INTRO

Before we discuss Comparative Economic Development. Let us first define Economic

Development. Economic development is a process of improving the quality of life,
health, education, and job opportunities of the people. But have you ever wondered
why certain countries remain less developed, while others have achieved high levels
of development? In this chapter, we will introduce to you the comparative economic
development—the study of why development differs across countries and what factors
shape these differences.

DEFINITION OF COMPARATIVE ECONOMIC DEVELOPMENT

Comparative economic development is the study of how and why different countries
or regions—both developing and developed countries—experience economic progress
at different rates and reach varying levels of prosperity. It examines the historical,
institutional, social, and policy-driven factors that shape economic growth and explain
the development gaps between developing countries and their more developed
counterparts.

WHAT IS DEVELOPING AND DEVELOPED COUNTRIES?

Developed Countries

These are nations with high levels of income, advanced infrastructure, strong
education and healthcare systems, and high standards of living. People in developed
countries generally enjoy stable jobs, longer life expectancy, and access to modern
technology. Examples: United States, Japan, Germany, Canada, South Korea

Developing Countries

These are nations that are still working to improve their economy, infrastructure, and
living conditions. They often face challenges such as poverty, unemployment, limited
access to healthcare and education, and lower income levels.

Examples: India, Nigeria, Bangladesh, Ethiopia, Cambodia

2.1 DEFINING DEVELOPING WORLD

The most common way to define the developing world is by per capita income.
Several international agencies, offer classifications of countries by their economic
status, but the best-known system is from the World bank an organization known as
an “international financial institution” that provides development funds to developing
countries. In the World Bank’s classification system, economies with a population of at
least 30,000 are ranked by their levels of gross national income or GNI per capita.

These economies are then classified as low-income countries (LICs), lower-middle-

income countries (LMCs), uppermiddle-income countries (UMCs), high-income
countries, and other high-income countries. The GNI or gross national income of lower-
income countries as of 2011 is $1,025 or less; lower-middle-income countries have
incomes between $1,026 and $4,035; upper-middle-income countries have incomes
between $4,036 and $12,475; and high-income countries have incomes of $12,476 or
more.
According to this table East Asia and Pacific countries (where philippines is located) is
mostly classified as LMC or lower-middle income countries

and in Sub-Saharan Africa most of the countries are classified as LIC or lower-income
countries. In the Latin and Carribean Region, most of the countries are classified as
UMC or upper-middle-income countries. While countries like United States, Spain,
Japan, South Korea, Canada and Italy are classified as developed countries or high-
income country.

2.2 BASIC INDICATORS OF DEVELOPMENT: REAL INCOME, HEALTH, AND

EDUCATION

How do we assess a country's development or improvement? With basic indicators

such as real income, education, and health, we can determine, measure and
understand the overall well-being and progress of a nation. These indicators allow us
to see how developed a country beyond economic figures.

Gross National Income per capita is commonly used to compare living standards
across countries. When comparing income across countries, we can convert local
currencies to U.S. dollars using either: Purchasing Power Parity or (PPP) and Exchange
Rates

- PPP Shows how much a currency can buy within its own country. It gives a more
accurate picture of real living standards, especially in poorer countries where
goods/services are cheaper.

- Exchange Rates - converts income using current market exchange rates. It can
underestimate income in countries where things are cheaper, and overestimate in
countries where costs are higher.

Second Indicator is Education it measures access and quality of schooling. It helps

build human capital, increase productivity and employment. Common indicators are:

- Literacy rate - percentage of people who can read and write

- School enrollment - numbers of children who are attending to school and

- Average years of schooling

Third Indicator is Health. It is measured through:

- Life expectancy - average number of years a person is expected to live

- Infant mortality rate (IMR) - number of infants who die before reaching one year of
age

- Access to healthcare

2.3 HOLISTIC MEASURES OF LIVING LEVELS AND CAPABILITIES

The most widely used measure of comparative status of socioeconomic development

is

HDI or Human Development Index it is used to assess and compare the overall
development of countries, taking into account three key dimensions:

- Health (Life expectancy at birth)

- Education (Average years of schooling for adults and expected years of schooling for
children)

- Standard of living (Gross National Income per capita, adjusted for purchasing power
parity, or PPP)

The HDI ranges from 0 to 1, where a value closer to 1 indicates a higher level of
development. Countries are typically classified into:

Very High Human Development (HDI > 0.8)

High Human Development (HDI between 0.7 and 0.8)

Medium Human Development (HDI between 0.55 and 0.7)

Low Human Development (HDI < 0.55)

However there is an updated version of the traditional Human Development Index

(HDI) the New Human Development Index (NHDI). It introduces improvements in
how we measure human development by better capturing aspects of well-being that
HDI may have missed or underrepresented.

The traditional HDI, which includes only income, education, and life expectancy, has
been criticized for its narrow focus. The NHDI attempts to address this by including
additional dimensions or more precise indicators.

Next is the Multidimensional Poverty Index (MPI) goes beyond income

measures to assess poverty in terms of various deprivations that affect people's
quality of life. It takes into account multiple dimensions of poverty, not just income, to
provide a more comprehensive view of living conditions.

