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Ba (P) - V-Edpi-2

The document summarizes key concepts from Chapter 2 of Todaro and Smith's 11th edition text on comparative economic development. It discusses [1] disparities in economic development levels between developed and developing countries based on indicators like income, health, and education; [2] factors that define developing countries; [3] methods for measuring and comparing development levels including GNI per capita classifications and the Human Development Index; and [4] revisions made to the HDI methodology.

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Prerit Rastogi
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139 views27 pages

Ba (P) - V-Edpi-2

The document summarizes key concepts from Chapter 2 of Todaro and Smith's 11th edition text on comparative economic development. It discusses [1] disparities in economic development levels between developed and developing countries based on indicators like income, health, and education; [2] factors that define developing countries; [3] methods for measuring and comparing development levels including GNI per capita classifications and the Human Development Index; and [4] revisions made to the HDI methodology.

Uploaded by

Prerit Rastogi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Unit 1

Chapter 2,
part 1
Comparative Economic Development
(based on Todaro and Smith text 11th edition)
Comparative Economic Development
 The developing world has made substantial economic
development progress in recent years
 But, most striking feature of the global economy remains its
extreme contrasts/disparities.
 Output per worker in the United States is about 10 times
higher than it is in India and more than 50 times higher than in
the Democratic Republic of Congo (DRC).
 In 2011, real income per capita was $48,820 in the United
States, $3,640 in India, and $340 in the DRC.
 Life expectancy is 79 years in the United States, 65 in India,
and just 48 in the DRC.
 The percent of children who are underweight is less than 3%
in the United States but 43% in India and 24% in the DRC.
 almost all women are literate in the United States, just 51%
are in India and 57% in the DRC.
Some Important Questions

 How did such wide disparities come about?

 In today’s world, with so much knowledge and movement


of people, information, and goods and services so rapid
and comparatively inexpensive, how have such large gaps
managed to persist and even widen?

 Why have some developing countries made so much progress


in closing these gaps while others have made so little?

 why so many developing countries have such difficulties in


achieving economic development?

 What can be done to overcome obstacles and encourage


faster progress even among today’s least developed countries?
Common Characteristics of
developing countries
 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.
2.1 Defining the Developing World

 World Bank Scheme- ranks countries on


GNP/capita (see Table 2.1 and figure 2.1)

 Low-income countries (LICs) In the World Bank


classification, countries with a GNI per capita of less than
$1,025 in 2011.

 Lower-Middle-income countries (LMCs) countries with


a GNI per capita between $1,026 and $4,035.

 Upper-Middle-income countries (UMCs) countries


with a GNI per capita between $4,036 and $12,475.

 High-income countries (HICs) countries with a GNI per


capita of $12,476 or more in 2011.
Defining the Developing World

 World Bank Scheme- ranks countries on


GNP/capita (see Table 2.1 and figure 2.1)

 Newly industrializing countries (NICs) countries at


a relatively advanced level of economic development with
substantial and dynamic industrial sector and with close
link to the international trade, finance and investment
system.

 Human capital Productive investments in people, such


as skills, values, and health resulting from expenditures on
education, on-the-job training programs, and medical care.

 Least developed countries (LDCs) countries with


low income, low human capital, and high economic
vulnerability.
Table 2.1 Classification of Economies by Region and Income, 2013
Table 2.1 Classification of Economies by Region and Income, 2013
Table 2.1 Classification of Economies by Region and Income, 2013
Figure 2.1 Nations of the World, Classified by GNI Per Capita
Figure 2.1 Nations of the World, Classified by GNI Per Capita
2.2 Basic Indicators of Development

Real Income
PCI
India England
 Gross Domestic Product (GDP) 700r 100$

 Gross National Income (GNI) FER = 70r/$


10$ 100$
PPP = 50
 Official foreign exchange rate 14$ 100$

 Purchasing power parity (PPP) Calculation of GNI


using a common set of inter-national prices for all goods
and services, to provide more accurate comparisons of
living standards.
Figure 2.2 Income Per Capita in Selected Countries, 2011
Table 2.2 A Comparison of Per Capita GNI, 2011
2.2 Basic Indicators of Development

Health
 Life Expectancy (in years)
 Prevalence of undernourishment
 Under-5 mortality
 Crude birth rate

Education
 Adult literacy (male and female)
 Enrollment
Table 2.3 Commonality and Diversity: Some Basic
Indicators
2.3 Holistic measure of living levels and capabilities

Traditional Human Development Index

 Human Development Index (HDI) An index measuring


national socioeconomic development, based on three
indicators
◦ Health or Longevity (life expectancy at birth)
◦ Education or knowledge (adult literacy and school enrollment)
◦ Standard of living (real per capita GDP adjusted for PPP)

 HDI ranks each country on a scale of 0 to 1: low human


development (0 to 0.499), medium human development
(0.50 to 0.799), high human development (0.80 to 0.899)
and very high human development (0.90 to 1)
2.3 Holistic measure of living levels and capabilities

Traditional Human Development Index

 There are two steps in calculating the HDI: first, creating


the three “dimension indices”; and second, aggregating the
resulting indices to produce the HDI

Education index = 2/3 (adult literacy index) + 1/3 (enrollment index)

HDI = 1/3 (income index) + 1/3 (life expectancy index) +


1/3 (education index)
2.3 Holistic measure of living levels and capabilities

Traditional Human Development Index

 India: income (1241), life expectancy (65.7), adult literacy


(53.5) and gross enrollment (52.1)

Income index = (1241-100) / (40000-100) = 0.420


Life expectancy index = (65.7-25) / (85-25) = 0.678
Adult literacy index = (53.5-0) / (100-0) = 0.535
Gross enrollment index = (52.1-0) / (100-0) = 0.521
Education index = 2/3 (0.535) + 1/3 (0.521) = 0.530

HDI = 1/3 (0.420) + 1/3 (0.678) + 1/3 (0.530) = 0.543


2.3 Holistic measure of living levels and capabilities

Traditional Human Development Index

 HDI remind us that by development we clearly mean broad


human development, not just higher income.

 Human development is the productive investment in


people, such as education, skill, training, health etc.

 Criticisms
◦ Gross enrollment may overstate the amount of schooling
◦ Equal weight
◦ No attention to roll of quality
◦ Perfect substitutability
2.3 Holistic measure of living levels and capabilities

New Human Development Index

 November 2010, index is still based on standard of living,


education and health.

 What is new
◦ GNI per capita replaces by GDP per capita
◦ Components of education replaced: average actual educational
attainment and the expected attainment of today’s children.
◦ The upper goalpost for income increased, and lower decreased.
◦ Instead of common logarithm, natural log now used.
◦ NHDI is computed with a geometric mean, instead arithmetic mean
2.3 Holistic measure of living levels and capabilities
Computing New Human Development Index
Table 2.4 HDI and its Components, 2013
Table 2.5 HDI variation for similar income countries
Figure 2.3 HDI disparities within selected countries
Figure 2.3 HDI disparities within selected countries
Reference

M. P. Todaro and S. Smith (2011), Economic Development,


11 edition, Chapter 2.

Nadeem Ahmad, Deshbandhu College

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