8Todaro/SmithEconomicDevelopment,EleventhEdition

Chapter2
ComparativeEconomicDevelopment
Key Concepts
Inthenewedition,Chapter2servestofurtherexaminetheextremecontrastsnotonlybetweendeveloped
anddevelopingcountries,butalsobetweendifferentdevelopingcountries.
Asinthelastedition,Chapter2introducesquantitativecomparisonmethods.Afterclassifyingcountries
aslowincome,lowermiddleincome,uppermiddleincome,highincomeOECD,andotherhighincome
countries(inaccordancewiththeWorldBanksincomeclassificationstructure),PurchasingPowerParity
(PPP)isexplainedasatooltomakemoreaccuratecomparisonsbetweencountriesbasedonincome
level.AsanalternativetotheWorldBanksclassificationbasedonincome,Chapter2looksatotherkey
developmentfactorssuchaseducationandgenderinequality,mainlythroughanintroductiontotheHuman
DevelopmentIndexandhowitiscalculated.ThiseditionalsointroducesstudentstothenewHuman
DevelopmentIndexandhowitdiffersfromtheoriginalHDI.Itemphasizesthecalculationsofthesetwo
indexesandhowanationsincomelevelisoftennotconsistentwithitsHDIorNHDI.Numerousnew
countrycomparisontableswereaddedtobetterillustratethispoint.
Theneweditionemphasizesthesimilaritiesamongdevelopingcountries.Thechapterstressestenkey
similaritiesofdevelopingcountries:

Lowlevelsoflivingandproductivity
Lowlevelsofhumancapital
Highlevelsofincomeinequalityandabsolutepoverty
Highratesofpopulationgrowth
Socialfraternization
Largeruralpopulationwithrapidruralurbanmigration
Lowlevelsofindustrialization
Adversegeography
Underdevelopedfinancialsystemsandmarkets
Lingeringcolonialimpactandexternaldependence

Thesubsectionontherelativeimportanceofprivateandpublicsectorandcivilsocietyhasbeen
eliminatedfromthischapter.Withinthediscussionofthesesimilaritiesarehighlightsofthediversity
amongdevelopingnationsdespitetheircommonalities.
Thechaptergoesintogreaterdetailwhendiscussingthatdevelopingcountriesbeganmoderneconomic
growthwithinitialconditionsmuchdifferentfromthoseofthedevelopedcountries.Incomparisontothe
positionofthedevelopedcountriesontheeveoftheirdevelopment,manyoftodaysLDCshave:

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morelimitednaturalresourceendowments.
lowerpercapitaincomes.
alesstemperateclimateandpossiblyunfavorablegeographicconditions.
largerpopulationsizesandgrowthrates.
fewermigrationpossibilities,butalargerbraindrainproblemamongthosewhodomigrate
(theneweditionspecificallyaddressestheproblemsassociatedwithremittances).
fewergrowthbenefitsfrominternationaltrade.
limitedscientificandtechnologicalresearchcapacity.
ineffectivedomesticinstitutions.
Thissectionisfollowedupbyadiscussionastowhetherthelivingstandardsindevelopinganddeveloped
nationsarestartingtoconverge.
Asectiononthelongruncausesofcomparativedevelopmentprovidesaframeworklinkingthesecauses,
designedpurposelytogivestudentsafoundationforthefollowingchapterswhichdiscussdifferenttheories
ofeconomicdevelopment.Includedisadiagramthatishelpfulforstudentswhentryingtovisualizethe
linkages.
ThechapterendswithacasestudyonPakistanandBangladesh.

