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After completing this unit, you should be able to: See how economists apply the methods of science, consider how assumptions and models can shed light on the world, learn two simple models - the circular flow and the production possibilities frontier, distinguish between microeconomics and macroeconomics,...
Lecture Comparative Economic Development Copyright © 2009 Pearson Addison-Wesley All rights reserved 2-1 Common Characteristics of developing countries • • • • • • • • • • Lower levels of living and productivity Lower levels of human capital Higher levels of inequality and absolute poverty Higher population growth rates Greater social fractionalization Larger rural population- rapid migration to cities Lower levels of industrialization and manufactured exports Adverse geography Underdeveloped financial and other markets Colonial legacies- poor institutions etc Copyright © 2009 Pearson Addison-Wesley All rights reserved 2-2 Defining the Developing World • World Bank Scheme- ranks countries on GNP/capita – LIC ($975 or less) – LMC (between $976 and $3855) – UMC (between $3856 and $11906) – High income countries – OECD- Organisation for Economic Co-operation and Development ($11907 or more) Copyright © 2009 Pearson Addison-Wesley All rights reserved 2-3 Table 2.1 Classification of Economies by Region and Income, 2007 Copyright © 2009 Pearson Addison-Wesley All rights reserved 2-4 Table 2.1 Classification of Economies by Region and Income, 2007 (continued) (Latin America and the Caribbean) Copyright © 2009 Pearson Addison-Wesley All rights reserved (Sub-Saharan Africa) 2-5 Table 2.1 Classification of Economies by Region and Income, 2007 (continued) Copyright © 2009 Pearson Addison-Wesley All rights reserved 2-6 Figure 2.1 Nations of the World, Classified by GNI Per Capita Copyright © 2009 Pearson Addison-Wesley All rights reserved 2-7 Measuring Development for Quantitative Comparison across Countries • Gross National Income (GNI) • Gross Domestic Product (GDP) • PPP (Purchasing Power Parity – Calculation of GNI using a common set of international price for all goods and services, to provide more accurate comparisons of living standards) method instead of exchange rates as conversion factors (see figure 2.2) Copyright © 2009 Pearson Addison-Wesley All rights reserved 2-8 Figure 2.2 Income Per Capita in Selected Countries Copyright © 2009 Pearson Addison-Wesley All rights reserved 2-9 Table 2.2 A Comparison of Per Capita GNI, 2005 Copyright © 2009 Pearson Addison-Wesley All rights reserved 2-10 Table 2.3 Commonality and Diversity: Some Basic Indicators Copyright © 2009 Pearson Addison-Wesley All rights reserved 2-12 Holistic Measures of Living Levels and Capabilities The Traditional Human Development Index Copyright © 2009 Pearson Addison-Wesley All rights reserved 2-13 Origin of HDI: • The index was developed in 1990 by Pakistani economist Mahbub ul Haq and Sir Richard Jolly, with help from Gustav Ranis of Yale University and Lord Meghnad Desai of the London School of Economics Dimensions of HDI • Life expectancy at birth, as an index of population health and longevity • Knowledge and education, as measured by the adult literacy rate (with twothirds weighting) and the combined primary, secondary, and tertiary gross enrollment ratio (with onethird weighting) • Standard of living, as measured by the natural logarithm of gross domestic product (GDP) per capita at purchasing power parity (PPP) in United States dollars. Calculation of HDI To construct the index, fixed minimum and maximum values have been established for each of these indicators: • Life expectancy at birth: 25 years and 85 years • Adult literacy rate: 0 & 100 % • Combined gross enrolment ratio: 0% & 100 % • Real GDP per capita (PPP$): $100 & $40,000 (PPP$) Calculation of HDI • Individual indices can be computed according to the general formula: • Index = Actual xi value – minimum xi value/ Maximum xi value – minimum xi value For eg: the life expectancy at birth in a country is 63.7 years the index of life expectancy for the country would be: Life expectancy index = 63.725/8525 = 40/60 = 0.645 Calculation of HDI • The adult literacy rate is 61.0% Adult literacy index =61.0-0/100-0=0.61 • Combined gross enrolment ratio is 63.8% Combined gross enrolment index =63.8-0/100-0=0.638 • Education index=2/3(0.61)+1/3(0.638)=0.62 Real GDP is 3452,then adjusted GDP =log(3452)-log(100)/log(40000)-log(100)=0.591 • Therefore HDI = (0.645+0.62+0.591)/3 =0.619 Categories of HDI: • Very High Human Development Index – HDI 0.900 to 1.0 • High Human Development Index – HDI 0.800 to 0.900 • Medium Human Development Index – HDI 0.500 to 0.799 • Low Human Development Index – HDI below 0.500 Relationship between individual development and human development in general • If two people in a relatively unequal society have an HDI of 0.5 and 0.25, respectively, and both increase their level of development by 0.25, they will affect general development in the same magnitude • In a more equal society, however, an increase in the HDI of the poorer person should count more Limitations of HDI: Not a comprehensive measure of human development. It only focuses on three dimensions of capabilities. The HDI is not designed to assess progress in human development over a shortterm period because two of its component indicators—adult literacy and life expectancy at birth —are not responsive to shortterm policy changes Like any average country measure, the HDI does not account for variations in human development within the country Countries with the same HDI may be very different in how human development is distributed, either from region to region, or from social group to social group Figure 2.3 Human Development Disparities within Selected Countries Copyright © 2009 Pearson Addison-Wesley All rights reserved 2-22 Figure 2.3 Human Development Disparities within Selected Countries (continued) Copyright © 2009 Pearson Addison-Wesley All rights reserved 2-23 Table 2.4 Human Development for 23 Selected Countries (2004 Data) Copyright © 2009 Pearson Addison-Wesley All rights reserved 2-24 Table 2.4 Human Development for 23 Selected Countries (2004 Data) (continued) Copyright © 2009 Pearson Addison-Wesley All rights reserved 2-25 Table 2.5 Human Development Index Variations for Similar Incomes (2004 Data) Copyright © 2009 Pearson Addison-Wesley All rights reserved 2-26 ... High income countries – OECD- Organisation for Economic Co-operation and Development ($11907 or more) Copyright © 2009 Pearson Addison-Wesley All rights reserved 2-3 Table 2.1 Classification... Addison-Wesley All rights reserved 2-2 3 Table 2.4 Human Development for 23 Selected Countries (2004 Data) Copyright © 2009 Pearson Addison-Wesley All rights reserved 2-2 4 Table 2.4 Human Development. .. Pearson Addison-Wesley All rights reserved 2-2 5 Table 2.5 Human Development Index Variations for Similar Incomes (2004 Data) Copyright © 2009 Pearson Addison-Wesley All rights reserved 2-2 6