Development Flashcards
what is development econ
branch of econ that betters the fiscal, economic, social conditions of developing countries
- help them = income, wellbeing, capabilities
different approaches of inducing development
- Acemoglu and Robinson = institutions = property rights, law, elites , good judiciary
- Sachs = subsidies, foreign aid
- Easterly = doesnt like foreign aid and gov - work with NGOs to test what works
why should we care about development econ
- intellectual interest = 60 years old - more to explore
- Altruism
- Social self interest = oil, trade
- expanding job market
what is the evolution of development econ
view and approach has changed a lot over the years
why is measuing development important
have to keep track and make sure policies are having the correct effect
- has the money improved lives
what is main way to measure development
GDP per capita
what is GDP per capita
per head value of goods and services produced by the people of a country over a given year
- doesnt capture all aspects of development
GDPpc across the world
why is it a concern
- big inequality across countries
- low / middle income countries only produce small fraction of worlds good
- 80% of the world live in these countries
- most populated = poorest
pros of using GDPpc
- useful for comparing countries
- easy to calculate from gov figures
why GDP using ER method is wrong
- doesnt include price differences across countries
- ER = determines by D and S in exchange markets
- non traded goods dont effect ER
- ER only takes commodities that corss borders into consideration
- but in poor countries non traded goods are likely to be cheaper
- ER underestimates real incomes of poor countries
- dont account for services
- doesnt include slef made incomes
why is PPP better
corrects for prices and non traded goods and services
what is PPP and Big mac index example
rate both countries buy the same quantity of g + s in each country
- price differences of Big mac across different countries used to determine relative ER
india and US example of PPP
- with the same amount of dollars in US 500
- you could be considered poor in US
- bet well off in India
- because you can buy a lot more with 500 in India than you can in US
how do you calculate PPP
define a bundle of goods that average person consumes
- PPP adjusts GDP based on the basket of goods a country consumes and the international value of those goods
- price comparison 5 years
- 400 - 700 goods
advantages of PPP
- reduces disparities in world income distribution - they arent as worse off as ER market makes them seem
- takes into account non-traded goods
- stable
disadvantages of PPP
- hard to measure
- basket selection hard - 1000 items only in 18 countries
- infrequent comparisons = 5 years
- not all countries included
- not good for considering financial flows = ER
other ways of measuring wellbeing other than GDPpc
- literacy rates
- access to drinking water
- infant mortality
- life expectancy
- undernutrition
- disease
- education
country example of why GDP doesnt include inequality, and indicators of wellbeing
- Guatemala = lower GDPpc
- Sri lanka = less inequlity
- G = top 20% holds 63% of GDP
- G = worse stats on life expectancy , infant mortality, access to water, literacy rate
- so is measuring inequality a better indicator of how well a country is doing than GDP
why can GDPpc still be used as a proxy for wellbeing if it doesnt capture inequality
- correlated with
- wellbeing indicators
- can serve as a good indicator for a countrys overall well being
what 3 elements make up HDI
- health
- education = average number of education
- standard of living = GNI per capita PPP
- GNI = GDP - depreciation
How does HDI work
rank between 0 - 1 how well its score in relation to constructed minimum and observed maximum
- all countries lie inbetween
advantages of HDI
Streeten
- “useful in focusing attention and simplifying the problem”
- simple
- political power
- fuller picture of how developed
- 2 countries with same GDP - different HDI - different social development
disadvantages of HDI
castles
- combines 3 very different things - unsense grouping
- limited indication of social development
- adds little to GDP - since 1/3
- since GNI 1/3 could disguise social development in country where high GNI overshadows life expectancy = US
is there a difference between GDP and HDI
plotting against each other = highly correlated
- so whats the point of having 2 measure of wellbeing that are the exact same results
- 0.95 correlation coefficient
- growth correlation
- correlation coefficient falls = not as good any more
- just looking at health and education = correlation is 0.03
- health and education are useful measures after all becasue telling more info than just GNI