Lecture Suggestions
Toavoidpresentinglistafterlistofsimilaritiesanddifferencesbetweencountries,studentsfinditmore
interestingifyouaskthemtocomeupwiththelistandthenfillinanyitemstheyhavemissed,asnoted
inthediscussiontopicsectionbelow.
Ifyoudidnotalreadydiscussinterestingstatistics(orcoveredthoseverybriefly)youcoulddothishere
aspartofthediscussionofcommoncharacteristics.Interestingstatisticsincludedataonthedistribution
ofincome,thepercentageofpeoplebyregionorcountrywhoareabsolutelypoor,lifeexpectancy,infant
mortality,literacy,andhealthindicators.Thediscussionofcommoncharacteristicscanbeviewedasa
previewoftopicstobediscussedinmoredetaillaterinthecourse.Interestingquestionscanberaised
thatwillbeansweredthroughoutthecourse.Thequestionsthatstudentsaskatthisstagecanindicate
whichtopicstheyareinterestedin,theirknowledgeofsomeofthesetopics,andanymisconceptions
theymayhaveaboutvariousdevelopmentissues.
NotethatthetextdiscussesGNPasopposedtoGDP,thoughbothtermsaredefinedinthechapter.Given
thatmanyprinciplesofmacroeconomicstextbooksfocusonGDPratherthanGNP,itmaybehelpfulto
remindstudentsofthedifference.Youcanalsodiscusswhichmaybethebettermeasureforlessdeveloped
countriesand/orwhetherthereislikelytobeasignificantdifferencebetweenthetwo.Lookupsomeexamples
fordifferentcountries.Stressingthisissuedepends,ofcourse,onthebackgroundofthestudents.
Whendiscussingtheclassificationofdevelopingcountriesaseitherlowincome,lowermiddleincome,
oruppermiddleincomeyoucanalsodiscuss:
ClassifyingcountriesusingGNPpercapita,orthehumandevelopmentindexandcomparingthetwo
classifications.ShowthestudentswhatfactorsarerepresentedintheHDIandhowitiscomputed
(notethenewcoefficientsinthenewerversion).Thiscanfurtherfocusstudentattentiononthebroader
meaningofdevelopmentandtheimportanceoflookingbeyondaverageincomelevels.Thetableon
page52canhelpstudentscontrastGDPpercapitawithHDIlevelstoshowthatacertainlevelofGDP
doesnotguaranteeanequivalentHDI.Startingonpage54,eightnewchangesareoutlinedasof2010.

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Chapter2ComparativeEconomicDevelopment10

TheGNPconversionproblem.InordertoclassifycountriesaccordingtoGNPpercapitaeachcountrys
GNPmustbeconvertedtodollars.ThisdiscussioncanfirstreviewthedefinitionofGNPandwhat
countsanddoesnotcountinGNP.Inparticular,nonmarkettransactionsmaybemoreprevalentinless
developedcountries.NominalversusrealGNPcanalsobereviewed.Theconceptofanexchangerate
canbeintroducedhere,ascanfixedversusflexibleexchangerates,intermsofhighlightingproblems
withexchangerateconversions.Adistinctioncanbemadebetweenmarketandcentralbankdetermined
exchangeratesandmentionthat,inthepasttwodecades,manyLDCshaveadoptedmarketrates.
ToexplainpurchasingpowerparityyoucanlookupthelatestBigMacindexfromTheEconomist
magazine.
Characteristicssuchaseducation,literacy,andshareofindustryinGNPtendtochangepredictably
withthelevelofGNP.
Thediversitythatexistsbetweendevelopingnationscanbediscussedpartlybyhighlightingthedifferences
betweencountriesinAfrica,Asia,andLatinAmericaintermsofcolonialexperience,incomelevel,political
regime,wars,culture,tradestrategy,andlevelofeducation.Tofurtherhighlightspecificcountrydifferences,
suchassizeandresourceendowments,itisusefultofocusononeortwocountriesandpointoutthe
differencesbetweenthem,aswellasthespecialchallengeseachcountryfaces.
Introducetheconceptsofmoderneconomicgrowthandstructuralchange.Traditionalsocietyandmodern
economicgrowthcanbeplacedinhistoricalperspectiveandashortdiscussiononthedifferentconditions
facedbydevelopingcountriesandcurrentlydevelopedcountriescanfollow.Thelegacyofcolonialism
anddependenceinrepresentativecountriesfromvariousdevelopingregionscanbecontrasted.
DiscussthevarioustheoriesofComparativeDevelopment.

Discussion Topics
Askthestudentswhattheythinkthecommonfeaturesofdevelopingcountriesareandmakealistof
theirsuggestionsontheboard.Attheend,addanythingthattheyhavemissed.Alongthewayyoucan
elaborateontheirsuggestions.
Askthestudentswhethertheythinkbecomingmoreeconomicallydevelopedisequivalenttobecoming
moreindustrialized.YoucanpresentdataontheshareofindustryinGDP,discussthedifferencebetween
necessaryandsufficientconditions,andintroducetheconceptofmoderneconomicgrowthandthe
structuralchangesthatgoalongwithdevelopment(thisisdiscussedfurtherinChapter3aspartof
thestructuralchangetheory).
StudentswillfinditinstructivetoreviewthemanydifferencesbetweenEuropeontheeveofitspostwar
miracleanddevelopingcountriesattheirtimeofindependence.Thesedifferencesincludeinfrastructure
(atleastengineeringplansfordestroyedsections),humancapital(suchasindustrialskillsevenifindustry
wasdestroyed),magnitudeandtypeofcapitalinflow,valuesofmodernity,developingcountrieslower
politicalautonomyandthelegacyofcolonialism,andthefactEuropeancountriesnotonlywerenotcolonies
themselvesbutownedcolonies.ThistopiccanalsobediscussedinChapter3aspartofthediscussionof
theHarrodDomarmodel.TheHarrodDomarmodelworkedwellfortheEuropeancountriesafterWWII
becausetheyhadtherightcomplementaryinputsinplace.

