Transcript Document

Development Concepts
CHAPTER 19
Reinert/Windows on the World Economy, 2005
Introduction
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Will gain some understanding of how the realms of
international trade, international production, and
international finance affect development processes around
the world
Primary goal of international economic development is the
improvement of human well-being
Difficult to isolate a universal conception of human well
being
 Without a universal conception, there can be no single concept and
measure of economic development
• Many international economists claim that human well-being is best
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measured in terms of per capita income
However many development economists argue that increases in per
capita income is too narrow a definition of “development”
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Offer a more inclusive approach, conceiving of development as human
development
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Per Capita Income
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Early and persistent conception of
international economic development
 Economic development leads to increases in per
capita income
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National income is a crucial variable
 Divided by the total population to calculate GNP
per capita
• GNP per capita is an important measure of level of
economic development
• Growth rate of GNP per capita is an important
measure of pace of economic development over time
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Table 19.1. Development Indicators for Selected
Countries (2000 except where indicated)
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Per Capita Income
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Large range of per capita incomes among
countries
 Average per capita income in Japan and United
States is over 300 times Ethiopia’s
• From the point of view of economic development as
the level of per capita income, we would conclude that
Japan and United States are over 300 times “more
developed” than Ethiopia
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Not necessarily a true statement, but an implication of the per
capita income perspective
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Per Capita Income Limitations
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Per capita GNP
 Only includes market activities
• Many activities in developing countries take place outside the
market
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For example, does not include farmers’ production of agricultural
products for consumption within his or her family
 Does not account for certain costs associated with
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development such as
• Use of nonrenewable resources
• Loss of biodiversity
• Pollution
Is an average measure that hides the distribution of
income among the households of a country
Not always well correlated with indicators of human
development such as levels of education and health
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Per Capita Income Limitations
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The nominal or currency exchange rates
used to convert GNP into US dollars for
comparison among countries are misleading
 Large part of economies consist of non-traded
goods
• Large part of non-traded goods consist of services—
tend to be less expensive in developing countries
The solution lies in purchasing power parity methodology
 Uses US dollar prices to value all goods in all countries
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Lorenz Curve and Gini
Coefficient
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Measures the distribution of total income among
the households of the economy
Gini coefficient ranges from the extreme of zero
(perfect equality) to unity (perfect inequality)
 In practice, ranges from approximately 0.25 (relatively
low inequality) to 0.60 (relatively high inequality)
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Gini coefficient index multiplies the Gini coefficient
by 100 and therefore ranges from 0 to 100
Table 19.1 shows that income distribution is, to
some extent, independent of the level of per capita
income
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Human Development
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United Nations Development Program (UNDP) has
been a leading advocate of human development
In 1990, the UNDP published first of what was to be
an annual Human Development Report which
states that
 People are the real wealth of a nation
 Basic objective of development is to create an enabling
environment for people to enjoy long, healthy and
creative lives
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Sees the growth of income per capita as an
important but limited measure of the rate of
economic development
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Human Development Index
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Measures development as reflecting three
important components
 Per capita income
• Calculated so that higher levels receive declining
weights
 Health
• Measured via life expectancy
 Education
• More of an emphasis placed on educational outcomes
than enrollment
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Human Development Index
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Although there appears to be a general positive
correlation between GNP per capita and life
expectancy and adult literacy, variation from this
norm is possible
 For example, Costa Rica has an average life expectancy
and an adult literacy rate equivalent to that of the United
States despite its GNP per capita being only slightly over
one tenth of the US value
• Consequently, Costa Rica’s HDI is above that of many other
countries in its income group
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These kinds of variations are captured by the human development
concept but not by the per capita income concept
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Figure 19.1. The Human
Development Index
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Criticisms of the HDI
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Weighting scheme among per capita income, health, and education is
arbitrary
 Same could be said of the per capita income perspective
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“Too political” in assigning declining weights to higher per capita
incomes
Relies on measures for which data are unreliable
Development economist Paul Streeten defends the HDI
 An upward movement in HDI almost always reflects an improvement in
human well-being
• Not always true of per capita income measures
 Easier and possible to close gaps in HDIs versus reducing international
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income gaps
HDI registers (negatively) the potential impact of over-development in
capturing the diseases of the rich (such as heart disease) that reduce the
HDI through its health component
HDI is appropriately political as it focuses attention on important issues
which are not captured by the income measure
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Supplemental Indices
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UNDP has introduced additional indices to
supplement the HDI
 Gender-related development index (GDI)
• Adjusts the HDI downward to account for levels of gender
inequality
 Gender-empowerment measure (GEM)
 Human poverty indices 1 and 2 (HPI-1 and HPI-2)
• Focus on poverty in developing and developed countries,
respectively
• HPI-1 is especially relevant in capturing basic deprivations in
education and health
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Table 19.2. Additional Human Development
Indices and Their Components
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