EconomicsDevelopmentM02TodaroSmith01393411EconC02

Copyright 2012 Pearson Addison-Wesley.All rights reserved.Chapter 2Comparative Economic DevelopmentCopyright 2012 Pearson Addison-Wesley.All rights reserved.2-2Common characteristics of developing countriesThese 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 Larger rural population-rapid migration to cities Lower levels of industrialization and manufactured exports Adverse geography Underdeveloped financial and other markets Colonial Legacies-poor institutions etc.Copyright 2012 Pearson Addison-Wesley.All rights reserved.2-32.1 Defining the Developing World World Bank Scheme-ranks countries on GNP/capita LIC,LMC,UMC,OECD(see Table 2.1 and Figure 2.1)Copyright 2012 Pearson Addison-Wesley.All rights reserved.2-4Table 2.1 Classification of Economies by Region and Income,2010Copyright 2012 Pearson Addison-Wesley.All rights reserved.2-5Table 2.1 Classification of Economies by Region and Income,2010(continued)Copyright 2012 Pearson Addison-Wesley.All rights reserved.2-6Table 2.1 Classification of Economies by Region and Income,2010(continued)Copyright 2012 Pearson Addison-Wesley.All rights reserved.2-7Figure 2.1 Nations of the World,Classified by GNI Per CapitaSource:Data from Atlas of Global Development,2nd ed.,pp.1011.Collins Bartholomew Ltd.,2010.Copyright 2012 Pearson Addison-Wesley.All rights reserved.2-82.2 Basic Indicators of Development:Real Income,Health,and Education Gross National Income(GNI)Gross Domestic Product(GDP)PPP method instead of exchange rates as conversion factors(see Figure 2.2)Copyright 2012 Pearson Addison-Wesley.All rights reserved.2-9Figure 2.2 Income Per Capita in Selected Countries(2008)Copyright 2012 Pearson Addison-Wesley.All rights reserved.2-10Table 2.2 A Comparison of Per Capita GNI,2008Copyright 2012 Pearson Addison-Wesley.All rights reserved.2-112.3 Holistic Measures of Living Levels and Capabilities Health Life Expectancy Education HDI as a holistic measure of living levels 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 areasCopyright 2012 Pearson Addison-Wesley.All rights reserved.2-12Table 2.3 Commonality and Diversity:Some Basic IndicatorsCopyright 2012 Pearson Addison-Wesley.All rights reserved.2-13Figure 2.3 Human Development Disparities within Selected CountriesCopyright 2012 Pearson Addison-Wesley.All rights reserved.2-14Figure 2.3 Human Development Disparities within Selected Countries(continued)Copyright 2012 Pearson Addison-Wesley.All rights reserved.2-15Table 2.4 2009 Human Development Index for 24 Selected Countries(2007 Data)Copyright 2012 Pearson Addison-Wesley.All rights reserved.2-16Table 2.5 2009 Human Development Index Variations for Similar Incomes(2007 Data)Copyright 2012 Pearson Addison-Wesley.All rights reserved.2-172.3 Holistic Measures of Living Levels and Capabilities The New Human Development Index Introduced by UNDP in November 2010Copyright 2012 Pearson Addison-Wesley.All rights reserved.2-18What is new in the New HDI?1.Calculating with a geometric meanProbably most consequential:The index is now computed with a geometric mean,instead of an arithmetic meanA geometric mean is also used to build up the overall education index from its two componentsTraditional HDI added the three components and divided by 3New HDI takes the cube root of the product of the three component indexesThe traditional HDI calculation assumed one component traded off against another as perfect substitutes,a strong assumptionThe reformulation now allows for imperfect substitutabilityCopyright 2012 Pearson Addison-Wesley.All rights reserved.2-19What is new in the New HDI?2.Other key changes:Gross national income per capita replaces gross domestic product per capitaRevised education components:now using the average actual educational attainment of the whole population,and the expected attainment of todays childrenThe maximum values in each dimension have been increased to the observed maximum rather than given a predefined cutoffThe lower goalpost for income has been reduced due to new evidence on lower possible income levelsCopyright 2012 Pearson Addison-Wesley.All rights reserved.2-20Table 2.6 The 2010 New Human Development Index(NHDI),2008 DataCopyright 2012 Pearson Addison-Wesley.All rights reserved.2-212.4 Characteristics of the Developing World:Diversity within Commonality1.Lower levels of living and productivity2.Lower levels of human capital(health,education,skills)3.Higher Levels of Inequality and Absolute PovertyAbsolute PovertyWorld Poverty4.Higher Population Growth RatesCrude Birth ratesCopyright 2012 Pearson Addison-Wesley.All rights reserved.2-22Figure 2.4 Shares of Global