Measuring Development Flashcards
define ‘real GDP per capita’
per head value of goods and services produced by people of a country over a given year
Lucas (1988)
income growth has to be key instrument to achieve higher well-being, otherwise need to reach poor through taxation and redistribution which is politically more difficult
what is the exchange rate method
exchanging local currencies for a benchmark currency to allow for comparisons
problems with exchange rate method
1) market exchange rates determined by demand and supply of currencies in financial exchange markets
- affected by range of factors such as macroeconomic fundamentals, inflation, interest rate differentials and trade
2) prices for goods may not be appropriately reflected in exchange rates
- non-traded goods (services) don’t affect exchange rate as exchange rate depends only on commodities that cross international borders
- in poor countries, non-traded goods likely to be cheaper
- large proportion of earnings generate for self-consumption so missed in GPD figures
purchasing power parity (PPP) exchange rate between two currencies is…
rate at which both currencies buy same quantity of goods and services in each country
advantages of PPP
- more stable as not affected by volatile market rates
- takes account of non-traded goods
disadvantages of PPP
- hard to measure
- limited data available or lack of resources to send data
- infrequent price comparisons as they’re only every 5 years
- not all countries included
what does HDI measure
health
- life expectancy at birth
education
- mean number of years in education adults over 25 have received AND number of expected years of education children attending school can expect
standard of living
- GNI per capita
what is GNP
GDP + net factor income from abroad
what is GNI
GNP - (depreciation + indirect business tax)
characteristics of countries with high human development
- scores > 0.788
- GNI $40,000 per capita or more
- 13 years education
- 80+ life expectancy
characteristics of countries with low human development
- scores < 0.48
- GNI of $1000 per capita or less
- 10 years or less of education
- life expectancy in 60s
advantages of HDI
- simple
- understood by public press so has political power
- general correlation between economic and social development but one doesn’t mean the other
- concerned with human welfare
disadvantages of HDI
- health, education and living standard all in one index
- still only provides limited indication of social development
- only health and education covered
- other ways to measure health and education
- poor data
- limited data from certain countries
- measurement errors in variables included
- adds little to GDP figures
- HDI can disguise lack of social development
Streeten (1994) HDI advantage
stronger impact on the mind and draw public attention
Rodriguez ran two regressions to explain…
changes in time in per capita income and changes in HDI
what set of independent variables did Rodriguez use?
- initial values of income, schooling and life expectancy
- current values of trade openness, inflation and rule of law
define ‘trade openness’
ratio of exports plus imports over GDP
Rodriguez’s findings
- inflation negatively and significantly related to changes in HDI but not related to GDP growth
- trade openness and rule of law positively and significantly related to GDP growth but not HDI
- implications of cross-country regressions for development policy depend crucially on whether you’re interested in raising GDP growth or HDI
when and why were millennium development goals made?
- 2000
- 189 nations made pledge to free people from extreme poverty and multiple deprivations
8 millennium goals
1) end poverty and hunger
2) achieve universal education
3) promote gender equality
4) reduce child mortality
5) improve maternal health
6) combat HIV/AIDS
7) ensure environmental sustainability
8) develop global partnership
impact of COVID-19 on development
- poverty rose due to COVID disruption combines with effects of conflict and climate change
- global poverty resumed pre-pandemic downward trajectory
- 75-95m additional people could be in extreme poverty in 2022 compared to pre-covid
- food inflation has devastating impact on poor families
- typical person in low income country spends 2/3 resources on food compared to 1/4 in high income country
5 key data sets
1) world bank’s Living Standard Measurement’s Surveys (LSMS)
- first collected data in peru and ivory coast 1985 but not available for many countries
- repeated every 5-10 years
2) household income and expenditure surveys
- collected by bureau of statistics
- national sample survey organisation in india 1940 was one of first large scale scientific surveys
3) population census’
- collected by bureau of statistics
- either have income information or information that correlates with income
4) demographic and health surveys
- implemented by ICF, funded by USAID
5) employment and wage surveys
- collected by ministry of labour
household budget surveys collect information on…
1) characteristics of individual households
- assets, activities, location, access to public services, access to markets
2) who buys what goods/services and how much they spend on them
3) collect data on outcomes we’re interested in and that are affected by policy variables
- e.g. nutrition levels, expenditure patterns, educational attainments, earnings, and health
4) provide information at level of individual households about variables that are either set or influenced by policy
- e.g. prices, transfers, or provision of schools and clinics
problems of measuring welfare
1) data quality
2) definitions of households often problematic and can distort consumption
3) reporting periods notorious for generating measurement error
- longer period is more measurement error
- shorter period is less representative
4) possibility of boundary bias
5) measurement consumption and income also problematic
advantage of measuring income over consumption
most intuitive
advantages of measure consumption over income
- closer to wellbeing as creates utility
- easier to measure
- less likely to misreport
disadvantages of measuring consumption
1) available at household rather than individual level
2) large measuring errors
- private consumption of alcohol/tobacco/gambling etc
- measuring durables
3) ideally nee asset price, lifespan, depreciation rate, opportunity cost of capital
4) ability to smooth consumption
5) dependent on wealth and access to loans
