2 COMPARATIVE ECONOMIC DEVELOPMENT (1).pptx

Chapter 2: Comparative
Economic Development
2.1 An Introduction
2.2 What is the Developing World? Classifying Levels of
National Economic Development
2.3 Comparing Countries by Health and Education, and
the Human Development Index
2.4 Key Similarities and Differences Among Developing
Countries
2.5 Are Living Standards of Developing and Developed
Nations Converging?
2.6 Long-Run Causes of Comparative Development
2.7 Concluding Observations

2.1 An Introduction
• Developing countries: Countries primarily in Asia,
Africa, the Middle East, Latin America, eastern
Europe, and the former Soviet Union that are
presently characterized by low levels of living and
other development deficits.
• Output per worker in the United States is over eight
times higher than it is in India and more than 50
times higher than in the Democratic Republic of
Congo (DRC). In 2017, gross national income (GNI)
per capita was $58,270 in the United States, $1,800
in India, and $460 in the DRC.

2.1 An Introduction
• Life expectancy is 78.7 years in the United States,
68.6 in India, and just 59.6 in the DRC. The
percentage of children who are underweight is less
than 2% in the United States but 36% in India and
23% in the DRC. Whereas almost all women are
literate in the United States, only 63% are in India,
and 67% in the DRC.

2.2 What is the Developing World?
Classifying Levels of National Economic
Development
• A traditional way to define levels of economic
development level is by per capita income. We then
extend country comparisons to education and health;
the United Nations.
• In 2018 there were 34 countries classified as LICs;
there were 47 LMCs and 56 UMCs. There were 81
HICs with at least $12,056 per person.
• TABLE 2.1 Pg-38

• GNI per capita is often used as a summary index of
the relative economic well-being of people in
different nations. It is calculated as the total
domestic and foreign value added claimed by a
country’s residents without making deductions for
depreciation.
• Gross domestic product (GDP) measures the total
value for final use of output produced by an
economy, by both residents and nonresidents.
2.2.2 Adjusting for Purchasing
Power Parity

• Thus, GNI comprises GDP plus the difference between
the income residents receive from abroad for factor
services (labor and capital) less payments made to
nonresidents who contribute to the domestic economy.
• Where there is a large nonresident population playing
a major role in the domestic economy (such as foreign
corporations), these differences can be significant.
• PPP is calculated using a common set of international
prices for all goods and services.
Power Parity

• An intuitive although imprecise way to think about
Purchasing Power Parity is the number of units of a
foreign country’s currency required to purchase the
quantity of goods and services in the local developing
country market as $1 would buy in the United States.
• In practice, adjustments are made for differing
relative prices across countries so that living
standards may be measured more accurately.
Power Parity

• Table 2.2 provides a comparison of exchange-rate and
PPP GNI per capita for 30 countries, ten each from
Africa, Asia, and Latin America, plus Canada, the
United Kingdom and the United States (along with
averages for three income levels).
• Pg 44
Power Parity

1. The G7 and G20. Two country groupings of geopolitical
significance are the group of seven largest developed
economies (G7); and an expanded group of 20 (G20)
countries that also includes the large middle-income countries.
2. Least-developed countries. This is a widely used United
Nations (UN) designation that included 47 countries as of the
end of 2018; 33 are in Africa, 9 in Asia, 4 in (Pacific) Oceana,
plus Haiti. For inclusion, a country has to meet each of three
criteria: low income, low human capital (health and
education), and high economic vulnerability.
2.2.3 Other Common Country
Classifications

3. Landlocked and small island countries. Two additional special UN
classifications are also noteworthy: the landlocked developing
countries (LLDCs, of which there are 30, with 15 of them in
Africa); and the small island developing states (SIDS, of which
there are 38)
4. Heavily indebted poor countries (HIPCs). As of 2019 there are 39
HIPC countries.
5. Newly industrialising countries (NICs)- An early stage of export-led
manufacture growth. For example, South Korea and Taiwan, and
subsequently to Thailand and Indonesia, from the 1970s to 1980s.
The term may be applied today to a country such as Vietnam.
2.2.3 Other Common Country
Classifications

2.3 Comparing Countries by Health
and Education, and the Human
Development Index
2.3.1 Comparing Health and Education Levels
Three basic indicators of average health—life expectancy
at birth, the under-5 mortality rate, and the prevalence of
undernourishment;
Two indicators of average education—the gross enrolment
ratio for secondary school, and the percent of the population
with at least some secondary education.

