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Aid, Development and Social Entrepreneurship Final Exam Notes
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MODULE 1: DEVELOPMENTSessions 1 to 10
Measuring developmentà GDP, GNP and and PPP
GDP – Gross Domestic Product: The value of output produced within a country during a time period
GNP – Gross National Product: goods and services produced by the citizens and corporations of a
country in a given year (inside and outside a country’s territory)
PPP – Purchasing Power Parity: economic theory that takes into account the relative cost of living and
the inflation rates of the countries
Which of the following is the largest economy of the world (based on GDP output?) à The U.S
Which country ranked number one based on GDP per capita? à Luxemburg ($105,280/capita)
Which of the following is the largest economy of the world (GDP based on PPP?)à China
GNI- Gross National Income: is based on a similar principle to the GNP
The WB defines it as: “the sum of value added by all resident producers plus any product taxes (minus
subsidies) not included in the valuation of output plus net receipts of primary income (compensation
of employees and property income) from abroad.”
GNI (calculated from GDP)
· GDP + (income from citizens and businesses earned abroad) – (income remitted by
foreigners living in the country back to their home countries)
GNP (calculated from GDP)
· GDP + (income earned on all foreign assets) – (income earned by foreigners in the
country)
low-income economies are defined as those with a GNI per capita, calculated using the World Bank
Atlas method, of $1,045 or less in 2020;
lower middle-income economies are those with a GNI per capita between $1,046 and $4,095;
upper middle-income economies are those with a GNI per capita between $4,096 and $12,695;
high-income economies are those with a GNI per capita of $12,696 or more.
Just since 2003, the number of low-income countries has nearly halved, declining from 66 to 31
in 2019.
,In 2019, the number of high-income countries was 80, up from less than 50 in the 1990s.
Merits of GDP as a measure of development
Growth = Development?
Shows the capacity of an economy overall to meet people’s needs • It also represents savings and
expenditure
It’s measurable
It is a convenient benchmark for policy makers
Provides a method to categorize countries:
“Developed”, “developing”, “under developed”
low level of technology
low agricultural productivity
Critic of GDP as a measure of development? “GDP is not a welfare measure, it is not a measure of
how well we are all doing. It counts the things that we’re buying and selling, but it’s quite possible for
GDP to go in the opposite direction of welfare” • Simon Kuznets, Economist
HUMAN DEVELOPMENT INDEX (HDI)
The HDI was created to emphasize that people and their capabilities should be the ultimate criteria for
assessing the development of a country, not economic growth alone.
Life expectancy: a long and healthy life
Education: measured by expected years of schooling of children at school-entry age and mean years
of schooling of the adult population
Standard of living: measured by gross national income per capita adjusted for the price level of the
country
SOCIAL PROGRESS INDEX
The index combines three dimensions
1. Basic human needs
2. Foundations of well-being
3. Opportunity
Critics: The index's measure of good governance has been criticized for using data biased against the
Global South, and some critics have noted that much of the criteria are based on European values.
There has also been debate on the relevance or accuracy of many of the measurements for gender
equality.
,POVERTY
Since 1990s ,elimination of poverty has become a key goal
World Bank:Poverty reduction is the benchmark against which we should be judged
Goals:
- End extreme poverty by 2030 (3% of world population)
- Promote shared prosperity(end inequality)
Millennium Development Goals: 2000 to 2015
SustainableDevelopmentGoals2015to2030
Comprehensive, time bound, measurable set of indicators
3 approaches take different views on these issues
• Monetary
• Capability
• Social exclusion
1. Monetary approach
Absolute/extreme poverty:
Extreme poverty (UN, 1995): "a condition characterized by severe deprivation of basic human
needs, including food, safe drinking water, sanitation facilities, health, shelter, education and
information. It depends not only on income but also on access to services.“
Extreme poverty = earning below the international poverty line of $1.25/day (2005)
But the World Bank’s adjustment now sets the poverty line at $1.90/ day.
The cost of bundle of goods needed to assure a minimum level of welfare (income or nutritional level)
· Most developing countries aim to count people who are poorin an absolute sense.
· The poverty line is supposed to mark the minimum a person needs to feed, clothes and
shelter himself.
Example: CHINA
Limitations of Absolute Poverty
, It assumes that it is possible to define minimum standard of living based on basic needs i.e. food,
water, clothing, and shelter
It assumes that absolute poverty is fixed, constant and same for everyone
Limitations of Relative Poverty
· Poverty must be understood in the context of society where it happens
· Relative poverty is often used when measuring poverty in rich countries
· It includes necessities in that social and economic context.
2. Capability approach
Amartya Sen (1999) argued that a proper focus for understanding well-being is on what people can be
and can do, rather dan simply on what they have.
In this way the capabilities approach engages with both objective and subjective perceptions of
well-being.
Poverty is “failure to achieve certain minimal or basic capabilities, where basic capabilities” are the
ability to satisfy certain crucially important functioning up to certain minimally adequate levels
Poverty= Capability deprivations= unfreedoms
Remove economic, social, environmental barriers to address poverty
How do you measure poverty?
No one indicator alone can capture the multiple aspects that constitute poverty
· Multidimensional poverty is made up of several factors that constitute poor people’s
experience of deprivation – such as poor health, lack of education, inadequate living
standard, lack of income (as one of several factors considered), disempowerment, poor
quality of work and threat from violence.
· MPI complements traditional income-based poverty measures by capturing the severe
deprivations that each person faces in these areas
Why use a multidimensional approach
• Monetary-based poverty measures can miss a lot. Not all individuals who are income poor are
multidimensionally poor and not all multidimensionally poor individuals are income poor.
• Economic growth does not always reduce poverty or deprivation, such as child malnutrition or
child mortality.
· Poor people describe their experience of poverty as multidimensional.
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