Lecture 2

Economic Development

Comparative Economic
Development

RGFrancisco
 Sustainable Development

• Help for the very poorest who are left with no option
but to destroy their environment to survive
• Idea of self-reliant development with natural
resource constraints
• Cost effective development using different economic
criteria to the traditional –i.e. development should
not degrade environment
• Important issues of health control, appropriate
technologies, food self-reliance, clean water and
shelter for all
• People centered activities are necessary- human
beings are the resources in the concept
 Amartya Sen’s Capabilities
Economic Development:
- Not by measured by income
- Not measured by utility
But,
- the ability to think beyond the availability and
commodities in use.
 Common Characteristics of developing countries
(Todaro et al, 2012)
• Lower levels of living and productivity
• Lower levels of human capital
• Higher levels of inequality and absolute poverty
• Higher population growth rates
• Greater social fractionalization
• Larger rural population- rapid migration to cities
• Lower levels of industrialization and manufactured exports
• Adverse geography
• Underdeveloped financial and other markets
• Colonial legacies- poor institutions etc.

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 DEVELOPMENT REDEFINED
• The NEW View of DEVELOPMENT is the
reduction/ elimination of poverty, inequality
and unemployment within the context of a
growing economy.
Global Human Development Indicators
• Data presented here were used in the preparation of the 2019 Human
Development Report “Beyond income, beyond averages, beyond today:
Inequalities in human development in the 21st century”, released on 9
December 2019.

• The Human Development Report Office releases five composite indices

each year: the
• Human Development Index (HDI),
• Inequality-Adjusted Human Development Index (IHDI),
• Gender Development Index (GDI),
• Gender Inequality Index (GII),
• Multidimensional Poverty Index (MPI).

Data used in these indices and other human development indicators included here are provided
by a variety of public international sources and represent the best statistics available for those
indicators at the time of the preparation of the human development report.
 Some Basic Indicators of Development

• Health
• Life Expectancy
• Education
• HDI as a holistic measure of living levels
– HDI also varies for groups within countries
– HDI also varies by region in a country
– HDI also reflects rural-urban differences

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 The Human Development Index
• The HDI was created to emphasize that people and their
capabilities should be the ultimate criteria for assessing the
development of a country, not economic growth alone.
• The HDI can also be used to question national policy choices,
asking how two countries with the same level of GNI per
capita can end up with different human development
outcomes. These contrasts can stimulate debate about
government policy priorities.
• The Human Development Index (HDI) is a summary measure
of average achievement in key dimensions of human
development: a long and healthy life, being knowledgeable
and have a decent standard of living. The HDI is the
geometric mean of normalized indices for each of the three
dimensions.
 The Human Development Index
• The health dimension is assessed by life expectancy at birth.

• The education dimension is measured by mean of years of

schooling for adults aged 25 years and more and expected
years of schooling for children of school entering age.

• The standard of living dimension is measured by gross

national income per capita. The HDI uses the logarithm of
income, to reflect the diminishing importance of income with
increasing GNI. The scores for the three HDI dimension indices
are then aggregated into a composite index using geometric
mean.
Source: UNDP 2-12
The Human Development Index
 Defining the Developing World
• World Bank Scheme- ranks countries on
GNP/capita
– LIC, LMC, UMC, OECD

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Classification of Economies by Region and
Income, 2007

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Classification of Economies by Region and Income,
2007 (continued)
(Latin America and the Caribbean) (Sub-Saharan Africa)

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Classification of Economies by Region and Income,
2007 (continued)

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Nations of the World, Classified by GNI Per
Capita

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 Measuring Development for Quantitative
Comparison across Countries

• Gross National Income (GNI)

• Gross Domestic Product (GDP)
• PPP method instead of exchange rates as
conversion factors

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Income Per Capita in Selected Countries

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A Comparison of Per Capita GNI, 2005

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Commonality and Diversity: Some Basic
Indicators

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Human Development Disparities within
Selected Countries

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Human Development Disparities within Selected
Countries (continued)

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Human Development for 23 Selected Countries
(2004 Data)

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Human Development for 23 Selected Countries
(2004 Data) (continued)

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 10 Characteristics of the Developing World:
Diversity within Commonality

1. Lower levels of living and productivity

2. Lower levels of human capital (health, education,
skills)
3. Higher Levels of Inequality and Absolute Poverty
Absolute Poverty
World Poverty
4. Higher Population Growth Rates
Crude Birth rates

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Shares of Global of Global Income

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The 12 Most and Least Populated Countries and
Their Per Capita Income, 2005

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Under-5 Mortality Rates, 1990 and
2005

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Primary School Enrollment and
Pupil-Teacher Ratios

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Correlation between Under-5 Mortality and
Mother’s Education

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People Living in Poverty, 1981-2002

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Crude Birth Rates Around the World, 2005

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 10 Characteristics of the Developing World:
Diversity within Commonality
• 5. Greater Social Fractionalization
• 6. larger Rural Populations but Rapid Rural-to-
Urban Migration
• 7. Lower levels of Industrialization and
Manufactured Exports
• 8. Adverse Geography
– Resource endowments

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The Urban Population in Developed Countries and
Developing Regions

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Share of the Population Employed in the Industrial
Sector in Selected Countries, 2000-2005 (%)

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 10 Characteristics of the Developing World:
Diversity within Commonality
• 9. Underdeveloped Financial and Other markets
– Imperfect markets
– Incomplete information
• 10. Colonial Legacy and external dependence
– Institutions
– Private property
– Personal taxation
– Taxes in cash rather than in kind

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 Low Income Countries Today And Developed
Countries Then
• Eight differences
– Physical and human resource endowments
– Per capita incomes and levels of GDP
– Climate
– Population size, distribution, and growth
– Historic role of international migration
– International trade benefits
– Scientific/technological research
– Efficacy of domestic institutions

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 Convergence?
• Evidence of unconditional convergence is hard
to find
• Per capita income convergence?

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Convergence among OECD Countries but
Divergence in the World as a Whole

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Per Capita GDP Growth in 125 Developing
Countries, 1995-2005

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Growth Convergence and Absolute Income
Convergence

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Long-Run causes of Comparative Development

• Schematic Representation
– Geography
– Institutional quality- colonial and post-colonial
– Colonial legacy- pre colonial comparative
advantage
– Evolution and timing of European development
– Inequality- human capital
– Type of colonial regime

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Figure 2.11 Schematic Representation of Leading
Theories of Comparative Development

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Role of Institutions

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 Concepts for Review
• Absolute poverty • Gross national product
• Brain drain (GNP)
• Crude birthrate • Human Development Index
• Convergence (HDI)
• Death rate
• Imperfect markets
• Dependency burden
• Developed world • Income gap
• Economic Institutions • Income inequality
• Foreign exchange • Incomplete information
• Gross domestic product
(GDP)

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 Concepts for Review (cont’d)
• Infant mortality rate • Malnutrition
• International poverty • Middle-income
line countries (MICs)
• Labor productivity • Mixed economic
• Least developed systems
countries (LLDCs) • Newly industrialized
• Levels of living countries (NICs)
• Low income countries • Physical resources
(LICs)
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 Concepts for Review (cont’d)
• Primary industrial • Resource endowment
sector • Secondary industrial
• Production function sector
• Purchasing power • Tertiary industrial sector
equivalent • World Bank
• Purchasing power parity
(PPP)

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