1. Developing countries share common characteristics including lower levels of living standards, productivity, and human capital compared to developed countries. They also have higher levels of inequality, poverty, population growth, and rural populations. 2. Countries are classified by income level using GDP per capita thresholds set by the World Bank. The Human Development Index (HDI) provides a holistic measure of living levels based on health, education, and income indicators. 3. Diversity exists within the common characteristics of developing countries. Absolute poverty, mortality rates, and education levels vary significantly between and within countries based on factors like location, gender, and ethnicity.

1. Chapter 3
Comparative
Development
Economic
Principles and Concepts
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2. I. Common characteristics of developing countries
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• These features in common are on average and with great diversity, in
comparison with developed countries:
– Lower levels of living and
productivity
–Lower levels of human capital
–Higher levels of inequality and
absolute poverty
– Higher population growth rates
– Greater social fractionalization
– More rural population – high migration to
cities
–Lower levels of industrialization and
manufactured exports
– Adverse geography
–Underdeveloped financial and other
markets
– Colonial Legacies - poor institutions etc.

3. Defining the Developing World
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• Per capita income is the main criterion for the developing world
• World Bank ranks countries on GDP/capita. It divides countries into
group:
– LIC: low income countries - countries with a GDP/GNP per capita less than $976
in 2008.
– LMC: Lower-middle income countries
– MC: middle income countries
– UMC: Upper-middle income countries
– OECD: Organization for Economic Cooperation and Development

4. Classification of Economies by Region and Income, 2010
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5. 5

6. 6

7. Basic Indicators of Development: Real Income,
Health, and Education
•Gross National Income
(GNI): GDP, GNP
•PPP as conversion factors
used instead of ERs
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8. A Comparison of Per Capita GNI, 2008
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9. II. Holistic Measures of Living Levels and Capabilities
•HDI can be computed 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
•Health
• Life Expectancy
• Education
•HDI as a holistic
measure of living levels
YourAssignment to do the research on
HDI.
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10. Commonality and Diversity: Some Basic Indicators
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11. Human Development Disparities within Selected Countries
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12. 12

13. 2009 Human Development Index for 24 Selected Countries (2007 Data)
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14. 2009 HDI Variations for Similar Incomes (2007 Data)
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15. Holistic Measures of Living Levels and Capabilities
• The New Human Development Index
• Introduced by UNDP in November 2010
YourAssignment to do the research on NHDI.
What is new in
the New HDI?
1. Calculating with a geometric mean:
- geometric mean instead of arithmetic mean
- 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
2. Other key changes
-GNP per capita replaces GDP per capita
-Revised education components: using the
average actual educational attainment of the
whole population, and the expected
attainment of today’s children
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16. 16

17. III. Characteristics of the Developing World: Diversity within
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Commonality (viewed in ch.1)
1. Lower levels of living standard
2. Lower levels of productivity
3. Lower levels of human capital (health, education, skills)
4. Higher Levels of Inequality and Absolute Poverty
– Absolute Poverty
– World Poverty
5. Higher Population Growth Rates
– Crude Birth rates

18. Shares of Global Income, 2008
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19. The 12 Most and Least Populated Countries and Their Per Capita
Income, 2008
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20. Under-5 Mortality Rates, 1990 and 2005
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21. Primary School Enrollment and Pupil-Teacher Ratios, 2010
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22. Correlation between Under-5 Mortality and Mother’s Education
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23. Number of People Living in Poverty by Region, 1981–2005
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24. Crude Birth Rates Around the World, 2009
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25. 6. Greater Social Fractionalization
7. Larger Rural Populations but Rapid Rural-to-Urban Migration
8. Lower Levels of Industrialization and Manufactured Exports
9. Adverse Geography
– Resource endowments
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26. The Urban Population in Developed Countries and Developing Regions
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27. Share of the Population Employed in the Industrial Sector in Selected
Countries, 2004-2008 (%)
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28. 4 Characteristics...
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10. Underdeveloped Financial and Other markets
– Imperfect markets
– Incomplete information
11. Colonial Legacy and External Dependence
– Institutions
– Private property
– Personal taxation
– Taxes in cash rather than in kind

29. V. How low-income countries today differ from developed
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countries in their earlier stages
• Nine differences
– Physical and human resource endowments
– Per capita incomes and levels of GDP in relation to the rest of the world
– Climate
– Population size, distribution, and growth
– Historic role of international migration
– International trade benefits
– Basic scientific/technological research and development capabilities
– Efficacy of domestic institutions
– Inter-relation within region

30. VI. Are Living Standards of Developing and Devolved
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Nations Converging?
• Evidence of unconditional convergence is hard to find
• But there is increasing evidence of “per capita income
convergence,” weighting changes in per capita income by
population size

31. Relative Country Convergence: World, Developing Countries, and OECD (cont’d)
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32. Growth Convergence versus Absolute Income Convergence
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33. Nature and Role of Economic Institutions
•Institutions provide “rules of the game”
of economic life
•Provide foundation of a market
economy
•Include property rights; contract
enforcement
• Can work for improving coordination,
•Restricting coercive, fraudulent and
anti-competitive behavior
•Providing access to opportunities for
the broad population-
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•Constraining the power of elites,
and managing conflict
• Provision of social insurance
•Provision of predictable
macroeconomic stability

34. Concepts for Review
• Absolute poverty
• Brain drain
• Capital stock
• Convergence
• Crude birth rate
• Dependency burden
• Depreciation (of the capital stock)
• Diminishing Marginal Utility
• Divergence
• Economic Institutions
• Fractionalization
• Free trade
• Gross domestic product (GDP)
• Gross national income (GNI)
• Human capital
• Human Development Index (HDI)
• Imperfect market
• Incomplete information
• Infrastructure
• Least developed countries
• Low-income countries (LICs)
• Middle-income countries
• Newly industrializing countries (NICs)
• Purchasing power parity (PPP)
• Research and development (R&D)
• Resource endowment
• Terms of trade
• Value added
• World Bank
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