Development: Dimensions

Lecture 2
(05.02.2024)
Session Outline
• What is development?

• Development as growth

• Dimensions of development

• Alternative interpretations of development

Reference: Todaro and Smith: Economic Development; XII Edition; pages 16-
24; 45-50
The economists James Heckman and Thomas Piketty explain how
collecting data has been fundamental to their work on inequality and the
policies to reduce it.
http://tinyco.re/6056324
 Definition of Economic Development: 1950s
• Prolonged stagnation in world economy before 1820s:
• Growth in per capita income between 1AD to 1000AD was effectively zero
• Between 1000AD to 1820: 0.05Percent per year
• It took eight centuries to increase per capita income by 50%
• China: 9% annual growth rate: 50% increase in 5 years
• Historical snapshot
• Growth as Economic Development
• In economic terms, development is the capacity of a nation to generate
and sustain an annual increase in its GNP of 5% or more- at a rate above
the population growth rate
• Planned alteration in the structure of production and employment
4
Synopsis of the video

• Inequalities- can slowdown growth- rich wants to stay richer- prevent

redistribution-
• Economic indicators may misrepresent the ground realities
• After war and flue epidemic growth recovered
• Convergence of countries
• Unfreedom can restrict development- institutions play crucial role in
economic develop Institutions are a crucial factor for economic growth and development. The quality of institutions can shape
economic activity by providing the rules, regulations, and frameworks that govern economic activity and
shape the incentives that drive economic agents' behavior.

• Relationship between income and life expectancy

 The Millennium Preston Curve
France Japan
Spain Italy
80 Mexico
China UK
Germany USA
Korea

Dimensions of
life expectancy, 2000

70 Brazil
Argentina

development:
India Russia
Indonesia
Pakistan
60 Bangladesh
Life Expectancy
at Birth
Gabon
Equatorial Guinea
50 Nigeria
South Africa
Namibia

40
Botswana
South Africa
0 20,000
10,000gdp per capita, 30,000
2000, current PPP $ 40,000

Source: Deaton 2004

Lecture 3- Alternative
interpretations and dimensions
of development
Measuring Economic Development
Two distinct perspectives on measuring economic development
• Economic development can be accurately depicted through a country’s
material prosperity and can be quantified using per capita GDP
• Well-being encompasses multiple dimensions and cannot be measured solely
by per capita GDP
Measuring Economic Development
• The level of prosperity in a country is accurately represented by its Gross
Domestic Product per capita (PCGDP).
• PCGDP is the per-capita value of all final goods and services produced within a
country during a period of one year
• This method of evaluating a country’s development by using GDP per capita
has been the norm since the early 1950s
Measuring Economic Development
• The idea of development as expressed by R. E. Lucas in 1988:
“By the problem of economic development, I mean simply the problem of
accounting for the observed pattern, across countries and across time, in
levels and rates of growth of per capita income. This may seem too narrow a
definition, and perhaps it is, but thinking about income patterns will
necessarily involve us in thinking about many other aspects of societies too,
so I would suggest that we withhold judgement on the scope of this definition
until we have a clearer idea of where it leads us”
Huge disparity in per
capita income in the
world.

This is due to the fact

that historically
growth was never
been wide spread.

