Measures of Economic Development PDF

l 3: Measures of Economic development Traditional Economic Measures:  Traditional method to measure economic development depend on what we called “real” per capita gross national income (GNI), as economy grow by a higher rate comparing to population growth  RGNI : measure...

l 3: Measures of Economic development Traditional Economic Measures:  Traditional method to measure economic development depend on what we called “real” per capita gross national income (GNI), as economy grow by a higher rate comparing to population growth  RGNI : measures how much of real goods and services is available to the average citizen for consumption and investment.  Income per capita Total gross national income of a country divided by total population.  real per capita gross national income (GNI) = monetary growth of GNI per capita - the rate of inflation  Traditional methods of economic development concentrate on the effect of economic growth on increasing production and employment through what’s called “trickle down” effect in the form of jobs and other economic opportunities or create the necessary conditions for the wider distribution of the economic and social benefits of growth. It is what we call gradullay benefit the poorest as a result of increasing wealth of the richest.  Trickle down effect mean :  refer to how new consumer products, when first introduced into the market, are costly and only affordable by the wealthy, but as the product matures its price begins to fall so it may be more widely adopted by the general public.  The difference bet. GDP and GNP. (IMPORTANT) The evolution of economic development thought:  the 1950s and 1960s, although many developing nations did reach their economic growth targets but the levels of living of the masses of people remained for the most part unchanged, there’s widespread absolute poverty, increasingly inequitable income distributions, and rising unemployment  1970s, economic development came to be redefined in terms of the reduction or elimination of poverty, inequality, and unemployment within the context of a growing economy. “Redistribution from growth”  in the 1980s and 1990s the situation worsened further as GNI growth rates turned negative for many developing countries, and governments, facing mounting foreign-debt problems, were forced to cut back on their already limited social and economic programs  Growth was rapid in much of the developing world in the 2000s  So Development terminology must therefore be conceived of as a multidimensional process involving major changes in social structures, popular attitudes, and national institutions, as well as the acceleration of economic growth, the reduction of inequality, and the eradication of poverty. Amartya Sen’s “Capability” Approach  Amartya Sen, the 1998 Nobel in economics, argues that Economic growth cannot be sensibly treated as an end in itself. Development has to be more concerned with enhancing the lives we lead and the freedoms we enjoy  Sen argues that poverty cannot be properly measured by income; what matters fundamentally is not the things a person has—or the feelings these provide—but what a person is, or can be, and does, or can do  Sen concentrate on what he called functioning's,‫االداء‬ that is, what a person does (or can do) with the commodities of given characteristics that they come to possess or control  What matters for well-being is not just the characteristics of commodities consumed, but what use the consumer can and does make of commodities.  Freedom of choice, or control of one’s own life, is itself a central aspect of most understandings of well-being. As Sen explains  for example; In the case of nutrition, the end is health and what one can do with good health, as well as personal enjoyment and social functioning. Capabilities: The freedoms that people have, given their personal features and their command over commodities.  Sen’s perspective helps explain why development economists have placed so much emphasis on health and education and more recently on social inclusion and empowerment.  Sen referred to countries with high levels of income but poor health and education standards as cases of “growth without development.”  Real income is essential, but to convert the characteristics of commodities into functioning's, in most important cases, surely requires health and education as well as income.  For Sen, human “well-being” means being well, in the basic sense of being healthy, well nourished, well clothed, literate, and long-lived and more broadly, being able to take part in the life of the community, being mobile, and having freedom of choice in what one can become and can do. Millennium Development Goals (MDGs): A set of 8 goals adopted by the United Nations in 2000:  eradicate extreme poverty and hunger;  achieve universal primary education;  promote gender equality and empower women;  reduce child mortality;  improve maternal health;  combat HIV/AIDS, malaria, and other diseases;  ensure environmental sustainability;  develop a global partnership for development. The goals were assigned specific targets to be achieved by 2015. Defining the Developing World: We can divided countries according to their : 1- per capita income: Low-income countries (LICs): In the World Bank classification, countries with a gross national income per capita of less than $976 in 2008. Middle-income countries: In the World Bank classification, countries with a GNI per capita between $976 and $11,906 in 2008. the developing countries are those with low-, lower- middle, or upper-middle incomes. Moreover, high-income countries that have one or two highly developed export sectors but in which significant parts of the population remain relatively uneducated or in poor health for the country’s income level may be viewed as still developing. Examples may include oil exporters such as Saudi Arabia  Newly industrializing countries (NICs) Countries at a relatively advanced level of economic development with a substantial and dynamic industrial sector and with close links to the international trade, finance, and investment system. 2- another way to classify the nations of the developing world according to world bank is through their degree of international indebtedness: severely indebted moderately indebted less indebted. 3- The United Nations Development Program (UNDP) classifies countries according to their level of human development, including health and education attainments as low, medium, high, and very high.  According to the international attempts to classify countries’ we can use what’s called Human Development Index, (HDI) An index measuring national socioeconomic development, based on combining measures of education, health, and adjusted real income per capita. The HDI attempts to rank all countries on a scale of 0 (lowest human development) to 1 (highest human development) based on three goals or end products of development: - longevity as measured by life expectancy at birth, - knowledge as measured by a weighted average of adult literacy (two- thirds) and gross school enrollment ratio (one third), - standard of living as measured by real per capita gross domestic product adjusted for the differing purchasing power parity of each country’s currency to reflect cost of living Using these three measures of development and applying a formula to data for 177 countries, 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), – very high human development (0.90 to 1.0).