how come different sets of policies will effect human and economic development
Rodriguez = ran 2 regressions to explain changes over time in per capita income and changes in HDI
- use same independent variables
- inflation is related to change in HDI not GDP
- trade openness is related to change in GDP not HDI
- so different policies can target different aspects = either increase HDI or GDP
why is it useful to have HDI and GDP
difference in measures is important for the objective as a policy maker
- what do they want to increase
- human development or economic development
why do we need to know about the characteristics of the poor
so we can design better policies that will help lift them out of poverty
what was the 8 millenium development goals
189 nations promise to free people from extreme poverty
- made in 2000
- ended in 2015 = didnt achieve what is set out to = end poverty
- new goal is 3% global absolute poverty rate by 2030
did the millenium development goals make any difference
and impact of covid
- extreme poverty is falling
- declined a lot in last 20 years
- 1990 = 50% of pop in dc = extreme poverty - less than 1.90 a day
- 2021 = 9%
- additional 75-95 extra people in poverty compared to pre covid = disruptive, conflict, climate change
- food inflation is bad for poor = 2/3 of income on food
what is used to measure poverty levels
- household surveys = computers make easy
- sample selection
- full census
what information do hh surveys collect
- characteristics of individuals
- assets
- activities
- location
- access to public services
- access to markets
- how much the spend
- nutrition
- health
- earnings
- wellbeing
main benefit from hh surveys
- keep track of who benefits and who loses from development
- if carried out on regular basis
problems with hh surveys
- data quality - wrong results collected
- what is a hh - people that live - eat together
- reporting periods generate measurement errors
- longer reporting period = get bored and stop collecting data
- short = less representative = birthday
- boundary bias = reporting things from outside boundary
- seasonality = different diets
- people lie about income = sensitive
- dont remember things = recall bias
- hard to measure consumption and income
which is better to measure income or consumption
- consumption is better
- closer to well being because consumptions = creastes utility
- consumption is smooth = income is volatile
- easier to measure - lots of components to income
- more likely to misreport income
what are problems with consumption
- available at hh level not individual
- measuring errors = recall bias, decline in reporting, seasonality of foods, private consumption not reported
- hard to measure durables
- ability to smooth depends on wealth and access to loans
what adjustments to hh surveys need to use
- changes in prices of goods
- PPP for spatial difference s
- valuing home produced goods = locally
- imputed value of public goods and services
- adult equivalent scales = demograohic characteristics = gives weight to gender and age for consumption
what is a poverty line
- threshold poverty level income to compare to individual income = poverty level
- a threshold of usual consumption and if you are below you are identified as poor
how is a poverty line defines
value a typical basket of food items that provide enough calories to work and a small allowance for durables
- absolute poverty = 1.90
- relative = US poverty = not absolute
what are the factors of a good poverty indicator
- desirable axioms
- estimated for individuals not hhs
- monotonicity = a decrease in y of a poor person should increase poverty index
- transfer = transfer from poor to less poor should increase the index
- transfer sensitivity = taking money from house far below line and giving to richer hh is very bad = worse than taking it from slightly poor house
what are the proposed class of poverty measures
Foster 1984
what does low alpha mean
what are the proposed class of poverty measures
Foster 1984
what does low alpha mean
alpha = sensitivity parameter
- low = weights all income of individuals below z the same
- high = those with the lowest incomes are given more weight in the measure
- higher FGT = more poverty in the economy
po is when alpha is 0
- headcount ratio
- proportion of pop that is poor
- easy to understand
- this is how many poor there are
p1 = when alpha is 1
- ratio of targeted to untargeted budget needed to eliminate poverty
- poverty gap index
- expresses the extent of falling below line as a percentage
- the amount you would have to pay everyone to bring everyone to the poverty line, divided by pop
- the fraction of the poverty line they are missing to escape poverty
- numerator = minimum cost of eliminating pov
- denominator = maximum cost of eliminating pov
