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Development Economics II

Development Economics II. Prof. Dr. Hans H. Bass Jacobs University, Spring 2010. Agenda Feb. 11. Development Economics. Development: General Measures and Patterns 1.1 Simple country classifications 1.2 Holistic approaches Structural characteristics of Low Economic Development

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Development Economics II

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  1. Development EconomicsII Prof. Dr. Hans H. Bass Jacobs University, Spring 2010

  2. Agenda Feb. 11 Development Economics • Development: General Measures and Patterns 1.1 Simple country classifications 1.2 Holistic approaches • Structural characteristics of Low Economic Development 2.1 Commonalities 2.2 Differentiation processes • Development: Specific Measures and Patterns 3.1 Absolute Poverty 3.2 Inequality

  3. GNI p.c. (exchange rate parity) 1 Development: General Measures and Patterns 1.1 Simple country classifications Dollar value (exchange rate parity*) of GNI pc = (GDP + net factor incomes from abroad) / population = a “first phase”–indicator of development (1950’s concept) * “Atlas method” Threshold values of 2008: LICs: GNI pc ≤ $ 975 LMICs: GNI pc $ 976 - $ 3,855 UMICs: GNI pc $ 3,856 – $ 11,905 --------------------------------------------- = “Developing Countries (DCs)” HICs: GNI pc ≥ $11,906

  4. GNI p.c., 2008 1 Development: General Measures and Patterns 1.1 Simple country classifications (3*) Norway $ 87,070 HIC (22) Germany $ 42,440 HIC (56) Saudi Arabia $ 15,500 HIC (75) Russian Fed. $ 9,620 UMIC (82) Brazil $ 7,350 UMIC (127) China $ 2,940 LMIC (163) India $ 1,070 LMIC (179) Ghana $ 670 LIC (210) Burundi $ 140 LIC http://siteresources.worldbank.org/DATASTATISTICS/Resources/GNIPC.pdf * # 1 and 2 only approximates: Liechtenstein, Bermuda

  5. Income groupings 2006 1 Development: General Measures and Patterns 1.1 Simple country classifications http://en.wikipedia.org/wiki/File:World_Bank_income_groups.svg

  6. Exchange rate parity vs PPP: Towards more holistic approaches 1 Development: General Measures and Patterns 1.1 Simple country classifications • Dollar value (exchange rate parity) of GNI pc = (GDP + net factor incomes from abroad) / population • Dollar value (Purchasing Power Parity) of GNI p.c. Explanation for deviations  high share of non-tradables in LICs, unlimited supply of labor, dualistic economies ... = a modified “first phase”–indicator of development

  7. GNI p.c., 2008 1 Development: General Measures and Patterns 1.1 Simple country classifications XRt PPP (3) Norway $ 87,070 $ 58,500 (4) (22) Germany $ 42,440 $ 35,940 (29) (56) Saudi Arabia $ 15,500 $ 22,950 (53) (75) Russian Fed. $ 9,620 $ 15,630 (71) (82) Brazil $ 7,350 $ 10,070 (95) (127) China $ 2,940 $ 6,020 (122) (163) India $ 1,070 $ 2,060 (155) (179) Ghana $ 670 $ 1,430 (181) (210) Burundi $ 140 $ 380 (208) http://siteresources.worldbank.org/DATASTATISTICS/Resources/GNIPC.pdf

  8. Human Development Indicator (HDI) 1 Development: General Measures and Patterns 1.1 Simple country classifications1.2 Holistic approaches • Longevity as measured by life expectancy at birth • Knowledge: by a weighted average of adult literacy (2/3) and mean years of schooling (1/3) • Standard of living: GDP p.c. at Purchasing Power Parity* and adjusted for diminishing marginal utility of income Standardized from 0 to 1Index = (actual value – minimum value) / (maximum value – minimum value) Classification: low, middle, high “human development” = a “third phase”–indicator of development

  9. Further approaches 1 Development: General Measures and Patterns 1.1 Simple country classifications1.2 Holistic approaches Gender-related Development Index (UNDP) Human Assets Index (ECOSOC, based on nutrition, health, education, and literacy) Gross National Happiness Index (Bhutan) ... and many more!  Bonini‘s paradox?  Synergies and corollaries exist, but not necessarily “trickle down“ effects

  10. http://siteresources.worldbank.org/DATASTATISTICS/Resources/WDI07section1-intro.pdfhttp://siteresources.worldbank.org/DATASTATISTICS/Resources/WDI07section1-intro.pdf

  11. http://siteresources.worldbank.org/DATASTATISTICS/Resources/WDI07section1-intro.pdfhttp://siteresources.worldbank.org/DATASTATISTICS/Resources/WDI07section1-intro.pdf

  12. Further approaches 1 Development: General Measures and Patterns 1.1 Simple country classifications1.2 Holistic approaches Synergies and corollaries exist, but not necessarily “trickle down“ effects!

