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Chapter 2

Chapter 2. Measuring Economic Growth and Development. GNP versus GDP. GNP Produced by nationals GDP Produced by residents Easier to track GDP, GDP per capita Real GDP, Real GDP per capita. Value Added. Agriculture. Johnson Farms sells wheat for $0.50.

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Chapter 2

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  1. Chapter 2 Measuring Economic Growth and Development

  2. GNP versus GDP • GNP • Produced by nationals • GDP • Produced by residents • Easier to track • GDP, GDP per capita • Real GDP, Real GDP per capita

  3. Value Added Agriculture • Johnson Farms sells wheat for $0.50. • Milling Co. sells flour for $1.20. • Bakery makes bread, packages it, and sells it for $2.00. • Publix puts packaged bread on its shelves and sells it for $2.50 • Contribution to GDP = $2.50 $0.50 Manufacturing $0.70 + $0.80 = $1.50 Services $0.50 $2.50

  4. The Three Faces of GDP Production Expenditure Income Consumption Market value of final goods and services Labor Income = = Investment Government purchases Capital Income Net exports

  5. What is left out of the calculation? • Unpaid family workers (child care, farm work) • Reported increases in GDP might just reflect more people working for money, not more work or more production. • Pollution, crime, congestion, etc. • But these lacunae are hard to pin down.

  6. Exchange-rate conversion problems • A dollar goes further in a developing country. • Distorted exchange rate systems • Non-traded goods and services

  7. 2007 PPP of the dollar: if burgers cost the same everywhere (after exchanging the currency), Should be the exchange rate.

  8. Purchasing Power Parity

  9. Purchasing Power Parity official exchange rate = Rs 45/US$1

  10. Purchasing Power Parity • Steel • US$ 200/tn • or US$ 200/tn = (Rs 9000/tn) / (Rs 45/US$1) • Internationally traded: law of one price • Retail Sales Personnel • US$ 5,000/person/yr • or US$ 1,333/person/yr =(Rs 60,000/person/yr) / (Rs 45/US$1) • Non-traded: different prices

  11. Purchasing Power Parity

  12. Traded / Non-Traded Steel Retail Sales Personnel

  13. Penn World Tables • http://pwt.econ.upenn.edu/    Population    Exchange Rate    Purchasing Power Parity over GDP    Real Gross Domestic Product per Capita    Consumption Share of CGPD    Government Share of CGDP    Investment Share of CGDP    Price Level of Gross Domestic Product    Price Level of Consumption    Price Level of Government    Price Level of Investment    Openness in Current Prices    Ratio of GNP to GDP    CGDP Relative to the United States    Real GDP per capita (Constant Prices: Laspeyres)    Real GDP per capita (Constant Prices: Chain series)    Real GDP Chain per equivalent adult    Real GDP Chain per worker    Real Gross Domestic Income (RGDPL adjusted for Terms of Trade changes)    Openness in Constant Prices    Consumption Share of RGDPL    Government Share of RGDPL    Investment Share of RGDPL    growth rate of Real GDP per capita (Constant Prices: Chain series) in PWT, "real" means "PPP converted“ instead of "in constant price".

  14. What is Economic Development? • Economic growth (more GDP) • Necessary but not sufficient • GDP can be misspent; invested and not consumed; distributed unequally

  15. What is Economic Development? • Income is one of the factors that expands people’s capabilities, depending on • Personal heterogeneities (age, illness, disabilities) • Environment (climate, natural disasters) • Social climate (crime, civil unrest) • Relative deprivation • ability to take part in life of community

  16. The World Economy: A Millennial Perspective http://www.theworldeconomy.org/publications/worldeconomy/#2

  17. The World Economy: A Millennial Perspective http://www.theworldeconomy.org/publications/worldeconomy/#2

  18. Human Development Index • Focus on people’s capabilities and choices: • Income and resources • Education • Health and life http://hdr.undp.org/en/statistics/

  19. The Human Development Index • Income Index (for HDI) • Diminishing marginal utility of income: log. • PPP income of $100 a year is the least income imaginable a generation back. • PPP income of $40,000 a year is the most income imaginable a generation ahead.