Sample Questions

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Short Answer
1. Explainhowlowlevelsoflivingcanturnintoaviciouscycleindevelopingcountries.
Answer: Seethesectiononlowlevelsoflivinginthechapter.
2. CarefullyexplainsomeofthesimilarproblemsfacedbyotherwisediversecountriesinAfrica,Asia,
andLatinAmerica.
Answer: Thiscallsforstudentstosummarizesomeofthemainpointsdiscussedinthechapter.

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Chapter2ComparativeEconomicDevelopment12

3. Whataresomeofthemainwaysinwhichtheeconomiesofdevelopingcountriesdifferfromone
another?
Answer: SeetheKeyConceptsaboveforasummary.
4. Explainwhypurchasingpowerparitymeasuresofincomelevelstendtoshowasmallerdifference
betweenpoorandrichcountries.
Answer: PPPmeasuresshowthenumberofunitsofdevelopingcountrycurrencyrequiredto
purchaseabasketofgoodsandservicesinthedevelopingcountrymarketthatcosts
onedollarintheU.S.Pricesformostservicestendtobemuchcheaperindeveloping
countriesthanintheU.S.
5. Inwhatwaydoesnationalismtendtobeahinderingforceinattainingmoderneconomicgrowthand
development,andinwhatwayafacilitatingforce?
Answer: Thisisaquestionthatwoulddependonwhatyouhavecoveredinlecture.
6. WhatarethethreemainindicatorsthatmakeuptheHumanDevelopmentIndex?
Answer: Lifeexpectancy,educationalattainment,GDPpercapitameasuredinPPPterms.
7. IfcountriesarefirstrankedbylevelofrealGDPpercapita,andthenbythevalueoftheHuman
DevelopmentIndex,wouldyouexpecttherankingofcountriestobesimilarordifferent?Explain.
Answer: ThefinalcolumnofTable1intheHumanDevelopmentReport(hdr.undp.org)showsthe
differenceinrankingbetweenthetwoclassificationmethodsandstudentscanbedirected
tothat.
8. Commentonthefollowingstatement:ThelevelandgrowthrateofrealGDPpercapitacanbea
misleadingindicatorofdevelopment.Atthesametime,countriesthatexperiencesustainedincreases
inrealGDPpercapitaovertimewilltendtobemoredeveloped.
Answer: Openendedessay.
9. Whatarethethreemajorcomponentsofeconomicgrowth?
Answer: Capitalaccumulation,laborforcegrowth,andtechnologicalprogress.
10. Explainthelingeringeffectsofcolonialismandhowitisstillplayingaroleinhinderingeconomic
developmentinthedevelopingworld.
Answer: Answersshouldbebasedonthepointscoveredinthesectiononthecolonialimpactas
wellasinlecture.
11. Whymighttheuseofmoreadvancedtechnologynotbeasufficientconditionforsustainedeconomic
growth?
Answer: Itmayrequireaninefficientlyhighcapitallaborratioandcomplementaryfactors,
especiallyeducation,maybelacking.Additionalpointsdependonlecturecoverage.

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12. The2006HumanDevelopmentReportreportedthattheHDIofSouthAfricawas0.653(anditsrank
was121)andthatofthePeruwas0.767(anditsrankwas82).SouthAfricaspercapitaincome
(inPPPdollars)was11,192andthatofPeruwas5,678.Commentandexplain.
Answer: Instructorscanusefiguressimilartothoseinthequestionfromthemostrecentissueofthe
HDR(athdr.undp.org)inupdatingthisquestion.Studentsshoulddiscussthedifference
betweeneconomicgrowth(percapitaincome)andeconomicdevelopmentbydiscussing
thecomponentsoftheHDI.
13. Whatareremittancesandwhatroledotheyindevelopingcountries?Howcouldthispotentially
benefitaneconomy?
Answer: Ananswershouldposeadefinition,mentionhowremittancesreducepovertyformany
migrantsandtheirfamilies,andspeaktothepossiblenetincreaseinlaborforceskills
drivenbythedesiretoemigrate.
14. Arelivingstandardsindevelopedanddevelopingcountriesconverging?Giveevidencetosupport
youranswer.
Answer: AnswersshouldrefertoFigures2.82.10andthesupportingtext.
Howdodifferencesincultureleadtocomparativedevelopment?
Answer: Culturalfactorseffectthedevelopmentandamountofemphasisputoneducation,
institutions,andhoweffectivecivilsocietyis.Animportantpartoftheanswershouldbe
howtheroleofculturehasnotbeenclearlyestablishedduetoitscomplexity.
15. Inwhatway(s)dothedevelopmentpathschosenbyPakistanandBangladeshdiffer?Whatarethe
mainfactorsthathavecontributedtothesedifferingpaths?
Answer: Thekeydifferencesaretheaspectsofeconomicdevelopmentdiscussedinthechapter.The
casestudyattheendofthechapterprovidescomparativefiguresforthetwocountriesand
themainfactorscontributingtothedivergentpaths.
16. Howispovertymeasured?Whatistheextentofpovertyinthedevelopingworld?
Answer: Theconceptofabsolutepovertyisdiscussedinthetextandtheprogressionofabsolute
povertyinthedevelopingworldisshowninFigure2.7.Iftheconceptofrelativepoverty
wasdiscussedinthelectures,instructorsmaylookforthatdistinctionintheanswer.
17. WhatarethemajordifferencesbetweenthenewHDIandtheoriginalHDI?
Answer: Openendedessay.Refertopages5456oftextforthediscussion.