The MPI is calculated based on 10 indicators across three dimensions:

Health: Child mortality and nutrition.

Education: Years of schooling and school attendance.

Living Standards: Access to electricity, clean water, sanitation, flooring, cooking fuel,
and assets (e.g., a refrigerator, bicycle).

This topic will be thoroughly discuss in chapter 5.

2.4 CHARACTERISTICS OF THE DEVELOPING WORLD: DIVERSITY WITHIN

COMMONALITY

This section examines the 10 major areas of “diversity within commonality” in the
developing world.

1. Lower levels of living and productivity - In a country with limited access to

modern farming equipment or technology, agricultural output per worker will be lower
than in developed nations.
2. Lower levels of human capital - Human capital refers to the skills, knowledge,
and abilities of a country’s population. Countries with limited access to quality
education often have lower literacy rates, which limits the potential for future
economic growth and development.

3. Higher levels of inequality and absolute poverty - Absolute poverty means

people cannot meet their basic needs (food, water, shelter). In many developing
countries, a small percentage of the population controls a disproportionate share of
wealth, while the majority live in poverty.

4. Higher population growth rates - In many parts of Africa and Asia, high
population growth rates contribute to overcrowded cities and shortages of essential
services.

5. Greater social fractionalization - Social fractionalization refers to the division of

society into distinct ethnic, religious, linguistic, or social groups.In countries with
ethnic or religious divides, such as Nigeria or Sri Lanka, conflict between groups can
undermine economic progress and stability.

6. Larger rural populations but rapid rural-to-urban migration - Cities like

Mumbai (India) or Lagos (Nigeria) face overcrowding due to large numbers of people
migrating from rural areas seeking jobs, leading to informal settlements and
overburdened services.

7. Lower levels of industrialization - Industrialization refers to the development of

industries for the production of goods, typically through advanced technology and
labor specialization. Many African countries remain dependent on the extraction of
raw materials (e.g., oil, minerals), while developed nations have moved toward
technology and services-based economies.

8. Adverse geography - Adverse geography can mean harsh climates, landlocked

countries, or areas prone to natural disasters.

9. Underdeveloped financial and other markets - Financial markets are systems

that allow for the exchange of money, investment, and credit. In developing countries,
these markets tend to be underdeveloped, meaning people have limited access to
credit and businesses face challenges in securing investment.

10. Lingering colonial impacts such as poor institutions and often external
dependence.- Many developing countries were once colonies, and the legacy of
colonialism often includes poor governance, weak institutions, and economic
dependency on former colonial powers.

2.5 HOW LOW-INCOME COUNTRIES TODAY DIFFER FROM DEVELOPED

COUNTRIES IN THEIR EARLIER STAGES

1. Physical and human resource endowments - Developed Countries has

abundant resources and skilled labor forces while LIC'S has limited resources,
insufficient human capital
2. Per capita incomes and levels of GDP in relation to the rest of the world -
Developed countries has Lower per capita income initially, but favorable global
conditions while LIC's has much lower per capita income and competitive global
markets

3. Climate - Developed countries has favorable climates supporting agriculture and

trade while LIC'S has harsh climates, environmental challenges

4. Population size, distribution, and growth - Developed Countries has smaller

population, gradual growth while LIC's has rapid population growth, urbanization
pressures

5. Historical role of international migration - Dveloped Countries benefited from

immigration (labor supply) while LIC's experience emigration (brain drain)

6. International trade benefits - Developed countries benefited from colonial trade

and global market advantages while LIC's are trade dependent on raw materials,
unequal trade terms

7. Basic scientific and technological research and development capabilities -

Developed Countries has early investment in technology and infrastructure while LIC's
has limited investment in technology and innovation

8. Efficacy of domestic institutions - Developed Countries gradually developed

strong institutions while LIC's has weak institutions, corruption, political instability

2.6 ARE LIVING STANDARDS OF DEVELOPING AND DEVELOPED NATIONS

CONVERGING?

Explores whether developing countries are catching up to developed countries in

terms of living standards. Here’s an explanation of each type of convergence, with
examples:

Relative Country Convergence - Occurs when poorer countries grow faster (in
percentage terms) than richer countries, leading to a narrowing income gap over time.

Absolute Country Convergence - This is a stronger condition—it means that all

countries, regardless of circumstances, will eventually reach the same income level.

Population-Weighted Relative Country Convergence - These countries have had

rapid economic growth, so when weighted by population, the global average is
improving.

World-as-One-Country Convergence - Instead of comparing individual countries,

this treats the entire world population as if it were one country and asks: Are average
living standards improving globally?

Sectoral Convergence - This examines whether specific industries or sectors (e.g.,

manufacturing, services) are becoming more similar in productivity across countries.

2.7 LONG-RUN CAUSES OF COMPARATIVE DEVELOPMENT

Shows how historical, geographical, and institutional factors interact over the long run
to shape the income and human development outcomes we see today. Each box
represents a factor (e.g., physical geography, colonial institutions), and the arrows
indicate causal links or influences among these factors.