L3) Growth & Development - Concepts & Measures Flashcards
How do economies grow? Measuring Growth & Output Growth & Development = Well-Being? Alternative Measures of Development: (3) HDI, GNHI, GPI Income Distribution & Inequality
What are the two main drivers of economic growth?
1) New resources in an economy
2) Technological change. Ex: DVDs vs mp3 players
What are the two primary measures of economic growth & output?
GDP & GNP
GDP
Gross 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
GNP
Gross 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)
Economic Structure of an Economy by sector (3 sectors):
Primary Sector: Agriculture
Secondary Sector: Industry
Tertiary Sector: Services
information about these sectors is provided by GDP
Issues with using GDP as a measurement of economic growth?
- Comparisons against countries of different economic size (issue)
- Informal sector: only considers finished goods (not intermediate)
- Welfare enhancing vs Welfare reducing activities (doesn’t distinguish: Ex Oil spills)
- Unpaid & volunteer work unaccounted for
- Does not consider distribution of income
What measurements to use ALONGSIDE GDP to prevent these issues?
PPP: better comparisons
GNI: incomes received (instead of value of G+S) to better represent DCs
PPP
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)
GNI
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
Alternative measure to GDP
Does Growth + Development = Well-Being?
No!
Necessary & Sufficient conditions for development: development doesnt NEED economic growth, but without it, ISNT ENOUGH for total development
MDG
Ex: Life expectancy rates =/= GDP per capita
Other than GDP, what are some alternative measures of development?
HDI
GNHI
GPI
(these measures consider PROGRESS, GDP does not)
Why should one be concerned with income inequality when using GDP to measure economic growth?
Because GDP is measured by national incomes, using them as average measures is problematic as these averages can skew measures of economic growth (includes HDI, GNHI, GPI)
-> therefore, must assess income inequality to make note of discrepencies
How to measure/calculate inequality?
3 ways to measure/calculate inequality
Income shares
Gini coefficient
Lorenz curve
How might one assess income inequality with Income Shares?
considers distributional shares of GDP carried by the top 10% (population) of income sharers
How might one assess income inequality with Lorenz Curve?
allows us to see HOW income is distributed, more than just top 10%
- Inequality between & within countries *
