Comparative Economic
Development
Defining the Developing World
by per capita income
developing countries are those with low-, lower-middle, or upper-middle incomes
level of human development, including health and education attainments
through their degree of international indebtedness
emerging markets was introduced at the international finance corporation
suggest progress
10 important features that developing countries tend to have in common, on
average, in comparison with the developed world
1. Lower levels of living and productivity
2. Lower levels of human capital
3. Higher levels of inequality and absolute poverty
4. Higher population growth rates
5. Greater social fractionalization
6. Larger rural populations but rapid rural-to-urban migration
7. Lower levels of industrialization
8. Adverse geography
9. Underdeveloped financial and other markets
10. Lingering colonial impacts such as poor institutions and often external
dependence
Basic Indicators of Development
Real Income - purchasing power
Health - as measured by life expectancy, undernourishment, and child morality
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Education - educational attainments as measured by literacy and schooling
Human Development Index (HDI) - index measuring national socioeconomic
development, based on combining measures of education, health, and adjusted real
income per capital
based on three goals or end products of development
1. A long and healthy life as measured by life expectancy at birth
2. Knowledge as measured by combination of average schooling attained by adults
and expected years of schooling for school-age children
3. A decent 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 f living and for the assumption o diminishing marginal
utility of income
Purchasing Power Parity - defined as the number of units of foreign country’s
currency required to purchase the identical quantity of goods and services in the
local developing country market as $1 would buy in the United States
- calculation of GNI using a common set of international prices for all goods and
services, to provide more accurate comparisons of living standards
Gross National Income - total domestic and foreign output claimed by residents of a
country, consisting of gross domestic product (GDP) plus factor incomes earned by
foreign residents, minus income earned in the domestic economy by non-residents
Value Added - portion of product’s final value that is added at each stage of
production
Depreciation (of the capital stock) - wearing out of equipment, buildings,
infrastructure. and other forms of capital, reflected in write-offs to the value of the
capital stock
Capital Stock - total amount of physical goods existing at a particular time that
have been produced for use in the production of other goods and services
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Gross Domestic Product (GDP) - measures the total value for the final use of
output produced by an economy, by both residents and non-residents
The New Economic View of Development
During the 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” became a common slogan
Amartya Sen’s Capability Approach
“Capability to function” is what really matters for status as a poor or non-poor
person
As Sen insisted on, “the expansion of commodity productions are valued,
ultimately, not for their own sake, but as means to human welfare and freedom.”
“Sen argues that poverty cannot be properly measured by income or even by
utility as conventionally understood”
“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.”
… from the wisdom of Amartya Sen
“What matters for well-being is not just the characteristics of commodities consumed,
as in the utility approach, but what use the consumer can and does make of
commodities.”
Functioning
what a person does )or can do) with the commodities of given characteristics
that they come to possess or control
a valued “being or doing”, and in Sen’s view, functioning that people have
reason to value can range from being healthy, being well-nourished, and well
clothed, to being mobile, having self-esteem, and “taking part in the life of the
community”
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