Comparative Economic Development
Comparative Economic Development
Comparative Economic Development
COMPARATIVE ECONOMIC
DEVELOPMENT
Mallilliin, Niño Raphael A.
Oling, Hadley
Gross domestic product (GDP) measures the total value for final
use of output produced by an economy, by both residents and
nonresidents. Thus, GNI comprises GDP plus the difference
between the income residents receive from abroad for factor
services (labor and capital) less payments made to nonresidents
who contribute to the domestic economy.
Purchasing Power Parity
Purchasing Power Parity
The New HDI ranks each country on a scale of 0 (lowest human development) to
1 (highest human development) based on three goals or end products of
development:
a long and healthy life as measured by life expectancy at birth;
knowledge as measured by a combination of average schooling attained
by adults and
expected years of schooling for school-age children;
The New Human Development Index
Where H stands for the health index, E stands for the education
index, and I stands for the income index. This is equivalent to
taking the cube root of the product of these three indexes.
The New Human Development Index
The New Human Development Index
Human Capital : health, education, and skills which are vital to economic
growth and human development.
Absolute poverty: The situation of being unable or only barely able to meet the
subsistence essentials of food, clothing, shelter, and basic health care.
The greater the ethnic, linguistic, and religious diversity of a country, the
more likely it is that there will be internal strife and political instability.
Characteristics of the developing world: diversity within
commonality
Larger Rural Populations but Rapid Rural-to-Urban
Migration
Table 2.9 shows the relationship between employment and share of GDP in agriculture, industry, and
services in selected developing and developed countries in the 2004 to 2008 period.
Lower Levels of Industrialization and Manufactured
Exports
8 SIGNIFICANT DIFFERENCES
1. Physical and human resource endowments
2. Per capita incomes and levels of GDP in relation to the rest of the world
3. Climate
4. Population size, distribution, and growth
5. Historical role of international migration
6. International trade benefits
7. Basic scientific and technological research and development capabilities
8. Efficacy of domestic institutions
How LoW-income countries today differ from developed
countries in their earlier stages?
Physical and Human Resource Endowments
Developing countries often have fewer natural resources
Plentiful natural resources currently and more yet to be
discovered, but heavy investments of capital are needed to exploit
them.
The ability of a country to exploit its natural resources and to
initiate and sustain long-term economic growth is dependent on
the ingenuity and the managerial and technical skills of its people
and its access to critical market and product information at
minimal cost.
Physical and Human Resource Endowments
Paul Romer
today’s developing nations “are poor because their
citizens do not have access to the ideas that are used in
industrial nations to generate economic value.”
the technology gap between rich and poor nations is
divided into two components: PHYSICAL OBJECT GAP and
IDEA GAP
Physical and Human Resource Endowments
Thomas Homer-Dixon
The idea gap is called ingenuity gap, it is the ability
to apply innovative ideas to solve practical social
and technical problems.
How LoW-income countries today differ from developed
countries in their earlier stages?
Relative Levels of Per Capita Income and GDP
The developed countries today had higher level of real per capita
income compared to the people living in low-income countries
have, on average.
Large fraction of people in the 40% or so least developed countries
are called as the “bottom billion.”
Developed nations were economically in advance of the rest of the
world. They could then take advantage of their strong financial
position to widen the income gap.
How LoW-income countries today differ from developed
countries in their earlier stages?
Climatic Differences
Brinley Thomas
famously described, the “three outstanding contributions of
European labor to the American economy: 1,187,000 Irish and
919,000 Germans during 1847-1855, 418,000 Scandinavians and
1,045,000 Germans during 1880-1885, and 1,754,000 Italians during
1898-1907—had the character of evacuations.”
The Historical Role of International Migration
The main thrust of international emigration up to World War I was both distant
and permanent, while the period since World War II, international emigration is
over short distances and to a large degree temporary. However, the economic
forces giving rise to this migration are basically the same: surplus rural workers.
Both permanent and nonpermanent nature’s benefit: government being relieved
of the costs of providing for people who in all probability would remain
unemployed and because a large percentage of the workers’ earnings were sent
home, the government received a valuable and not insignificant source of foreign
exchange.
Very restrictive nature of immigration laws in modern developed countries
today.
The Historical Role of International Migration
Illegal migrants
Legal migrants
Citizens want severe restrictions on the number of immigrants
BRAIN DRAIN
BRAIN GAIN
The Philippines lost 12% of its professional workers to the United
States.
How LoW-income countries today differ from developed
countries in their earlier stages?
The Growth Stimulus of International Trade
Their terms of trade, the price they receive for their exports relative to the
price they have to pay for imports, declined over several decades.
TERMS OF TRADE – the ratio of a country’s average export price to its average
import price
Commodity prices are also subject to large, potentially destabilizing price
fluctuations.
Developed countries have resorted to various forms of tariff and nontariff
barriers to trade, including “voluntary” import quotas, excessive sanitary
requirements, intellectual property claims, antidumping “investigations,” and
special licensing arrangement
How LoW-income countries today differ from developed
countries in their earlier stages?
B a s i c S c i e n t i f i c a n d Te c h n o l o g i c a l R e s e a r c h
and Development Capabilities
Divergence: A tendency for per capita income (or output) to grow faster in
higher-income countries than in lower-income countries so that the income gap
widens across countries over time.
Convergence: The tendency for per capita income (or output) to grow faster in
lower-income countries than in higher-income countries so that lower-income
countries are “catching up” over time. When countries are hypothesized to
converge not in all cases but other things being equal (particularly savings
rates, labor force growth, and production technologies), then the term
conditional convergence is used.
convergence
If the growth experience of developing and developed countries
were similar, two important reasons to expect that developing
countries are exhibiting convergence:
1. Technology Transfer
2. Factor Accumulation
convergence
Technology Transfer
Also called as “leapfrog” or “advantage of backwardness”
This should enable developing countries to skip over some of the
earlier stages of technological development, moving immediately
to high-productivity techniques of production.
Do not need to undergo step by step through the historical stages
of innovation.
convergence
Factor Accumulation
When potential settlers faced higher mortality rates (or perhaps other high
costs), they more often ruled at arm’s length and avoided large, long-term
settlement. Unfavorable institutions were therefore established, favoring
extraction over production incentives.
But where mortality was low, populations were not dense, and exploitation of
resources required substantial efforts by colonists, institutions broadly
encouraging investments, notably constraints on executives and protection
from expropriation, were established
S C H E M AT I C R E P R E S E N TAT I O N O F L E A D I N G
T H E O R I E S O F C O M PA R AT I V E D E V E L O P M E N T
Local features affecting
Type of colonial
types of colonies ARROW 3
established regime
PHYSICAL Precolonial
ARROW 4
GEOGRAPHY institutions
Type of colonial
regime
ARROW 11 Inequality
Public goods
Human capital ARROW 15
quality
Public goods
Inequality ARROW 16
quality
Institutions will affect the ability of civil society to organize and act
effectively as a force independent of state and market
S C H E M AT I C R E P R E S E N TAT I O N O F L E A D I N G
T H E O R I E S O F C O M PA R AT I V E D E V E L O P M E N T
Public goods
quality
Effective civil
society
The activities of the three sectors will each have an influence on productivity
and incomes, and on human development more generally
Thank You