Was concentrated
only in few countries.
Measuring Economic Development
The multidimensional view of development now recognizes that well-being
encompasses a variety of factors beyond just material prosperity, such as alleviating
poverty, reducing inequality, ensuring access to basic needs like clean water and
healthcare, improving mortality rates and life expectancy, and increasing access to
education and knowledge.
Sure, let's imagine a big, happy family.
1. **Alleviating Poverty**: This is like making sure every family member has enough pocket money to buy what
they need, like toys or books.
2. **Reducing Inequality**: This means making sure everyone in the family gets an equal amount of ice cream,
no one gets more or less.
3. **Access to Basic Needs**: This is like making sure everyone in the family has yummy food to eat, clean water
to drink, and a warm bed to sleep in.
4. **Improving Mortality Rates and Life Expectancy**: This is like making sure everyone in the family stays
healthy and lives a long, happy life. We do this by eating healthy, exercising, and going to the doctor when we're
sick.
5. **Access to Education and Knowledge**: This is like making sure everyone in the family goes to a good school
and learns lots of interesting things.
So, the multidimensional view of development is like making sure our big, happy family is not just rich, but also
healthy, fair, educated, and well-cared for.
Measuring Economic Development
• Paul Streeten succinctly captured that concept by stating:
“[W]e should never lose sight of the ultimate purpose of the exercise, to treat
men and women as ends, to improve the human condition, to enlarge people’s
choices. . . . [A] unity of interests would exist if there were rigid links between
economic production (as measured by income per head) and human
development (reflected by human indicators such as life expectancy or literacy,
or achievements such as self-respect, not easily measured). But these two sets of
indicators are not very closely related.”
Measuring Economic Development
• Which perspective on development is accurate?
• It may seem that Lucas’s statement overlooks the multiple
dimensions of development
• But he argues that GDP per capita is a useful tool for measuring
overall economic development
• If there is a correlation between GDP per capita and other indicators of
development like health, education, and life expectancy.
Measuring Economic Development
• This perspective contrasts with the belief that the relationship
between GDP and desirable outcomes is not always established, and
in many instances, may not exist at all.
• Thus, the use of per capita GDP as the only measure is insufficient
and must be accompanied by other indicators.
On an average,
average years of
schooling is more in
the richer countries
Similarly, per capita
income is also highly
correlated with life
expectancy
Child mortality is
negatively related with
per capita income
Finally, Human
Development Index
(HDI) is having a very
high and positively
correlation with per
capita income
 Measures of Growth
• Traditional economic measures:
• GDP: is the market value of all final goods and services produced within a country in
a given period of time
Y=C+I+G+NX
• GNP: is the market value of all final goods and services produced by permanent
residents of a country in a given period of time
GNP= GDP+ net factor income from abroad
• Common alternative index is the rate of growth of income per capita or per capita GNP
• Per capita GNP: is the per-head value of final goods and services produced by
permanent residents of a country in a given period of time. It is converted to USD
using the current exchange rate.
• PPP Measure: the number of units of a country’s currency required to purchase the
same of basket of goods and services in the local market that a US $1 would buy in
the USA. Under PPP, exchange rates should adjust to equalize the price of a common
basket of goods and services across countries. Penn World Tables rank countries
using the PPP method.
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Problems of income measurement in developing countries:

• Inequalities: Map
• Underreporting of income by developing countries
• High proportion of income is generated for self-consumption.
• Prices of non-traded goods are not appropriately reflected in
exchange rates.
• Markets are not competitive and externalities are not
reflected.

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Definition of Economic Development: 1970s
• Dethronement of GNP in the 1970s and increasing
emphasis on “redistribution from growth”
• Increasing emphasis on non-economic social indicators
• Economic development consists of the reduction or
elimination of poverty, inequality and
unemployment within the context of a growing
economy.

23
 Alternative Interpretations of Development
• Development as Distributive Justice- view development
as improving basic needs
• Interest in social justice which has raised three issues:
1.Nature of goods and services provided by
governments
2. Matter of access of these public goods to different
social classes
3. How burden of development can be shared
among these classes
• Target groups include small farmers, landless, urban
under-employed and unemployed
Population
and
Income
26
 GDP (wealth)

Territory size shows the proportion of worldwide wealth

 Mortality among 1 - 4 year olds

Territory size shows the proportion of child deaths

 Education
and
Development
 Dimensions of
development:
Female Literacy
Dimensions of
development:
Share of rural
population
 Alternative Interpretations of Development
• Development as Modernization- emphasizes process of
social change which is required to produce economic
advancement; examines changes in social, psychological
and political processes;
• How to develop wealth oriented behavior and values in
individuals; profit seeking rather than subsistence and self
sufficiency
• Shift from commodity to human approach with investment
in education and skill training
Development as freedom and Development as
Sustainability:
Sen’s “Capabilities” Approach: 1985
• Economic growth cannot be treated as an end in itself. Development
has to be more concerned with enhancing the lives we lead and the
freedoms we enjoy
• Poverty cannot be properly measured by income or utility as
conveniently understood- What matters is not the things a person has
or the feelings these things provide- but what a person is or can be,
and does or can do with what she possesses
• Functioning- reflects the various things a person may value doing or
being- the valued functioning may vary from elementary ones, such as
being adequately nourished and being free from avoidable disease, to
very complex activities or personal states, such as being able to take
part in the life of communities and having self-respect
Readings
• Debraj Ray. Development Economics, Oxford University Press, 1998.
(Chapter 2. , 2.1-2.4) Page 21 to 41.
• Todaro and Smith: Economic Development; XII Edition; pages 16-24;
45-50