Economic Development

Development

The IMF puts them into 3 groups. There are. Developed economies -

Transitional economies

Developing economies

High income - $9000

Upper middle - $3000-9000

Lower middle - $700-3000

low income - below $700 All figures annual per capita income.

Measuring development

The World Bank classifies countries as “developed or developing on the basis of the level of per capita income reached.

However the meaning of development could be widened to include the attainment of fairer distribution of income. It could include the provision of basic needs such as shelter nutrition etc as signs of development. Lorenz curves can be used to measure income inequality. Ginni coefficients can also be used. Diagram below:

The Gini coefficient is area A/(A+B) If A is 0 it shows perfect equality

A value of 1 (A=A+B shows perfect inequality.

However, whilst Lorenz curves and Gini coefficients may show evidence of relative poverty, they do not take account of the extent of absolute poverty. The World Bank development report classified the world’s absolute poor as those living on less than $1 a day. This accounts for 49% of South Asia’s population.

National income statistics

Growth of real per capita GDP - Provides a measure of the pace of development

Actual level of real per capita GDP - Provides a measure of the development stage reached.

Justified because high income permits high consumption, which in turn contributes to high standards of living.

Comparisons of GDP between countries requires the use of a common currency such as conversion into $s. However these rates take little account of the cost of living in the two countries. For example, $1000 in Japan may buy less than $1000 in Ethiopia.

To over come this problem, conversion into a common currency is achieved by using a purchasing power parity rate (ppp) - the rate is determined by the ratio of price levels in the two countries. It produces a $1 income with identical purchasing power in the two countries.

Limitations of using national income statistics.

Subsistence activity - The recorded GDP fails to include the often large subsistence sector or informal economy

Negative externalities - GDP fails to take account of the sustainability of economic growth. For example growths impact on finite resources. Also pollution.

Income distribution

Available physical capital, including infrastructure - For example telephone mainlines per 1000 population. Paved roads as % of total roads etc

Access to education -

% of age group in education

Strong positive externalities from an educated population

3 Access to healthcare~

Public expenditure on health as % of GDP

Life expectancy, access to clean water

Strong positive externalities

The Human Development Index (HDI) and Human Poverty Index (HPI)

The HDI is a composite of 3 components.

1. Real GDP per capita (at ppp) included as an indicator of living standards.

2. Life expectancy at birth - indicator of health attainment

3. Adult literacy rates and education enrolment ratios - indicator of educational provision

It gives a maximum value of 1 with Britain at around 0.918

Limitations of this method

The range of indicators in this index is limited but it does represent a broader view than just national income.