Income,2008Copyright 2012 Pearson Addison-Wesley.All rights reserved.2-23Table 2.7 The 12 Most and Least Populated Countries and Their Per Capita Income,2008Copyright 2012 Pearson Addison-Wesley.All rights reserved.2-24Figure 2.5 Under-5 Mortality Rates,1990 and 2005Copyright 2012 Pearson Addison-Wesley.All rights reserved.2-25Table 2.8 Primary School Enrollment and Pupil-Teacher Ratios,2010Copyright 2012 Pearson Addison-Wesley.All rights reserved.2-26Figure 2.6 Correlation between Under-5 Mortality and Mothers EducationCopyright 2012 Pearson Addison-Wesley.All rights reserved.2-27Figure 2.7 Number of People Living in Poverty by Region,19812005Copyright 2012 Pearson Addison-Wesley.All rights reserved.2-28Table 2.9 Crude Birth Rates Around the World,2009Copyright 2012 Pearson Addison-Wesley.All rights reserved.2-292.4 Characteristics of the Developing World:Diversity within Commonality5.Greater Social Fractionalization6.Larger Rural Populations but Rapid Rural-to-Urban Migration7.Lower Levels of Industrialization and Manufactured Exports8.Adverse Geography Resource endowmentsCopyright 2012 Pearson Addison-Wesley.All rights reserved.2-30Table 2.10 The Urban Population in Developed Countries and Developing RegionsCopyright 2012 Pearson Addison-Wesley.All rights reserved.2-31Table 2.11 Share of the Population Employed in the Industrial Sector in Selected Countries,2004-2008(%)Copyright 2012 Pearson Addison-Wesley.All rights reserved.2-322.4 Characteristics of the Developing World:Diversity within Commonality9.Underdeveloped Financial and Other markets Imperfect markets Incomplete information10.Colonial Legacy and External Dependence Institutions Private property Personal taxation Taxes in cash rather than in kindCopyright 2012 Pearson Addison-Wesley.All rights reserved.2-332.5 How Low-Income Countries Today Differ from Developed Countries in Their Earlier Stages Eight 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 institutionsCopyright 2012 Pearson Addison-Wesley.All rights reserved.2-342.6 Are Living Standards of Developing and Devolved 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 sizeCopyright 2012 Pearson Addison-Wesley.All rights reserved.2-35Figure 2.8 Relative Country Convergence:World,Developing Countries,and OECDCopyright 2012 Pearson Addison-Wesley.All rights reserved.2-36Figure 2.8 Relative Country Convergence:World,Developing Countries,and OECD(contd)Copyright 2012 Pearson Addison-Wesley.All rights reserved.2-37Figure 2.9 Growth Convergence versus Absolute Income ConvergenceCopyright 2012 Pearson Addison-Wesley.All rights reserved.2-38Figure 2.10 Country Size,Initial Income Level,and Economic GrowthCopyright 2012 Pearson Addison-Wesley.All rights reserved.2-392.7 Long-Run Causes of Comparative Development Schematic Representation Geography Institutional quality-colonial and post-colonial Colonial legacy-pre colonial comparative advantage Evolution and timing of European development Inequality-human capital Type of colonial regimeCopyright 2012 Pearson Addison-Wesley.All rights reserved.2-40Figure 2.11 Schematic Representation of Leading Theories of Comparative DevelopmentCopyright 2012 Pearson Addison-Wesley.All rights reserved.2-41Nature and Role of Economic InstitutionsInstitutions provide“rules of the game”of economic life Provide underpinning of a market economyInclude property rights;contract enforcementCan work for improving coordination,Restricting coercive,fraudulent and anti-competitive behavior Providing access to opportunities for the broad population-Constraining the power of elites,and managing conflict Provision of social insurance Provision of predictable macroeconomic stability Copyright 2012 Pearson Addison-Wesley.All rights reserved.2-42Role of Institutions Acemoglu,Johnson,and Robinsons“reversal of fortune”and extractive institutions Bannerjee and Iyer,“property rights institutions.”Landlords versus cultivatorsCopyright 2012 Pearson Addison-Wesley.All rights reserved.2-43Concepts for ReviewAbsolute povertyBrain drainCapital stockConvergenceCrude birth rateDependency burdenDepreciation(of the capital stock)Diminishing Marginal UtilityDivergenceEconomic InstitutionsFractionalizationFree tradeGross domestic product(GDP)Gross national income(GNI)Human capitalHuman Development Index(HDI)Copyright 2012 Pearson Addison-Wesley.All rights reserved.2-44Concepts for Review(contd)Imperfect marketIncomplete informationInfrastructureLeast developed countries Low-income countries(LICs)Middle-income countriesNewly industrializing countries(NICs)Purchasing power parity(PPP)Research and development(R&D)Resource endowmentTerms of tradeValue addedWorld Bank