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Samenvatting Political Economy of Development
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Lessen SVPolitical Economy of Development - Les 1
--> How is it possible that the distribution of wealth in the world is so different than the
distribution of resources etc?
Why have some countries prospered and others not?
We are going to look at the intersection of economics & politics.
We are going to look at what everything means in the real world, not just academics. What
will be eradicating poverty in the world really mean to people?
The debate is still ongoing so a definite answer to why some countries are rich and other
poor will not be found. We look at different viewpoints of different thinkers but there is not
just 1 answer. We specifically look at their points of agreement and disagreement.
Free market thinking: a market has enormous power of bringing people together.
"Pencil thinking": bring everyone that knows a little bit about making a pencil together.
It is impossible to understand the pencil case without the candle maker (econ & pol).
--> The nature of poverty has changed a lot over the years.
-->
*Solow: says that growth will happen naturally. If you let things go their natural course.
*Sachs: has a very different view. He believes in poverty traps. There are a number of traps
but we focus on the one related to poverty. He says that all the poor countries are in the
tropics. He tries to argue why geography is important. There are certain things wrong with
countries today related to conflict and if we can solve those things today than those
countries will become great.
--> Aid skeptics: They argue that we do not know what's going on and that by giving aid we
do more wrong than good. Normally the government is responsible for its own citizens but if
you give aid it goes to other citizens of other countries.
* Bill Easterly: don't give stuff away for free because people don't value it and it
underestimates the market.
--> Randomized Control Trials: Their idea is that you split a group up into 2 and give 1
medication and 1 placebo. If the placebo improves and the medication doesn't, then you
know it works. RCT has a lot of critique.
, Pol Eco of Dev - Les 2
(1) Growth
For growth, we can go further back because it is easier to look at averages. Poverty &
Inequality is more about distribution.
--> Angus Madisson:
He is very famous for his historical statistics on world population. He did not only convince
people that progress was there but also tried to quantify that progress.
He writes about the improvement of the maritime navigation. When people wanted to know
their latitude (how far from N to S) you can look at the north pole star. One of the biggest
innovations was longitude so how far from N to S. The E-W took way longer.
Progress was there but how did he quantify it? He would use anything he could get his hands
on. A lot of the data is based on population data and urbanization rates. Urbanization rates
are a good proxy of economic well-being. It shows that there is a part of the country that can
afford not being busy with producing food but with other things.
He was very clear about where he got his data from. We are going to look at his data this
class.
--> Graph about growth is quite recent (very important!):
If you plot from the year 0 to 2000, you can see pretty much a flat line up until the industrial
revolution in 1820. The variation is quite small compared to the enormous increase at the
end.
For Belgium, you kind of see the same thing. A gradual improvement and then a steep
incline. From 1800 we see 2 things. One is the two drops. Secondly is that if you would
describe the graph it is in 2 segments. A slow growth from 1800 and a spectacular growth
thereafter.
--> Real GDP:
It took 1500 years to grow by 1400 USD per capita/per year. We doubled our income since
1973.
--> Growth Arithmetic:
Growth compounds so if you grow 1% then the next time it is 1% of that new percentage. So,
it is not 100.
Divide 70/1 so 70 years.
Growth statistics are quite deceptive because they look quite small but their implications are
quite big.
0,05% is the growth rate between year 0 and year 1820.
,If growth goes up from 0,05% to 1,3% we see that despite a small increase in growth the
amount of years is really big (1400 to 54).
China has been doubling their total income every 9 years.
The power of growth: seemingly small differences can be really big in terms of growth.
--> Catch-up growth:
South-Korea was later to start than Japan with growth but has been really spectacular.
China isn't quite there yet if we look at the other countries. In per capita terms, it is still
starting but their country is quite big.
--> Never take off:
Blue is North Korea and red is South Korea. For most of the 19th century and first half of the
20th they were quite the same but now there is a lot of difference. Geographically,
demographically, culturally, etc. they are exactly the same. The only difference is the regime.
--> New starts?
This is the previous graph zoomed in. Starting from 1960 we see in DRC first a little bit of
growth and then down. In Tanzania, starting from 1990 when different institutions etc were
set up you see more growth.
China was below DRC and Tanzania for much of the 19th century but from the moment they
had reformations it started taking off.
The poorest countries in the world right now were one of the poorest at one point, for
example Egypt.
--> The decline of China:
For much of the period 960-1280, you can see that GDP/capita in China shows that the living
standards were higher than Europe (according to Madisson).
--> Argentina:
All the previous declines were not from the industrial period. Perhaps the only example from
decline in the industrial period was Argentina.
In 1905 Argentina had 80% GDP/Capita of the UK. Buenos Aires was a city like Paris. But
since then it has been declining steadily. At this moment, it is only 30% of the US and 40% of
the UK.
Argentina and Belgium are co-moving and then from 1950 onwards Belgium shoots up and
Argentina is still growing but compared to other countries not very spectacular.
(2) Poverty
, The growth that we've been looking at was about averages. But what about distribution?
You have the poverty and inequality perspective. Inequality takes into account the whole
distribution of income. Poverty is very different than inequality in terms of data
requirements.
Eradicating poverty in the world is the first SDG. The data in this part comes from the World
Bank.
We use the international poverty line for measurement.
--> Progress in reducing:
Poverty is reducing at a lower rate currently than in the past.
--> 3% extreme:
The way that zero poverty is implemented is measuring 3% in household surveys. For 2
reasons the practical interpretation of eradicating poverty is measuring this 3%. Some
poverty is really hard to eradicate and will even be present in rich societies. Another reason
is that as your poverty rate goes down it becomes hard to assure that it becomes zero.
The 3% is by 2030 (one of the SDG's). If you take these household surveys and look at the
growth over the past ten years and let everyone grow at the country growth rate and you
see that by 2030 we will be very far from this 3% growth. Same thing happens if you use
regional growth for the same exercise. So, everybody in your sample has a certain income
which you let grow by the country growth every year, you again see that we are very far
from 3%. Even with the historical regional growth rate.
Economic growth might not be enough to reach this 3%, it's about economic growth at the
bottom. Even if you double growth rates we will not reach this 3%.
--> Question:
Poverty is increasingly African, increasingly in fragile states and middle-income countries. So,
this will have implications for what kind of policies can counter poverty.
--> Changing nature of poverty:
China will have the largest poverty rates.
--> Millions of poor:
In 1990 most of the poverty (50% of the poor) lived in East Asia & Pacific and China taking a
large part in this.
In 2015 this has changed dramatically. 85% is in Africa and South Asia and 50% in Africa.
--> Broadly speaking you could say that poverty shifted from being in East-Asia and Pacific in
the 1990s to South Asia in the 2000s and to Africa now.
--> Global Poverty:
Take all the poor people and see where everybody is from, you would find that most people
are from India. India takes the largest share of poor people at this moment in time, the next
one is Nigeria and then DRC. 50% of the poorest people live in 5 countries.
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