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Chapter 1

Economics,Institutions, andDevelopment:

A GlobalPerspective

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Economic Development

Development = Growth plus Change

Growth: sustained improvement in thelevel of per capita income

Change: sustained improvement in

institutions and organizations that supportgrowth

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Growth

Gross Domestic Product (GDP): Market value ofall final goods and services an economy producesin one year

Real GDP: GDP in constant prices

GDP Per Capita = (Real GDP / Population) orincome per person

Economic Growth = percentage change in RealGDP per capita

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Institutions

Family: respect the authority & shareresources

Culture: propensity to save & invest

Religion: ability to bring about change

Law: protect property rights and civil libertiesand enforce contracts

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Organizations

Government:produce public goods andregulate economic activities

Education:increase productivity and expand therange of economic and social opportunities

Health: enable proactive participation in economic andsocial activities

Business: provide incentive for profit making,resulting in growth and expansion

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Happiness and Development

There is not a perfect correlation betweenhappiness and per capita income: peoplecould be poor, but happy; rich, but and

unhappy

Once per capita income increases above

$10,000 to $20,000, the percentage ofpeople who say they are happy tends toincrease

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Happiness and Development

Factors affecting happiness:

Family relationships

Financial conditions

Work satisfaction

Community and friends

Health and health-care services

Personal freedom

Personal values

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Income and Happiness Across Countries

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Three Core Values of Development

Sustenance: The ability to meet basic humanneeds including shelter, food, health,education, safety

Self-Esteem: To be a person with a sense ofself-respect and self-worth. To live with dignity,respect, and honor

Freedom from Servitude: To be able tochoose the path to prosperity and have theopportunity to improve

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Objectives of Development

To increase the availability and

distribution of basic human necessities

To improve the standard of living for

the majority of the people

To expand the range of economic andsocial choices and opportunities

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Millennium Development:Goals and Targets for 2015

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Millennium DevelopmentGoals and Targets for 2015

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Economic Development

Inclusion of non-economic variables indesigning development strategies

Achieving the Millennium DevelopmentGoals

One future-or none at all