Development Economics II

Development EconomicsII

Prof. Dr. Hans H. Bass

Jacobs University, Spring 2010

Feb. 11, 2010 2

Development Economics Agenda Feb. 11

1. Development: General Measures and Patterns1.1 Simple country classifications1.2 Holistic approaches

2. Structural characteristics of Low Economic Development2.1 Commonalities2.2 Differentiation processes

3. Development: Specific Measures and Patterns3.1 Absolute Poverty3.2 Inequality

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Dollar value (exchange rate parity*) of GNI pc = (GDP + net factor incomes from abroad) / population= a “first phase”–indicator of development (1950’s concept)* “Atlas method”

Threshold values of 2008:LICs: GNI pc ≤ $ 975LMICs: GNI pc $ 976 - $ 3,855UMICs: GNI pc $ 3,856 – $ 11,905---------------------------------------------= “Developing Countries (DCs)”HICs: GNI pc ≥ $ 11,906

1 Development: General Measures and Patterns1.1 Simple country classifications

GNI p.c. (exchange rate parity)

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(3*) Norway $ 87,070 HIC(22) Germany $ 42,440 HIC(56) Saudi Arabia $ 15,500 HIC(75) Russian Fed. $ 9,620 UMIC(82) Brazil $ 7,350 UMIC(127) China $ 2,940 LMIC(163) India $ 1,070 LMIC(179) Ghana $ 670 LIC(210) Burundi $ 140 LIC

http://siteresources.worldbank.org/DATASTATISTICS/Resources/GNIPC.pdf* # 1 and 2 only approximates: Liechtenstein, Bermuda

GNI p.c., 20081 Development: General Measures and Patterns1.1 Simple country classifications

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Income groupings 2006

http://en.wikipedia.org/wiki/File:World_Bank_income_groups.svg


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Dollar value (exchange rate parity) of GNI pc = (GDP + net factor incomes from abroad) / population

Dollar value (Purchasing Power Parity) of GNI p.c. Explanation for deviations high share of non-tradables in LICs, unlimited supply of labor, dualistic economies ...= a modified “first phase”–indicator of development

Exchange rate parity vs PPP: Towards more holistic

approaches


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XRt PPP(3) Norway $ 87,070 $ 58,500 (4)(22) Germany $ 42,440 $ 35,940 (29)(56) Saudi Arabia $ 15,500 $ 22,950 (53)(75) Russian Fed. $ 9,620 $ 15,630 (71)(82) Brazil $ 7,350 $ 10,070 (95)(127) China $ 2,940 $ 6,020 (122)(163) India $ 1,070 $ 2,060 (155)(179) Ghana $ 670 $ 1,430 (181)(210) Burundi $ 140 $ 380 (208)

http://siteresources.worldbank.org/DATASTATISTICS/Resources/GNIPC.pdf

GNI p.c., 20081 Development: General Measures and Patterns1.1 Simple country classifications

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1. Longevity as measured by life expectancy at birth2. Knowledge: by a weighted average of adult literacy (2/3) and

mean years of schooling (1/3)3. Standard of living: GDP p.c. at Purchasing Power Parity* and

adjusted for diminishing marginal utility of incomeStandardized from 0 to 1

Index = (actual value – minimum value) / (maximum value – minimum value)

Classification: low, middle, high “human development”= a “third phase”–indicator of development

Human Development Indicator (HDI)


1.2 Holistic approaches

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Gender-related Development Index (UNDP)Human Assets Index (ECOSOC, based on nutrition, health,

education, and literacy)Gross National Happiness Index (Bhutan)

... and many more!

Bonini‘s paradox? Synergies and corollaries exist, but not necessarily

“trickle down“ effects

Further approaches1 Development: General Measures and Patterns

1.1 Simple country classifications1.2 Holistic approaches

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http://siteresources.worldbank.org/DATASTATISTICS/Resources/WDI07section1-intro.pdf

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Synergies and corollaries exist, but not necessarily “trickle down“ effects!

Further approaches1 Development: General Measures and Patterns

1.1 Simple country classifications1.2 Holistic approaches

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Adverse geography (?) Lower levels of living, characterized by low incomes, high

(income) inequality, poor health, and inadequate education (incl. Illiteracy)

High rates of population growth and dependency burdens Large rural populations but rapid rural-to-urban migration Substantial dependence on agricultural production and

primary-product exports, high export concentration ratios Lower levels of industrialization and manufactured exports

Common characteristics of DCs

2 Structural charateristics of Low Economic Development

2.1 Commonatlities

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Lower levels of human capital and low levels of productivity (lack of complementary capital); scarcity of jobs in the urban “formal” sector, “informal” employment (sponge function)

Low sophistication of financial and other markets, imperfect markets prevailing

Lack of “good governance”, weak institutions

Common characteristics of DCs


2.1 Commonatlities

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Developing countries may differ in

size historical / colonial background endowments of physical and human resources ethnic and religious composition relative importance of its public and private sectors degree of dependence on external economic and political

forces distribution of power within the nation


2.1 Commonatlities2.2 Differentiation processes

Differences

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Newly Industrializing Economies (NICs)

Characteristics: rapid economic growth rapid changes in sector composition ( speeding up

the Fourastié process)

Differentiation processes include: Catching up ...



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Possible Causes: high investment into education subtle combination of opening up to world markets

and protection of “infant industries” strong influence of the government on the economy relatively equal distribution of income and wealth

(IBRD, inofficial)

Catching up ...2 Structural charateristics of Low Economic

Development2.1 Commonatlities

2.2 Differentiation processes

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Convergence vs divergence Neo-classical growth theory vs New Growth theory

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Least Developed Countries

Extremely low per capita income (>$ 750) Low level of human development as measured by the Human

Assets Index (HAI) High vulnerabilty to economic shocks as measured by the

Economic Vulnarability Index (EVI), based on agricultural output, export earnings, disadvantages from population size and natural disasters

ECOSOC 2003

and falling behind ...2 Structural charateristics of Low Economic

Development2.1 Commonatlities

2.2 Differentiation processes

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DCs among transformation economies Transformation from a centrally planned economy with

predominance of collective property to a de-centrally planned economy (coordinated by markets) with a predominance of private property of producer goods

Low or lower-middle income p.c., (relatively) high HDI Comparatively high importance of industry, albeit obsolete

technologies posing high stress on the environment Dualistic structure of foreign trade (West/East) Budget deficits and current account deficits (M>X)

... or dramatic changes in institutions



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“unable to command sufficient resources to satisfy basic needs“

international poverty line: $ 1 (1.25) or $ 2 per day in PPP

national poverty lines based on local household surveys

total poverty gap (TPG)

Absolute poverty3 Development: Specific Measures and Patterns3.1 Absollute Poverty

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What is bad about inequality? Gini Coefficient

Inequality3 Development: Specific Measures and Patterns

3.1 Absollute Poverty3.2 Inequality

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Gini Coefficient3 Development: Specific Measures and Patterns


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What is bad about inequality? Gini Coefficient Kuznets Curve

Inequality3 Development: Specific Measures and Patterns


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http://www2.wwnorton.com/college/econ/dev6/exercises.htm

chapter 1, Tasks 1 + 2

Development Economics Exercise (optional)

Development Economics II

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