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EconDev Notes Chapter 1

The document provides an overview of economics, distinguishing between economic growth and development, with insights from Amartya Sen on the importance of freedom in development. It discusses national income accounting metrics such as GDP, GNP, and NNI, and outlines strategies for measuring market values. Additionally, it presents indicators of development, including per capita income, life expectancy, adult literacy, and the Human Development Index (HDI).

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Arriana Keith Guevarra
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4 views4 pages

EconDev Notes Chapter 1

The document provides an overview of economics, distinguishing between economic growth and development, with insights from Amartya Sen on the importance of freedom in development. It discusses national income accounting metrics such as GDP, GNP, and NNI, and outlines strategies for measuring market values. Additionally, it presents indicators of development, including per capita income, life expectancy, adult literacy, and the Human Development Index (HDI).

Uploaded by

Arriana Keith Guevarra
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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Chapter 1 – Introduction

Economics

• Study of scarcity
• Household management
• Study of production and distribution of goods and services

Economy

• Wealth and resources of a country

Growth vs. Development

Economic Growth

• Increase in a country's production or income per capita


• Measured by Gross National Product (GNP) or Gross National Income (GNI)
• Refers to quantity (numbers, output)

Economic Development

• Economic growth plus changes in output distribution and economic structure


• Broader concept than economic growth
• Reflects social and economic progress
• Requires economic growth but is not solely dependent on it

Amartya Sen’s Perspective on Development

• Indian economist, author of Poverty and Famines: An Essay on Entitlement and


Deprivation (1981)
• Development is about creating freedom and removing obstacles to freedom
• Obstacles to freedom:
o Poverty
o Lack of economic opportunities
o Corruption
o Poor governance
o Lack of education
o Lack of health

National Income Accounting Metrics

Used to measure the health, growth, and development of an economy.

• Gross Domestic Product (GDP)


• Net National Product (NNP)
• Gross National Product (GNP)
• Personal income
• Disposable income

Gross Domestic Product (GDP)


• Total monetary value of goods and services produced within a country
• "Gawa sa Pinas"
• Includes all products made in the home country, regardless of the nationality of company
owners
• GDP Limitations: Some goods may not reach the market, making true economic value
difficult to measure

Gross National Product (GNP) / Gross National Income (GNI)

• Total monetary value of goods and services produced by a country’s residents


(including those working abroad)
• "Gawa ng Pinoy"
• Excludes output produced by foreign residents within the country
• Includes output produced by the country’s residents working overseas

Net National Income (NNI)

• Formula: GNI - Depreciation of fixed capital assets


• Example:
o GNI of PH = $500 billion
o Depreciation = $50 billion
o NNI = $450 billion

Adjusted National Income (NNI Adjusted for Natural Resource Depletion)

• Also known as NNI at factor cost


• Formula: GNI - Consumption of fixed capital - Natural resource depletion

Market Value

• Market value is the price a good or service fetches when bought or sold
• Used to measure national income and output
• Price multiplied by the number of products available for sold

3 Strategies Used to Obtain Market Values

1. Product Method
o Evaluates the economy industry-by-industry
o Measures value-added tax through the product chain
o Example: Selling rice grain
▪ Harvest to Manufacturing = 20 pesos
▪ Manufacturing to Retail = 35 pesos
▪ Retail to Consumer = 50 pesos
▪ GDP = 50 pesos (20 + 15 + 15)
2. Expenditure Method
o Based on the idea that all products are purchased by someone
o Formula: GDP = Consumption + Investments + Government Expenditure + Net
Export (Export – Import)
o Used by the government to compute GDP
3. Income Method
o Sums all producers’ incomes within a country’s boundaries
o Formula: GDP = Compensation of Employees + Proprietorship Income + Corporate
Profit + Rental Income + Net Interest
World Population

• 8.2 billion
• Increasing at a decreasing rate

Indicators of Development

1. Per Capita Income


o Measures an individual’s income contribution to GDP
o Formula: GDP per capita = Real GDP / Population
o Philippine GDP per capita: $3,700 per year
2. Life Expectancy
o Average number of years a person is expected to live
o Philippine Life Expectancy: Male = 69.5, Female = 75.5, Overall = 72.5
o Factors affecting life expectancy:
▪ Food supply stability
▪ War
▪ Disease and natural disasters
3. Adult Literacy
o Percentage of individuals who can read, write, and comprehend simple
statements
o Philippine adult literacy rate: 96.28%
o Includes ability to interpret documents and perform basic arithmetic
4. Poverty Rate / Poverty Incidence
o Percentage of population below the poverty threshold
o Philippine poverty threshold: 13,000 pesos/month
o Philippine poverty rate (2024): 13.6%

Human Development Index (HDI)

• Introduced in 1990 by the United Nations Development Programme (UNDP)


• The HDI has two main features:

1. A scale from 0 (no development) to 1 (complete development).

1. 0 - 0.49 = Low Development (e.g., Nigeria = 0.42 in 2010)


2. 0.5 - 0.69 = Medium Development (e.g., Indonesia = 0.6)
3. 0.7 - 0.79 = High Development (e.g., Romania = 0.76)
4. Above 0.8 = Very High Development (e.g., Finland = 0.87 in 2010)

2. An index, which is based on three equally weighted components:

a. Longevity, measured by life expectancy at birth

b. Knowledge, measured by adult literacy and number of years children are enrolled
at school

c. Standard of living, measured by real GDP per capita at purchasing power parity

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