WHAT IS DEVELOPMENT

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WHAT IS DEVELOPMENT?

• Aravinda Meera Guntupalli

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Economic development

• Economic development is the major priority of the
  worlds nations. All nations are being challenged
  by the crucial task of improving income,
  well-being and economic capabilities of people.
• Every year aid is distributed, investments are
  made, policies are framed, and elaborated plans
  are hatched to achieve this goal.

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Major issues

• What is development?
• How to measure development?
• What is the minimum requirement?
• Why is it so important?
• What are the indicators?
• Where is it occurring?
• Who is getting the benefits?
• How to distinguish economic growth and
  development?

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Topics of this lecture

• Measurement of economic development
• GNP and GDP
• Human Development Index (HDI)
• Inequality
• Lorenz curve
• Gini concentration ratio
• Poverty

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Classification of economies

• 1996 World Bank income classification
• Less than 785 per capita - Low income
• 785-3115 - Lower Middle income
• 3115 to 9636 - Upper middle income
• Over 9636 - High income economies
• Oman, Saudi Arabia and United Arab Emirates -
  outliers

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Key elements to development

• People of the country must be major participants
  in the process
• Growth should not benefit only a tiny, wealthy
  minority,whether domestic or foreign
• Finally, no development can occur without
  economic growth

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Economic growth and development

• Growth refers to rise in national or per capita
  income or product.

• Economic development implies more than increase
  in the production of goods and services

Libya and South Korea since 1960 would be the
best example
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GNP and GDP

• The sum of the value of finished goods and
  services produced by a society during a given
  year. This excludes intermediate goods.
• Total national income and total output
• Per capita
• Difference between GNP and GDP

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Limitations

• Poor quality statistics
• Definition - Goods and services that are sold in
  the market (unpaid work ????)
• Exchange rate problems
• To overcome this problem, common set of prices
  are used to measure output of every country (hair
  cut in India is priced the same as on in the US)
• This measure of average income is called
  Purchasing Power Parity (PPP)

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Social indicators for the early 1990s (GDP per
capita, PPP)
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Human development index

• Life expectancy at birth (this will indirectly
  reflect infant and child mortality)
• Educational attainment of the society which is a
  composite index (It takes weighted average of
  adult literacy (with weight of 2/3) and a
  combination of enrolment rates in primary,
  secondary and tertiary education (with weight
  of 1/3).
• Per capita income (adjusted)
• HDI is calculated using average of the above
  three indicators.

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Comparison of per capita income and HDI, 1998
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Development and human welfare

• Increase in per capita income during 1965 and
  1998 in most developing countries raises many
  questions
• Inequality- relative welfare of different groups
• Poverty- number of poor and their state of well
  being
• What is the relevance of economic growth in the
  context of mass living standards and distribution
  of income ?

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Reasons for failure

• For power and glory of the state
• (Ancient Egypt on Pyramids and some developing
  countries on ballistic missiles and nuclear
  weapons)
• Resources invested for the future growth
• Unequal distribution - The rich get richer and
  the poor get poorer ? (Karl Marx and Charles
  Dickens)

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Income distribution and Lorenz curve

• Lorenz curve We take income recipients from low
  to high on the x- axis and the resulting shape
  shows degree of inequality of income distribution
• A straight line with a 45 degree incline at the
  origin, or a slope of 1 is a Lorenz curve with
  perfect equality

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Lorenz curve
100
80
Line of complete equality
60
Percentage share of national income (cumulative)
40
Lorenz curve
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O
O
100
60
80
20
40
Percentage of population
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100
Gini coefficient A / (A B)
80
Line of complete equality
60
Percentage share of national income (cumulative)
A
40
B
Lorenz curve
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O
O
100
60
80
20
40
Percentage of population
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The Gini-Coefficient

• Divide A by the sum of A B to get the Gini
  coefficient
• If the Lorenz curve is on the 45 deg. Line, the
  Gini coefficient would be 0
• Range 0-1
• Limitations

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100
80
Line of complete equality
60
Percentage share of national income (cumulative)
40
L1
L2
20
O
O
100
60
80
20
40
Percentage of population
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Comparison of two hypothetical income
distributions
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Inequality scenario in the world

• Sri Lanka Equal distribution of income
• South Korea and Taiwan Equal distribution
  combined with rapid growth
• Latin America High inequality
• Ethiopia, Kenya, Zambia, Philippines, Colombia,
  Peru, Thailand, Brazil, Malaysia, Venezuela and
  Mexico Unusually high inequality
• Bulgaria, Poland and Hungary (transition
  economies)
• Australia, Singapore and USA (developed countries)

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Equality and equity

• Equality Every one gets the same income or owns
  the same wealth
• Equity Ethical concept
• Basic human needs and social indicators

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Poverty measures

• Poverty refers to low income received by certain
  households
• Both Absolute and relative income are important
• Measurement of poverty
• Poverty line
• Poverty head count

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Strategies for growth with equity

• Redistribute and growth approach
• Redistribute and develop approach
• Redistribution with growth approach
• Basic Human Needs approach
• Structural adjustment approach

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Important books

• Human development report
• World development report
• Economics of development Perkins, Radelet et al
• Development economics Debraj Ray
• Economics and development Barbara Ingham
• Handbook of development economics Chenery and
  Srinivasan
• Economic development Michael Todaro