WK 1: Dev Intro Flashcards
What is Development Economics?
The study of how to increase wealth in countries that are changing from an agricultural economy to an industrial one.” (FT)
The study of how economies are transformed from stagnation to growth from low-income to high-income status, and overcome problems of absolute poverty” (T&S)
Above and beyond traditional ‘economic problem’, given prevailing realities also need consider economic, social, political and institutional mechanisms on ground
Traditional Definition of Development
1: process
2: -> (+) real inc(nat)
3) (+) real inc(nat) must increase over time
Meier and Baldwin (1957) definition – 3 elements: “a process whereby an economy’s real national income increases over a long period of time”
1) Economic development as a process – E.g. LR changes in factor supplies, new/better techniques of production, raising skills, institutional changes, changes in size/age population
2)Economic growth leads to an increase in real national income
3) Real national income must increase over long time. Number authors use long-run increase in per capita incomes as measure of development…
Modern Definition of Development
- (+) real output over time
- (-) poverty [Dudley Seers – unemployment]
- (-) inequality
Meier (1976) (re-)defined development as:
the process whereby real per capita income of a country increases over a long period of time – subject to the stipulation that the number of people below an ‘absolute poverty line’ does not increase, and that the distribution of income does not become more unequal”
What is Development?
Goulet (1971, 2006):
Sustenance: meet basic needs
Self esteem: independent, self respecting person
Freedom from servitude:
choice, freedom from 3 evils (want, ignorance, and squalor)
Development as Freedom
Aristotle: “Income and wealth are not ends in themselves but instruments for other purposes”
Amartya Sen (Nobel prize 1998): capability approach “the expansion of commodity productions…are valued, ultimately, not only for their own sake, but as a means to human welfare and freedom”
Functionings as achievement: what a person does or can do (beings and doings) with commodity of given characteristics they control
Capabilities as freedoms in terms of functionings
Metrics for Measurement
GNI per cap:
Gross National Income per capita (Total dom+for value added claimed by all nationals of a country, (whether residing at home or not))
GNI:
GDP + income nationals receive from abroad – payments made to non-nationals who contribute domestically.
GDP per cap :
Gross Domestic Product per capita (Total value for final use of output produced by economy by nationals and nonnationals.)
PPP:
Purchasing Power Parity adjustments
HDI:
Human Development Index - Considers life expectancy, education, and income.
GNH:
Alternative measures: Happiness Index, Bhutan’s Gross National Happiness
List the Characteristics of Developing Countries (8)
- Lower Living Standards & Productivity
- Higher Inequality & Poverty
- Demographic Trends
- Social and Institutional Factors
- Urbanization and Industrialization
- Adverse Geography
- Underdeveloped Markets
- External Dependence
Characteristics of Developing Countries: Lower Living Standards & Productivity
- per cap GDP < than other nat’s
- High rates of underemployment and informality
Data from 1991 - 2011 shows Y per worker, graph illustrates a productivity gap?
Poverty Trap
Poverty Trap
low inc -> low inv (H, E, K) -> low prod’vty, thus stagnation
Characteristics of Developing Countries: Lower lvl Human Capital
sub saharan africa experiences significantly higher child mortality rates (source: our world in data)
education:
low income group, Net primary school enrollment = 79%
pup:teacher ratio = 39
high income group, Net primary school enrollment = 97%
pup:teacher ratio = 14
Characteristics of Developing Countries: Higher Inequality and Poverty
0 (perfect equality) to 1 (total inequality)
South Africa: 0.63
Netherlands: 0.285
Lorenz curve plots the cumulative percentage of income (or wealth) against the cumulative percentage of the population, ranked by income
captures how far the Lorenz curve falls from the “line of equality”
Wealth is typically distributed less equally than income.
Countries that have ‘developed’ but have increasing inequality:
USA (1980: 0.347
2022: 0.413)
Wage stagnation for lower-income groups, globalization, and tax policies have contributed to growing inequality.
Inequality Examples: Gini Coefficient
‘developed’ but (+)ing inequality:
USA (1987: 0.37.2, $12 574.8
2022: 0.413, $78 035.2
Wage stagnation for lower-income groups, globalization, and tax policies have contributed to growing inequality.
‘developed’ but approx stable inequality
Vietnam (1992: 0.36, 98.8
(2022: 0.36, 4282.1)
Characteristics of Developing Countries: Population Growth
5/6 pop and 97% pop growth in dev’ing countries
Characteristics of Developing Countries: Urbanisation and Industrialisation
*hallmark of economic prog = structural change
*Rapid urban growth but limited industrialization.
*Large rural populations lacking market access.
Characteristics of Developing Countries: adverse geography
*Landlocked countries often have lower incomes.
*sub-tropical climates linked to health burdens and agricultural constraints
*water resource constraint -> health, production, education (lack basic needs, link to global warming
Characteristics of Developing Countries: Underdeveloped Markets
*imperfect mkts, and incomplete informations -> inefficienet mkt fn
*weak legal/institutional frameworks ( weak property rights, unstable currencies, poor infrastructure (high trade costs), missing bank/credit markets, lack mkt info -> uninformed decision making, less accountability, social norms for conducting LR business)
Characteristics of Developing Countries: Colonial Legacies
function of colonial systems not matched to function of economy in which they operate
wealth extraction > creation
insecure prop rights
weak constraints on elite
Characteristics of Developing Countries: External Dependencies
unfavourable trade deals, face heavy subsidization from
Characteristics of Developing Countries: Historical Differences
Physical and human resource endowments
-> human resource gap (quality matching)
relatively lower levels of GDP per cap
climate (soil, temp, extremes)
pop size, dist, and growth (adverse person to land ratios)
international trading differences
Tech R&D capabilities - (initial funds available to invest, and human capital to leverage, quality mathcing)
efficacy of domestic institutions
UNDP
New Human Development Index
Life expectancy, education (avg schooling obtained by adults, and expected years schooling for children), income (GNI per cap)
Each Dimension index =
(avg val - min val) / (max val - min val)
NHDI = H^(1/3)E^(1/3)I^(1/3)
UNDP Calculations: Why geometric?
Arithematic calc assumes perfect subsitutability - not applicable in real life
0 < NHDI < 1
