Upload
sabina-stokes
View
222
Download
0
Tags:
Embed Size (px)
Citation preview
Measuring DevelopmentMeasuring Development
Development EconomicsDevelopment Economics
4.2a4.2a
Review . . . Review . . .
What is the difference between economic growth What is the difference between economic growth and economic development? Is it possible to and economic development? Is it possible to have one without the other?have one without the other?– Growth:Growth: increase in economies real level of output increase in economies real level of output
over time. Quantitative – GDP ect.over time. Quantitative – GDP ect.– Development:Development: The process to improve the lives of all The process to improve the lives of all
people in a country. This include increase living people in a country. This include increase living standards (goods and services), improved dignity, standards (goods and services), improved dignity, respect and self-esteem, freedom etc. Qualitative.respect and self-esteem, freedom etc. Qualitative.
– YES! Growth is possible w/o development.YES! Growth is possible w/o development.
Production Possibility FrontiersProduction Possibility Frontiers
Weak Agricultural SectorWeak Agricultural Sector Land and agriculture are Land and agriculture are key to studying key to studying developmentdevelopmentSupply of land is fixed Supply of land is fixed and with growing and with growing populations this leads to populations this leads to law of diminishing law of diminishing returns. returns. Here manufacturing is Here manufacturing is growing, but food output growing, but food output is growing at smaller and is growing at smaller and smaller increments as smaller increments as population growspopulation grows
Food
Man
ufac
ture
s
A
B
C
D
Production Possibility FrontierProduction Possibility Frontier
Improved land qualityImproved land quality Main development Main development goal is to improve goal is to improve productivity of land.productivity of land.– IrrigationIrrigation– DrainageDrainage– Use of fertilizersUse of fertilizers– Pest controlPest control
So here improving the So here improving the quality of land allows quality of land allows the food supply to the food supply to increase.increase.
food
man
ufac
ture
s
A
BC
D
Consequences of GrowthConsequences of Growth
1.1. ExternalitiesExternalities
2.2. Income DistributionIncome Distribution
3.3. Poverty CyclePoverty Cycle
Consequence of Growth # 1:Consequence of Growth # 1: Externalities Externalities
LDC’s Pollution and Environmental LDC’s Pollution and Environmental DegradationDegradation– Increased population puts pressure on landIncreased population puts pressure on land– Soil erosion as people more likely to farm Soil erosion as people more likely to farm
marginal landmarginal land– Forests cut down for fuelForests cut down for fuel– Desertification stemming from overgrazingDesertification stemming from overgrazing– Over-fishingOver-fishing
Externalities continued:Externalities continued:
Industrialized countries and COIndustrialized countries and CO22 emissions.emissions.– Positive correlation between COPositive correlation between CO22 and national and national
incomeincome– 80% of all fuel is burnt by 20% of the richest 80% of all fuel is burnt by 20% of the richest
peoplepeople– In 1997 China had 500 bikes for every car . . . In 1997 China had 500 bikes for every car . . .
Today???Today???
Consequence of Growth #2:Consequence of Growth #2:Income DistributionIncome Distribution
Income distribution is a key concern for Income distribution is a key concern for development economics.development economics.
Goal: development plan that promotes Goal: development plan that promotes evenly distributed income.evenly distributed income.
Consequence of Growth 2:Consequence of Growth 2:Income Distribution and Saving Income Distribution and Saving
RatesRatesSome assume that development will follow Some assume that development will follow growthgrowth– To encourage growth encourage technology To encourage growth encourage technology
and investment, BUTand investment, BUT– Increased investment means increased Increased investment means increased
saving is necessary. For saving to increase saving is necessary. For saving to increase income more likely to be income more likely to be unevenlyunevenly distributed. distributed.
Rich = higher propensity to save Rich = higher propensity to save
Poor = high propensity to consumePoor = high propensity to consume
Income Distribution-Income Distribution-Lorenz CurveLorenz Curve
Lorenz CurveLorenz Curve A way to measure A way to measure income distribution income distribution and the degree of and the degree of inequalityinequality
The more unequal The more unequal the income the income distribution the more distribution the more bowed the curve.bowed the curve.
Line of Equality
LorenzCurve
Percentage of incomeRecipients (population)
Per
cent
age
of in
com
e
Income Distribution-Income Distribution-Gini CoefficientGini Coefficient
Lorenz CurveLorenz Curve The GINI coefficient The GINI coefficient converts the Lorenz converts the Lorenz curve into a single curve into a single statisticstatistic
Equation:Equation:Shaded area AShaded area A
area BCDarea BCD
Smaller coefficient is Smaller coefficient is betterbetter
Line of Equality
LorenzCurve
Percentage of incomeRecipients (population)
Per
cent
age
of in
com
e
A
B C
D
Income Inequality in America
2. Income Distribution-2. Income Distribution-Purchasing Power Parity, PPPPurchasing Power Parity, PPP
A more realistic measurement of living A more realistic measurement of living standard than GDPstandard than GDPAccounts for local buying power of a Accounts for local buying power of a currency to determine GDPcurrency to determine GDPCalculated by the IMF and used by the Calculated by the IMF and used by the World Bank in attempt to mitigate the World Bank in attempt to mitigate the impact of exchange rates.impact of exchange rates.A GDP adjusted for PPP is generally A GDP adjusted for PPP is generally higher than just GDPhigher than just GDP
3. Poverty Cycle 3. Poverty Cycle
** **
Low StandardOf Living
Low Standard Of Living
Poor healthPoor Education
Low Productivity
Low Savings
LowInvestment
Now some practice . . . Now some practice . . .
Measuring Measuring Development 4.2 Development 4.2 practice worksheet.practice worksheet.