Monetary Measures of Development PDF

Monetary- based Measures  Headcount Ratio (HCR) How many poor are there? Depth of Poverty Poverty How poor are the poor? Severity of Poverty How much poorer are the poorest?  Foster, Greer, and Th...

Monetary- based Measures  Headcount Ratio (HCR) How many poor are there? Depth of Poverty Poverty How poor are the poor? Severity of Poverty How much poorer are the poorest?  Foster, Greer, and Thorbecke (FGT) Index Headcount Ratio (HCR) (α = 0) Percentage of people in a population below a poverty line Depth of Poverty / Poverty Gap Ratio (α = 1) Average distance of the poor from the Poverty poverty line Sum of poverty gaps gives the minimum cost of eliminating poverty, if transfers are perfectly targeted Severity of Poverty / Squared Poverty Gap (α = 2) Degree of income inequality among the poor Highlights the distance between incomes of the poor, but puts more weight on observations well below the poverty line  World Bank income classifications (GNI per capita PPP): Low: < US$ 1,046 Lower-middle: US$ 1,046 – US$ 4,095 Global Upper-middle: US$ 4,095 – US$ 12,695 High: > US$ 12,695 Economy Income is necessary to improve well- being A growing economy often equates to Measure increased employment opportunities  Without sufficient economic growth, raising the well-being of the poor becomes socially costly Why Requires taxation and redistribution Redistributive growth is a preferred Income Labor-intensive growth Agricultural growth Matters  Gross Domestic Product (GDP) Aggregate value-added by all firms in a country Gross National Product / Income (GNP / GNI) GDP and GDP + net factor income from abroad Repatriated profits Remittances by migrants GNP  Computing GDP: GDP = C + I + G + (X – M) C – Consumption (Consumers) I – Investments (Business) G – Government Expenditure X – Exports M – Imports GDP Where do you find the data? PSA  GDP or GNI per Capita GDP or GNI divided by the population of a country Per Growth in GDPPc / GNIPc is a good measure of average income progress over time Capita  Calculating Growth Rates between two periods 𝑔= 𝑦𝑇 1 100[( )𝑇 𝑦0 − 1] Growth Rates Average growth rate over a period of time 𝑦𝑇 − 𝑦0 % 𝐶ℎ𝑎𝑛𝑔𝑒 = 𝑦0 Percent change over two years Year GDP (Constant 2018 Prices) 2010 11,183,861.00 2011 11,615,360.00 2012 12,416,466.00 2013 13,254,644.00 2014 14,096,047.00 2015 14,990,907.00 2016 2017 2018 16,062,676.00 17,175,978.00 18,265,190.00 Growth 2019 2020 2021 19,382,751.00 17,537,843.00 18,540,084.00 Rates 2022 19,945,605.00 2023 21,051,758.00 𝑦𝑇 1 𝑔 = 100[( )𝑇 − 1] 𝑦0  Nominal GDP Raw GDP value Nominal Based on current prices (of that year) Real GDP GDP value taking inflation into account vs. Based on a peg price set at a common year Real  Consumer Price Index (CPI) Sometimes called the GDP Deflator A calculated value that allows GDP to adjust to inflation A base-year is often chosen that equates prices to 100 or 1 Calculating with CPI gives us: Real GDP / GDPPc CPI 100 x Nominal GDP/GDPPc / CPI Where to find the data? PSA or WB (US$)  Comparing incomes across countries Comparing using official exchange rates GDPPc$ = GDPPcLocalCurrency/nominal exchange rate Purchasing Power Parity (PPP) Calculation of GNI using a common set of PPP international prices for all goods and services, to provide more accurate comparisons of living standards PPP-adjusted GDPPc$ = GDPPcLocalCurrency/PPP exchange rate Where to find the data? Official exchange rate: BSP PPP=adjusted statistics: World Bank  Conceptualized by William Nordhaus Additionally accounts for non-marketed services Child care work Genuine Z-goods (home-produced goods or services like preparing meals or cleaning the house) Progress GPI = GDP + value of unpaid work – costs of crime, social breakdown, and Indicator environmental damages Genuine Progress Indicator