Objectives:

• To learn how economies are

classified
• To learn how development is
measured
• To learn the components or sources
of growth and development
CLASSIFICATION OF ECONOMIES
 World Bank System
1. Based on Per capita income
a. Low income countries (LICs)
b. Lower-middle income countries (LMCs)
c. Upper-middle income countries (UMCs) or
Newly industrializing countries (NICs)
d. High-income OECD
e. Other high income countries
continuation
2. Degree of international indebtedness
a. Severely indebted
b. Moderately indebted
c. Less indebted
 UNDP System
Based on level of human development
a. Developed countries
b. Developing countries
 Measurements of Development
1. Per capita National Income
a. GNI (Gross National Income) per capita
b. GDP (Gross Domestic Product) per capita
*Purchasing Power Parities (PPP) – number
of units of foreign country’s currency
required to purchase the Identical quantity of
goods and services in the local (LDC) market
as $1 would buy in the United
continuation
2. Health
a. Infant mortality rates – the number of
children who die before their first birthday
out of every 1,000 live birth
b. Malnutrition
c. Access to clean drinking water (sanitation)
continuation
3. Education
a. Provision of primary school
b. Literacy rate
continuation
Human Development Index (HDI)
ranks all countries on scale of 0 (lowest
human development) to 1 (highest human
development) based on three goals or end
products of development:
a. Longevity – measured by life expectancy at birth
b. Knowledge – measured by the weighted average of
adult literacy and mean years of schooling
c. Standard of living – measured by real per capita
income for the differing purchasing power parity (PPP)
 Historic Growth and
Contemporary Development:
Lessons and Controversies
By Todaro and Smith
 The Economics of Growth
Three (3) Components of Economic
Growth
1. Capital Accumulation
- results when some proportion of
present income is saved and
invested in order to augment future
output and income
Continuation: Forms of capital accumulation

• Capital Stock – total net real value of

all physically productive capital
goods.
• Infrastructure – roads, electricity,
water, and sanitation,
communications and the like
- facilitates and integrates
economic activities
• Human capital- analogous to that of
improving the quality and thus the
productivity of existing land
resources through strategic
investments.
3 Components of economic growth
2. Population and Labor Force Growth
- larger labor force more
productive workerslarge potential
size of domestic markets
*Production possibilities curve – for a given
technology and a given amount of physical
and human resources, the PPC portrays the
maximum attainable output combinations of
any two commodities when all resources are
fully and efficiently employed
 3 Components of economic growth

3. Technological progress
- most important source of
economic growth according to
economists.
 Types of technological progress
a. Neutral technological progress
- occurs when higher output can be
achieved with the same quantity
and combinations of factor inputs
b. Labor-saving technological
progress
- higher levels of output can be
achieved with the same quantity of
labor
- capital-intensive technology
c. Capital-saving technological
progress
- higher levels of output can be
achieved with the same quantity of
capital
- labor-intensive technology
d. Labor-augmenting technological
progress
- occurs when quality or skills of
the labor force are upgraded
e. Capital-augmenting technological
progress
- results in the more productive
use of existing capital goods
 Kuznet’s 6 Characteristics of Modern
Economic Growth
1. High rates of per capita output and
population growth
2. High rates of total factor
productivity (TFP) increase
*TFP – the output per unit of all
inputs
 Kuznet’s 6 Characteristics of Modern
Economic Growth
3. High rates of economic structural
transformation (sectoral change)
4. High rates of social and ideological
transformation (attitudes,
institutions and ideologies)
*Social and ideological
transformation
e. g. general urbanization process
and adoption of the ideals, attitudes,
and institutions of what has come to
be known as “modernization”
• Modernization ideals by Gunmar
Myrdal
a. Rationality
b. Economic planning
c. Social and economic equalization
d. Improved institutions and attitudes
 Kuznet’s 6 Characteristics of Modern
Economic Growth
5. International economic outreach
6. Limited international spread of
economic growth