L3) Growth & Development - Concepts & Measures

Question 1

What are the two main drivers of economic growth?

Answer 1

1) New resources in an economy
2) Technological change. Ex: DVDs vs mp3 players

Question 2

GDP

Answer 2

Growth Domestic Product: market value of all G/S produced WITHIN country’s borders /y
- helps us define Economic Structure of an Economy (3 sectors)
- adjusted for inflation to look at relative income
- tracks world growth

but there are issues with this measure

Question 3

GNP

Answer 3

Growth National Product: market value of all G/S produced by NATIONALS of a country /y
- all goods, no matter where it’s sold
- considers where prod occurs & where prods are repatriated

Shift from GNP to GDP –> better reflection of domestic economy (follow money, not just the value)

Question 4

Economic Structure of an Economy (3 sectors):

Answer 4

Primary Sector: Agriculture
Secondary Sector: Industry
Tertiary Sector: Services

information about these sectors is provided by GDP

Question 5

Issues with using GDP as a measurement of economic growth?

Answer 5

Comparisons against countries of different economic size (issue)
Only considers finished goods (not intermediate)
Welfare enhancing vs Welfare reducing activities (doesn’t distinguish: Ex Oil spills)
Does not include unpaid work
Does not consider distribution of income

Question 6

What measurements to use ALONGSIDE GDP to prevent these issues?

Answer 6

PPP: better comparisons
GNI: incomes received (instead of value of G+S) to better represent DCs

Question 7

PPP

Answer 7

Purchasing Power Parity: AKA Law of One Price
- “basket of goods in one country should be comparable in another” (easier to compare countries)
- adjusts GDP as if country’s output is sold in USA. Ex: Big Mac Index
-> International dollar = 1ppp (same global PP)

Question 8

GNI

Answer 8

Growth National Income: INCOMES received rather than value of G/S
- better represents DCs => remittances & foreign aid
- larger economies see less difference between GDP & GNI

Question 9

Does Growth + Development = Well-Being?

Answer 9

No!

Necessary & Sufficient conditions for development: development doesnt NEED economic growth, but without it, ISNT ENOUGH for total development

Question 10

Other than GDP, what are some alternative measures of development?

Answer 10

HDI
GNHI
GPI

(these measures consider PROGRESS, GDP does not)

Question 11

Why should one be concerned with income inequality when measuring GDP?

Answer 11

Using national income as average measures is problematic as these averages can skew measures of GDP (includes HDI, GNHI, GPI)

-> must assess income inequality

Question 12

How to measure/calculate inequality?

Answer 12

Income shares
Gini coefficient
Lorenz curve

Question 13

How might one assess income inequality with Income Shares?

Answer 13

considers distributional shares of GDP carried by the top 10% (population) of income sharers

Question 14

How might one assess income inequality with Lorenz Curve?

Answer 14

allows us to see HOW income is distributed, more than just top 10%
- Inequality between & within countries *

Question 15

How might one assess income inequality with Gini Coefficient (G)?

Answer 15

G = (A/A+B)

[(Households)/(Income)+B] = G

Question 16

Perfect Line of Equality

Answer 16

w/ Lorenz Curve & Gini Coefficient (G)

…

Question 17

What is the global G?

Answer 17

G = 0.7