Indicators of Health, and Education
• Life expectancy is the average number of years newborn
children would live if subjected to the mortality risks
prevailing for their cohort at the time of their birth.
• Undernourishment means consuming too little food to
maintain normal levels of activity; High fertility can be both
a cause and a consequence of underdevelopment, so the
birth rate is reported as another basic indicator.
• Literacy is the fraction of adult males and females reported
or estimated to have basic abilities to read and write;
functional literacy is generally lower than the reported
numbers.

2.3.2 Introducing the Human
Development Index
TABLE 2.3 Commonality and Diversity:
Some Basic Indicators of Health and
Education

2.3 Holistic Measures of Living Levels
and Capabilities (HDI)
• Income
• Life Expectancy
• Education
• 0 stands for the (lowest human development)
• 1 stands for the (highest human development)
• HDI can be calculated for groups and regions in a country
– HDI varies among groups within countries
– HDI varies across regions in a country
– HDI varies between rural and urban areas

2.3 Holistic Measures of Living Levels
and Capabilities
• The Traditional Human Development Index
The HDI ranks countries into four groups:
• low human development (0.0 to 0.499),
• medium human development (0.50 to 0.799),
• high human development (0.80 to 0.90), and
• very high human development (0.90 to 1.0).

Life expectancy = Current Longevity – Minimum
index Longevity/ Maximum Longevity
– Minimum Longevity
Education index = 2/3 (adult literacy index) + 1/3 (gross
enrollment index)
Adult literacy index = Current Literacy rate – 0/ 100 - 0
Gross enrollment index = Current Enrollment rate – 0/ 100 -
0
Income index = [log (Current Income) - log (100)] /
[log (Maximum) - log(Minimum Income
100)]
Traditional Human Development Index
(UNDP, 1990-2009)
Traditional HDI = 1/3(Income Index)+ 1/3(life
Expectancy Index + 1/3 (Education Index)

Calculation Pg – Appendix

What is new in the New HDI?
1. Calculating with a geometric mean
• Probably most consequential: The index is now computed
with a geometric mean, instead of an arithmetic mean.
• A geometric mean is also used to build up the overall
education index from its two components
• Traditional HDI added the three components and divided by 3
• New HDI takes the cube root of the product of the three
component indexes
• The traditional HDI calculation assumed one component
traded off against another as perfect substitutes, a strong
assumption
• The reformulation now allows for imperfect substitutability
which development specialists widely consider a more
plausible way to frame the tradeoffs.

What is new in the New HDI?
2. Other key changes:
• Gross national income per capita replaces gross domestic
product per capita
• Revised education components: now using the average actual
educational attainment of the whole population, and the
expected attainment of today’s children.
• The maximum values in each dimension have been increased to
the observed maximum rather than given a predefined cutoff.
• The lower goalpost for income has been reduced due to new
evidence on lower possible income levels.
• Rather than using the common logarithm (log) to reflect
diminishing marginal benefit of income, the NHDI now uses the
natural log (ln).

• NHDI Example
• Costa Rica
• Pg 48 13th
Edition

23
Observed Maximum Life Expectancy yrs =
85
Minimum Life Expectancy yrs =
20
Maximum average actual years of schooling =
15 Minimum average years of schooling
= 0
Maximum Expected years of schooling =
18 Minimum Expected years of schooling = 0
Maximum Income =US$
Standard Values for NHDI

Education Index = – Mini yrs (Maximum years of schooling -
Minimum years)
Income Index = ln(Current Income) – ln(Mini Income)
ln(Max Income) – ln(Mini Income)
Life expectancy index = Life expectancy at birth (years) - Minimum life
expectancy
Maximum life expectancy – Minimum life expectancy
NHDI = H1/3
E 1/3
I 1/3
or 3
H*E*I
√
New HDI (UNDP,
2010)

TABLE 2.4 2018 Human Development
Index and its Components for Selected
Countries
ABLE 2.5 HDI for Countries with Similar
Income Levels
BOX 2.1

2.4 Key Similarities and Differences
Among Developing Countries
These ten features of similarities and
differences are:
1. Levels of income and productivity
2. Human capital attainments
3. Inequality and absolute poverty
4. Population growth and age structure
5. Rural population and rural-to-urban

2 COMPARATIVE ECONOMIC DEVELOPMENT (1).pptx

More Related Content

What's hot

Similar to 2 COMPARATIVE ECONOMIC DEVELOPMENT (1).pptx

More from TarYar3

Recently uploaded

2 COMPARATIVE ECONOMIC DEVELOPMENT (1).pptx