  13. Agenda Feb. 11 Development Economics • Development: General Measures and Patterns 1.1 Simple country classifications 1.2 Holistic approaches • Structural characteristics of Low Economic Development 2.1 Commonalities 2.2 Differentiation processes • Development: Specific Measures and Patterns 3.1 Absolute Poverty 3.2 Inequality

  14. Common characteristics of DCs 2 Structural charateristics of Low Economic Development2.1 Commonatlities • Adverse geography (?) • Lower levels of living, characterized by low incomes, high (income) inequality, poor health, and inadequate education (incl. Illiteracy) • High rates of population growth and dependency burdens • Large rural populations but rapid rural-to-urban migration • Substantial dependence on agricultural production and primary-product exports, high export concentration ratios • Lower levels of industrialization and manufactured exports

  15. Common characteristics of DCs 2 Structural charateristics of Low Economic Development2.1 Commonatlities • Lower levels of human capital and low levels of productivity (lack of complementary capital); scarcity of jobs in the urban “formal” sector, “informal” employment (sponge function) • Low sophistication of financial and other markets, imperfect markets prevailing • Lack of “good governance”, weak institutions

  16. Differences 2 Structural charateristics of Low Economic Development2.1 Commonatlities2.2 Differentiation processes Developing countries may differ in • size • historical / colonial background • endowments of physical and human resources • ethnic and religious composition • relative importance of its public and private sectors • degree of dependence on external economic and political forces • distribution of power within the nation

  17. Differentiation processes include: Catching up ... 2 Structural charateristics of Low Economic Development2.1 Commonatlities2.2 Differentiation processes Newly Industrializing Economies (NICs) Characteristics: • rapid economic growth • rapid changes in sector composition ( speeding up the Fourastié process)

  18. Catching up ... 2 Structural charateristics of Low Economic Development2.1 Commonatlities2.2 Differentiation processes Possible Causes: • high investment into education • subtle combination of opening up to world markets and protection of “infant industries” • strong influence of the government on the economy • relatively equal distribution of income and wealth (IBRD, inofficial)

  19. http://siteresources.worldbank.org/DATASTATISTICS/Resources/WDI07section1-intro.pdfhttp://siteresources.worldbank.org/DATASTATISTICS/Resources/WDI07section1-intro.pdf  Convergence vs divergence  Neo-classical growth theory vs New Growth theory

  20. and falling behind ... 2 Structural charateristics of Low Economic Development2.1 Commonatlities2.2 Differentiation processes Least Developed Countries • Extremely low per capita income (>$ 750) • Low level of human development as measured by the Human Assets Index (HAI) • High vulnerabilty to economic shocks as measured by the Economic Vulnarability Index (EVI), based on agricultural output, export earnings, disadvantages from population size and natural disasters ECOSOC 2003

  21. ... or dramatic changes in institutions 2 Structural charateristics of Low Economic Development2.1 Commonatlities2.2 Differentiation processes DCs among transformation economies • Transformation from a centrally planned economy with predominance of collective property to a de-centrally planned economy (coordinated by markets) with a predominance of private property of producer goods • Low or lower-middle income p.c., (relatively) high HDI • Comparatively high importance of industry, albeit obsolete technologies posing high stress on the environment • Dualistic structure of foreign trade (West/East) • Budget deficits and current account deficits (M>X)

  22. Agenda Feb. 11 Development Economics • Development: General Measures and Patterns 1.1 Simple country classifications 1.2 Holistic approaches • Structural characteristics of Low Economic Development 2.1 Commonalities 2.2 Differentiation processes • Development: Specific Measures and Patterns 3.1 Absolute Poverty 3.2 Inequality

  23. Absolute poverty 3 Development: Specific Measures and Patterns3.1 Absollute Poverty • “unable to command sufficient resources to satisfy basic needs“ • international poverty line: $ 1 (1.25) or $ 2 per day in PPP • national poverty lines based on local household surveys • total poverty gap (TPG)

  24. Inequality 3 Development: Specific Measures and Patterns3.1 Absollute Poverty3.2 Inequality • What is bad about inequality? • Gini Coefficient

  25. Gini Coefficient 3 Development: Specific Measures and Patterns3.1 Absollute Poverty3.2 Inequality

  26. Inequality 3 Development: Specific Measures and Patterns3.1 Absollute Poverty3.2 Inequality • What is bad about inequality? • Gini Coefficient • Kuznets Curve

  27. Exercise (optional) Development Economics http://www2.wwnorton.com/college/econ/dev6/exercises.htm  chapter 1, Tasks 1 + 2

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