flaws of p0
- doesnt take into account intensity
- how poor are the poor
- how far away are people from the line
flaws of p1
- doesnt take into account inequality
- extreme individuals not considered
- they are the same distance under the poverty line but to different extents
p2 = alpha is 2
satisifes all axioms
- weights the poverty gap as a square
- gives greater weight to expenditure deficits further away from the poverty line
- sensitive to distribution of expenditures of poor
- satisfies monotonicity and transfer axiom
flaws of p2
- hard to interpret
- giving more weight to bad data = anomalies
how is proposed class of poverty measures used in policy application
- alpha = measure aversion to poverty
- the higher alpha = more concern for people further away from the line
how does government target a given welfare budget to minimise poverty
P0 = spend on least poor - get them to cross the line
p2 = spend on the poorerst
- each measure is differentially informative
- if high in P0 but low in p2 = then have more people in poverty but less severe poverty
what is time to exit poverty Morduch 1998 statistic
how long it would take a average poor person to exit poverty - at different economic growth rates
- sesntive to expenditure distribution
what is the profile of a person in poverty
- characteristics in Ecuador
- significant regressors
younger
larger families = 6-12
food is inbetween 1/2 and 3/4 of total consumption (Engels law)
primary education only
informal sector
argiculture over services
self employed
less likely to have access to water, electricity, sewage
risk averse
lack of savings, borrowing and insurance
low investment in health education
what is the poor poverty line
living in hhs with consumption pc less than 1.90 per person per day
is poverty and growth related
- why are rich countries have lower poverty? is it to do with economic growth
- naive to think growth solves poverty
- growth most cost effective way to solve poverty = no growth = no aid/anti poverty measures
- growth lifts people from poverty
- policy only focusing on poverty eradication doesnt stimulate growth = money runs out = need increased gov revenues
is poverty dynamic
- yes
- temporoary phenomenon = people move in and out of poverty
- vulnerable people keep switching
why is acknowlding dynamic poverty good for policy makers
- information on reasons that cause poverty dynamics = movement across the line is useful for policy makers to design safety net policies
- if child birth is a reason for falling below = help mothers
- long term = help improve assets and entitlements of poor
what are the 3 types of poor
chronic poor
transient poor
non poor
how can you measure poverty dynamics
- panel data based on income and consumption = same subject over time
- repeated cross sectional surveys
Yaqub 2000 way of identifying chronic poor
distinguish permanent component of a hhs income from its transitory variations - chronic poor = permanent component is below the poverty line
why is knowing vulnerability to poverty useful for policies
- expost = who is currently poor - asseses how effective the policy is - does it make more people poor
- exante = knowing what the impact of current policies will have on future poverty
what do we need to define vulnerability
poverty line z
measure of risk alpha
- you are vulnerable if the probability of being poor is greater than an arbitrary threshold alpha
what determines alpha = measure of risk of poverty
hh consumption
and shocks
what are the determinants of hh consumption
- characteristics = age caste
- asset endowments = capital
- context capital is used
- transfers = safety nets
what are the types of shocs to these hh consumption that can cause poverty = risk of
- assets = illness, loss of animals, land expropraition
- context assets used = floods, droughts, war, inflation
- transfers = loss of access to safety net, economic crisis
- identifying the causes of vulnerability is essential for designing anti pov strategies
how can you help chronic poverty
raise expenditure
cargo net instruments = lift average income = improve hh assets positions, context its used, transfers
how can you help transitory poverty
raise expenditure and reduce exposure to risk
- accumulate savings
- formal and informal insurance schemes
- credit and social assistance
importance of gov in reducing poverty
- they are the ones that need to help
- have the right policies
- using evidence based approach to policy has proven effective
- aid can play a limited role
- how to lift people out of poverty = maybe credit markets, insurance
what are the advantages of evidence based approach
- framework we can evaluate policy and reforms
- quantification of the effects of various measures
- better understanding of what will increase income growth