  20. The Human Development Index • Life Expectancy Index (for HDI) • Life expectancy of 25 is the least imaginable a generation back. • Life expectancy of 85 is the most imaginable a generation ahead.

  21. The Human Development Index • Adult Literacy Index (for HDI) • At least 0, at most 100. • Gross Enrolment Index (for HDI) • At least 0, at most 100. % of school-age people in school

  22. The Human Development Index • Education Index (for HDI) • Two-thirds literacy, one-third enrolment. • Human Development Index

  23. The Human Development Index 2006 HDI

  24. The Human Development Index

  25. The Human Development Index • Is the HDI a good measure of development? • “Being able to live the life that you have reasons to value.” • What is excluded? • Are these good measures of a good life? • Life Expectancy • Adult Literacy • Gross Enrollment • GDP per capita

  26. http://hdrstats.undp.org/buildtables/##

  27. Millennium Development Goals • Eradicate extreme poverty and hunger • Halve, between 1990 and 2015, the proportion of people whose income is less than one dollar a day • Achieve full and productive employment and decent work for all, including women and young people • Halve, between 1990 and 2015, the proportion of people who suffer from hunger • Achieve universal primary education • Ensure that, by 2015, children everywhere, boys and girls alike, will be able to complete a full course of primary schooling. http://mdgs.un.org/unsd/mdg/Default.aspx

  28. Millennium Development Goals • Promote gender equality and empower women • Eliminate gender disparity in primary and secondary education preferably by 2005, and at all levels by 2015. • Reduce child mortality • Reduce by two-thirds, between 1990 and 2015, the under-five mortality rate. • Improve maternal health • Reduce by three quarters, between 1990 and 2015, the maternal mortality ratio. • Achieve, by 2015, universal access to reproductive health http://mdgs.un.org/unsd/mdg/Default.aspx

  29. Millennium Development Goals • Combat HIV/AIDS, malaria, and other diseases • Have halted by 2015 and begun to reverse the spread of HIV/AIDS. • Achieve, by 2010, universal access to treatment for HIV/AIDS for all those who need it. • Have halted by 2015 and begun to reverse the incidence of malaria and other major diseases. http://mdgs.un.org/unsd/mdg/Default.aspx

  30. Millennium Development Goals • Ensure environmental sustainability • Integrate the principles of sustainable development into country policies and programs; reverse loss of environmental resources. • Reduce biodiversity loss, achieving, by 2010, a significant reduction in the rate of loss • Halve, by 2015, the proportion of people without sustainable access to safe drinking water and basic sanitation (for more information see the entry on water supply). • By 2020, to have achieved a significant improvement in the lives of at least 100 million slum-dwellers http://mdgs.un.org/unsd/mdg/Default.aspx

  31. Millennium Development Goals • Develop a global partnership for development • Develop further an open trading and financial system that is rule-based, predictable and non-discriminatory. Includes a commitment to good governance, development and poverty reduction—nationally and internationally. • Address the special needs of the least developed countries. This includes tariff and quota free access for their exports; enhanced program of debt relief for heavily indebted poor countries; and cancellation of official bilateral debt; and more generous official development assistance for countries committed to poverty reduction. http://mdgs.un.org/unsd/mdg/Default.aspx

  32. Millennium Development Goals • Develop a global partnership for development (cont.) • Address the special needs of landlocked and small island developing States. • Deal comprehensively with the debt problems of developing countries through national and international measures in order to make debt sustainable in the long term. • In cooperation with pharmaceutical companies, provide access to affordable essential drugs in developing countries. • In cooperation with the private sector, make available the benefits of new technologies, especially information and communications http://mdgs.un.org/unsd/mdg/Default.aspx

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