economic development Flashcards
difference developed developing
-Developed economies have
high income per head, well-established economic institutions,advanced technological infrastructure and a strong tertiary sector.
- Developing countries havelower income per head,reliance on fewer products, a larger primary sector and lower
productivity.
Classification according to income
- Economists and international organisations sometimes concentrate on
differences in income per head to classify economiescomparing the value of economies’ GDP per
capita , GNI per capita or NNI per capita. - - - The World Bank uses GNI per capita to classify every country as low
income, lower middle-income, upper middle-income or high-income - In the 2019 classification, Sri Lanka
moved from lower middle-income to upper middle-income while
Argentina slipped from high-income to upper middle-income. - The thresholds between the categories are updated in July each year to
account for the international rates of inflation. As a result, the thresholds
are constant in real terms over time. - Classifying economies according to income levels help to identify those economies in need of help and assistance from aid providers. Since 2018, the World Bank has used the high income threshold as a determinant of the interest rates it
charges on loans. A higher interest rate is charged on loans to countries
which have been classified as high income for two consecutive years.
However, the classifications can be misleading, as some countries’
economies may be growing while others may be contracting. Neither
does it capture all the influences on development
explain poverty cycle development trap
povery cycle low income, low savings, low investment, low productivity
development traps- low economic growth developing economies from low income savings investment less level education healthcare less human capital, less economic growth
other indicator living standard
monetary- GDP, GNI, NNI and purchasing power parity ( A way of comparing international living standards are using exchange rate based on the same amount of each currency needed to purchase the same basket of goods and services)
non monetary- infant mortality rates and the number of doctors
per 1000 of the population.
HDI
Composite measure of standard of living that includes
-GNI per head
-education (year of schooling)
-life expectancy
people’s welfare is not only by the goods and services available to them but also
their ability to lead a long and healthy life and to acquire knowledge
- HDI Shows distance country to cover to reach max 1
For example, in 2019, Cuba’s
HDI ranking was higher than its GNI per head ranking,while Qatar’s GNI per head ranking was higher than its
HDI ranking
measurable economic welfare (MEW)
Composite measure of living standards that adjust GDP for factors that reduce living standards and factors that improve living standards
Factors that improve living standards, including increased leisure time, are added to the GDP figure. Factors that reduce living standards, such as environmental damage, are deducted.
it is difficult and expensive to measure the value of non-marketed goods and
services
multidimenstional poverty index (MPI)
A composite measure of deprivation in terms of proportion of households that lack the requirements for a reasonable standard of living Standards:
LIVING ST
(Cooking fuel, Sanitation, Drinking water, Electricity, Housing, Assets
Education:
Years of schooling
School attendance
Health:
Child mortality
Nourishment
The six indicators of living standards are given a total weighting of 33%, the two indicators of education a total
weighting of 33% and similarly the two indicators of health have a
weighting of 33%.
A household is considered to be multidimensionally
poor if they are deprived in at least 33% of the weighted indicators. This
means a family would be regarded as poor if it has lost a child and has
another child who is not attending school.
- The aim of the MPI is to help countries understand why people are poor
and why some stay poor even when incomes rise. - The MPI can help governments and international organisations target the poorest groups in
a country, assess and co-ordinate national development plans
kuznets curve
curve that shows the relationship between economic growth(GDP PER CAPITA) and in income inequality(GINI COEFICIENT)
GDP rises income becomes more unevenly distributed, and then after a certain income level is reached, income becomes more
evenly distributed
movement of
labour from low-paid and low-skilled agricultural jobs to higher-paid
and more skilled manufacturing jobs.
trend is not being followed in all developing economies.
For example, the curve does not explain the rise in income
inequality in the high-income economy of the USA
why GDP is less
One of these is that the
official real GDP, GNI or NNI figures may understate the true change in
output bcoz shadow economy. This refers to undeclared economic activity called the hidden or underground economy.
1. they are seeking to evade paying tax. For example, a plumber may receive
payment for undertaking jobs in their spare time and not declare the
income they receive to the tax authorities. 2. not declaring economic activity is that the activity is itself
illegal, for example smuggling goods
Shadow economy can be found by measuring any gap between GDP as measured by the expenditure and income methods.
This is because people will be spending income they have not declared
If the size of the shadow economy is relatively constant, the rate of
economic growth may be calculated reasonably accurately. However,
even a shadow economy can make international comparisons of
economic growth rates difficult. This is because the size of the shadow
economy varies between economies. It is influenced by the marginal
rates of taxation, the penalties imposed for illegal activities and tax
evasion, the risk of being caught and social attitudes towards, for
example, different illegal activities
Neither may official GDP figures provide an accurate measure of output
and changes in output because of low levels of literacy, non-material
goods and services and the difficulties of measuring government
spending. In countries with low levels of literacy, it will be difficult for
the government to gather information about all economic activity. Some
people will be unable to fill out tax forms and others will fill them out
inaccurately, so estimates will have to be made for some output.
why GDP is less in economy GDP international
If the size of the shadow economy is relatively constant, the rate of
economic growth may be calculated reasonably accurately.
However, even a shadow economy can make international comparisons of
economic growth rates difficult. This is because the size of the shadow
economy varies between economies. It is influenced by the marginal
rates of taxation, the penalties imposed for illegal activities and tax
evasion, the risk of being caught and social attitudes towards, for
example, different illegal activities
In countries with low levels of literacy, it will be difficult for
the government to gather information about all economic activity. Some
people will be unable to fill out tax forms and others will fill them out
inaccurately, so estimates will have to be made for some output.
Estimates also have to be made for non-marketed goods and services.
Goods and services that are produced and that are either not traded or are exchanged without money changing hands go unrecorded.
For example, domestic services provided by homeowners, painting and
repairs undertaken by home-owners and voluntary work are not included in the official figures.
In comparing economic growth rates, it is also important to consider the
nature of economic growth. A very high rate of economic growth may
initially appear to be very impressive. However, it may not be possible
to sustain this for any length of time if non-renewable resources are
depleted and pollution is created that reduces the fertility of the land and
the health of the labour force
Comparison of living standards over time
Real GDP is not evenly
distributed, so while it is possible that real GDP per head may rise, not
everyone will be better off
- changes in the type of products produced . During a war, output may
rise because more weapons are being produced, but not quality of their lives is improving. The recruitment of
more police to cope with more crime will increase real GDP, but will be
unlikely to cause people to feel better off - More consumer goods and services, such as housing, food, clothing and
transport, raise people’s living standards. A shift of resources from
consumer products to capital goods will enable more consumer products
to be produced and enjoyed, but only in the future. However, in the
short run if the economy is operating at the frontier of its production
possibility curve, such a move will cause people to enjoy fewer
consumer products reduction in the output of consumer products in the SR but an increase in the LR - As access to more quality products rises, the desire for even more and better
products may increase at an even faster rate. For example, people who
do not have a car are happy when they buy their first car they want a better model. This is seen in China and India
4.Real GDP measures the quantity of output produced but not the quality.
Output could rise, but if the quality of what is produced declines then
the quality of people’s lives is likely to fall.
5.If real GDP per head stays constant from one year to the next but working conditions rise and/or working hours fall, people’s
living standards will rise.
- the quality of the environment in some countries declines as a
result of pollution and, for example, deforestation quality life decline
