or subtropical,

and this has meant that they suffer more from tropical pests
and parasites, endemic diseases such as malaria, water
resource constraints, and extremes of heat

 Geography is not destiny; high-income Singapore lies almost

directly on the equator, and parts of southern India have
exhibited enormous economic dynamism in recent years

32
9. Underdeveloped Financial and Other markets

 Information is limited and costly to obtain, thereby often

causing goods, finances, and resources to be misallocated

 Incomplete information: The absence of information that

producers and consumers need to make efficient decisions
resulting in underperforming markets

 Imperfect market: A market in which the theoretical

assumptions of perfect competition are violated by the
existence of, for example, a small number of buyers and
sellers, barriers to entry, and incomplete information

33
10. Lingering Colonial Impacts and
Unequal International Relations
 Colonial Legacy: Colonial history matters not only or even
primarily because of stolen resources but also because the
colonial powers determined whether the legal and other
institutions in their colonies would instead facilitate
exploitation of human and other resources for the benefit
of the colonizing elite and create or reinforce extreme
inequality

 External Dependence: For example, agreements within the

World Trade Organization (WTO) and its predecessors
concerning matters such as agricultural subsidies in rich
countries that harm developing country farmers and one-sided
regulation of intellectual property rights have often been
relatively unfavorable to the developing world

34