Narrow Approach

Lucas (1988)“By the problem of development I mean simply

the problem of accounting for the observed pattern, across countries and across time, in levels and rates of growth of per capita income. This may seem too narrow a definition, and perhaps it is, but thinking about income patterns will necessarily involve us in thinking about many other aspects of societies too, so I would suggest that we withhold judgment on the scope of this definition until we have a clearer idea of where it leads us.”

Streeten (1994)“[W]e should never lose sight of the ultimate

purpose of the exercise, to treat men and women as ends, to improve the human condition, to enlarge people’s choices…[A] unity of interests would exist if there were rigid links between economic production (as measured by income per head) and human development (reflected by human indicators such as life expectancy or literacy, or achievements such as self-respect, not easily measured). But these two sets of indicators are not very closely related.”

per-capita Gross National Product the per-head value of final goods and services produced by the people of a country over a given year

per capita Gross Domestic Product the per-head value of final goods and services produced within a nation’s boarders over a given year

The Exchange Rate Method: Each country’s currency is converted into a common currency (usually US$) and divided by the country’s population.

In World Bank Data: Data are converted from national currency to current U.S. $ using the World Bank Atlas method. ◦ This involves using a 3-year average of exchange rates to

smooth the effects of transitory exchange rate fluctuations. Problems: Underreported income or non-measurable income in LDCs Prices for many goods in all countries are not appropriately

reflected in exchange rates

Purchasing Power Parity (PPP): idea that similar foreign and domestic goods or (basket of goods) should have the same price in terms of the same currency. ◦ How much money is needed to purchase the same basket

of goods in 2 countries?◦ It is the Purchasing Power of a country’s currency

required to purchase the same basket of goods/services that a US$ will buy in the US.

◦ International prices are constructed for large baskets of goods & services (400-700 goods) by averaging prices (expressed, say in US$ - Phome/PUS) for each good over all countries. then averaged across categories to get 150 relative prices.

Purchasing Power Parity (PPP)◦ National Income is then estimated by valuing its output at

these international PPP prices.◦ Recall, since the price of non-traded goods are lower in

LDCs (since wages are lower), the PPP measurements of national income are higher than the exchange rate method.

GNI per capita(2010)

GNI per capita PPP (2010)

Ethiopia $390 $1,040

Switzerland $71,530 $50,170

182% difference 42% difference

World Development Indicators, Online

Start with Income Distribution

Source: UN Human Development Report, 2011

Source: World Development Indicators

Life Expectancy at birth

Expected years of

schooling

Mean years of

schooling

GNI per capita (2005

PPP)2000

Romania 70.5 12 9.9 6,759South Africa 54.8 13.1 8.2 7,338

2011Romania 74 14.9 10.4 11,046

South Africa 52.8 13.1 8.5 9,469

Per Capita GDP

(2005 PPP)

Share of poorest 20%

Share of richest 20%

Romania 6,845 8.0 38South Africa 7,641 3.0 63

Human Development Index (HDI)◦ Developed by the United Nations Development

Program (UNDP) HDI ranks all countries on a scale of 0 (lowest

human development) to 1 (highest development) (1/3) longevity: life expectancy at birth (1/3) knowledge: expected years of schooling and

mean years of schooling (1/3) standard of living: real per capita income

adjusted for the differing PPP of each country’s currency



Life Expectancy at birth

Expected years of

schooling

Mean years of

schooling

GNI per capita (2005

PPP)

HDIValue

HDI Rank

2000Romania 70.5 12 9.9 6,759 .704

South Africa 54.8 13.1 8.2 7,338 .6162011

Romania 74 14.9 10.4 11,046 .779 50th

South Africa 52.8 13.1 8.5 9,469 .619 124th

Per Capita GDP

(2005 PPP)

Share of poorest 20%

Share of richest 20%

Romania 6,845 8.0 38South Africa 7,641 3 63


Indicator Low Income

Countries

Middle Income

Countries

High Income

Countries Agriculture as a % of GDP, 2010 25% 10% 1% Rural Population as a % of total, 2010

72% 51% 22%

Birth Rates (per 1000), 2009 33 19 12 Death Rates (per 1000), 2009 11 8 8 Adult Literacy Rates, 2009 61% 83% 98% Infant Mortality Rate (per 1000 live births), 2009

71 39 6

Raw Agricultural Materials as a % of Total Exports, 2010

9% (2006)

2% 2%



Countries

Middle Income

Countries

High Income


72% 51% 22%


71 39 6


9% (2006)

2% 2%



Countries

Middle Income

Countries

High Income


72% 51% 22%


71 39 6


9% (2006)

2% 2%


Documents

Narrow Approach