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Growth and Development Economics
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Growth and Development Economics
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Growth and Development EconomicsWEEK 1
CHAPTER 1: Introducing Economic Development: A Global Perspective
absolute poverty - a situation of being unable to meet the minimum levels of income, food,
clothing, health care, shelter, and other essentials.
subsistence economy - an economy in which production is mainly for personal consumption and
the standard of living yields little more than basic necessities of life—food, shelter, and clothing.
traditional economics - an approach to economics that emphasises utility, profit maximisation,
market efficiency, and determination of equilibrium.
political economy - the attempt to merge economic analysis with practical politics— to view
economic activity in its political context.
development economics - the study of how economies are transformed from stagnation to growth
and from low- income to high-income status, and overcome problems of absolute poverty.
Traditional economic measures of development
- GNI - The total domestic and foreign output claimed by residents of a country. It comprises
gross domestic product (GDP) plus factor incomes accruing to residents from abroad, less the
income earned in the domestic economy accruing to persons abroad.
- GDP - The total final output of goods and services produced by the country’s economy, within
the country’s territory, by residents and nonresidents, regardless of its allocation between
domestic and foreign claims.
Amartya Sen’s “Capability” Approach
- “capability to function” is what really matters for status as a poor or non-poor person.
- poverty cannot be properly measured by income or even by utility
- what matters fundamentally is not the things a person has—or the feelings these provide—but
what a person is, or can be, and does, or can do.
- functionings- what people do or can do with the commodities of given characteristics that they
come to possess or control.
Sen identifies 5 sources of disparity between measured real incomes and actual advantages
1. personal heterogeneities (disability, age, illness, gender)
2. environmental diversities (heating, clothing requirements in the cold, infection diseases,
pollution)
3. variations in social climate (prevalence of crime and violence)
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,4. distribution within the family (uneven distribution amongst genders)
5. differences in relational perspectives (some goods are essential because of local customs)
Thus, looking at real income levels or even the levels of consumption of specific commodities
cannot suffice as a measure of well-being. One may have a lot of commodities, but these are of
little value if they are not what consumers desire (as in the former Soviet Union). One may have
income, but certain commodities essential for well-being, such as nutritious foods, may be
unavailable. Even when providing an equal number of calories, the available staple foods in one
country (cassava, bread, rice, cornmeal, potatoes, etc.) will differ in nutritional content from staple
foods in other countries
Sen defines capabilities as “the freedom that a person has in terms of the choice of functionings,
given his personal features (conversion of characteristics into functionings) and their command
over commodities.” Sen’s perspective helps explain why development economists have placed so
much emphasis on health and education, and more recently on social inclusion and
empowerment, and have referred to countries with high levels of income but poor health and
education standards as cases of “growth without development.”
Subjective well-being encompasses different aspects (cognitive evaluations of one’s life,
happiness, satisfaction, positive emotions such as joy and pride, and negative emotions such as
pain and worry): each of them should be measured separately to derive a more comprehensive
appreciation of people’s lives.
Three core values of development
sustenance - the basic goods and services, such as food, clothing, and shelter, that are necessary
to sustain an average human being at the bare mini- mum level of living.
self-esteem - the feeling of worthiness that a society enjoys when its social, political, and
economic systems and institutions promote human values such as respect, dignity, integrity, and
self-determination.
freedom - a situation in which a society has at its disposal a variety of alternatives from which to
satisfy its wants and individuals enjoy real choices according to their preferences.
Three objectives of development
1. to increase the availability and widen the distribution of basic life-sustaining goods such as
food, shelter, health, and protection
2. to raise levels of living, including, in addition to higher incomes, the provision of more jobs,
better education, and greater attention to cultural and human values, all of which will serve
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, not only to enhance material well- being but also to generate greater individual and national
self-esteem
3. to expand the range of economic and social choices available to individuals and nations by
freeing them from servitude and dependence
The Millennium Development Goals are:
1. eradicate extreme poverty and hunger;
2. achieve universal primary education;
3. promote gender equality and empower women;
4. reduce child mortality;
5. improve maternal health;
6. combat HIV/AIDS, malaria, and other diseases;
7. ensure environmental sustainability;
8. develop a global partnership for development.
CHAPTER 2: Comparative Economic Development
Basic indicators of development
three facets of development:
- real income per capita adjusted for purchasing power;
- health as measured by life expectancy, undernourishment, and child mortality;
- educational attainments as measured by literacy and schooling.
Real income per capita:
Gross National Income (GNI) per capita is the most common measure of the level of economic
activity. It is calculated as the total domestic and foreign value added claimed by a country’s
residents without making deductions for depreciation of the domestic capital stock.
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 (PPP) is calculated using a common set of international prices for all
goods and services. PPP is defined as the number of units of a foreign country’s currency required
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, to purchase the identical quantity of goods and services in the local developing country market as
$1 would buy in the United States.
Health and education:
child mortality (under-5 mortality), rate of malnutrition, life expectancy, primary completion rate
The New Human Development Index
- ranks each country on a scale of 0 (lowest human development) to 1 (highest human
development) based on three goals 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; and a decent standard of
living as measured by real per capita gross domestic product adjusted for the differing
purchasing power parity of each country’s currency to reflect cost of living and for the
assumption of diminishing marginal utility of income.
There are two steps in calculating the New HDI: first, creating the three “dimension indices”; and
second, aggregating the resulting indices to produce the overall New Human Development Index
(NHDI).
After defining the relevant minimum and maximum values, each dimension index is calculated as
a ratio that is given by the percent of the distance above the minimum to the maximum levels that
a country has attained.
dependency burden - the proportion of the total population aged 0 to 15 and 65+, which is
considered economically unproductive and therefore not counted in the labor force.
Low-income countries often have ethnic, linguistic, and other forms of social divisions, sometimes
known as fractionalisation.
fractionalisation - significant ethnic, linguistic, and other social divisions within a country.
This is sometimes associated with civil strife and even violent conflict, which can lead developing
societies to divert considerable energies to working for political accommodations if not national
consolidation. It is one of a variety of governance challenges many developing nations face.
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