CH1 Flashcards
The Development gap
the differences in economic development between the advanced economies of the US, Japan, and the Western European nations and the poorer economies of Africa, Asia, Latin America, and Eastern Europe
How to measure the development gap
Measure the income gap between developed economies and poor countries. Can do this using GDP per capita.
Ways to compare GDP per capita across countries
- Market exchange rate
- Purchasing Power Parity (PPP)
PPP is a better method of converting GDP across countries because…
market exchange rate is based on the tradeable sector while PPP takes into account the non-tradeable sector.
Gross domestic product (GDP) per capita
a measure of the value of output produced per inhabitant of a country during a given year
Benefit + Limitation of using GDP as a measurement of income
benefit: good approximation of average annual per capita income
limitation: doesn’t adjust for income flowing in and out of the country and does not include foreign aid and remittances
Purchasing Power Parity
computes exchange rates between currencies of different countries so that the same basket of goods in any two countries has the same dollar value
Why are non-tradeable goods are usually less expensive in poorer countries?
because based mostly on cost of labor (which is lower w lower wages in poor countries)
Poverty gap
Income gap indicates that a large portion of the world population lives on less than 10K a year
The Health gap
People in developing countries are more prone to diseases and do not live as long as people in developed countries and many more children die at young age
2 key indices of health gap
- Differences in life expectancy
- Differences in infant mortality rates
Life expectancy
the average number of years a newborn infant would live if health and living conditions at the time of its birth remained the same throughout its life
Infant mortality rates
Probability that a child will die before reaching age 1.
= (number of children dying before age 1 per 1000 live births in the same year)/10
Education gap
Gap in availability and quality of education across countries.
Countries that invest in good education can realize high productivity gains and economic growth
Measured by gross secondary school enrollement rate (%)
=(# of pupils enrolled in secondary school, regardless of age)/(population in the theoretical age group for secondary education)
Urbanization gap
Rich countries typically very urbanized vs poor countries thought to have a larger share of population living in rural areas
Current higher levels of urbanization don’t equal to higher levels of income as many migrants now move from the countryside to live in urban slums under conditions of extreme poverty .