Multiple Choice
1. Anexampleofanuppermiddleincomecountryis
a. India.
b. Brazil.
c. Indonesia.
d. Nigeria.
Answer: B
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Chapter2ComparativeEconomicDevelopment14

2. Anewlyindustrializedcountryis
a. thesameasahighincomecountry.
b. anycountrythathasexperiencedsustainedgrowthinindustry.
c. aspecialclassificationgiventosomeuppermiddleincomecountriesthathave
achievedrelativelyadvancedmanufacturingsectors.
d. anycountrythathasmovedoutoflowerincomestatus.
Answer: C
3. Whichofthefollowingisnotanuppermiddleincomecountry?
a. Brazil
b. SouthAfrica
c. Pakistan
d. Argentina
Answer: C
4. Whichofthefollowingisalowincomecountry?
a. Mexico
b. Thailand
c. Turkey
d. Bangladesh
Answer: D
5. Oneofthecomponentsofthehumandevelopmentindexis
a. thepercentageofthepopulationwhoarehighschoolgraduates.
b. theaveragedailyintakeofprotein.
c. lifeexpectancyatbirth.
d. thenumberofdoctorsperhundredpeopleinthepopulation.
Answer: C
6. Whatpercentoftheworldsnationshaveatleastfivesignificantethnicpopulations?
a. 010
b. 1020
c. 2030
d. 3040
e. over40
Answer: E
7. Whatfractionofdevelopingcountrieshaverecentlyexperiencedsomeformofsignificantinterethnic
conflict?
a. lessthanonetenth
b. atenthtoonequarter
c. onequartertoonehalf
d. overonehalf
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Answer: D

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Chapter2ComparativeEconomicDevelopment16

8. WhichofthefollowingAfricancountrieshasexperiencedwidespreaddeathanddestructiondueto
ethnicorclanbasedconflictinthepreviousdecade?
a. Rwanda
b. Sudan
c. Somalia
d. alloftheabove
Answer: D
9. Whichmeasureusesacommonsetofinternationalpricesforallgoodsandservicesproduced?
a. purchasingpowerparityincomelevels
b. GNPpricedeflators
c. foreignexchangerateconversionstoU.S.dollars
d. theexchangerate
Answer: A
10. Thenumberofunitsofdevelopingcountrycurrencyrequiredtopurchaseabasketofgoodsand
servicesinadevelopingcountrythatcostsonedollarintheU.S.isgivenby
a. GNPpricedeflator.
b. HumanDevelopmentIndexranking.
c. purchasingpowerparity.
d. theexchangerate.
Answer: C
11. Abouthowmanypeoplelackaccesstobasicsanitation?
a. 20million
b. 200million
c. 500million
d. 1billion
e. 2billion
Answer: E
12. Abouthowmanypeoplelackaccesstosafewater?
a. 20million
b. 200million
c. 500million
d. 1billion
e. 2billion
Answer: D
13. Abouthowmanymalnourishedchildrenunderagefivearethereinthedevelopingworld?
a. 20million
b. 150million
c. 500million
d. 1billion
e. 2billion
Answer: B

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14. Neutraltechnologicalprogressoccurswhen
a. higheroutputlevelsareachievedwiththesamequantityandcombinationsoffactorinputs.
b. higheroutputlevelsareachievedbymorecapitalintensivemethods.
d. higheroutputlevelsareachievedbymorelaborintensivemethods.
e. higheroutputlevelsareachieved.
Answer: A
15. Conditionsoftodaysdevelopedcountriesatthestartoftheirindustrializationdifferfromconditions
inthedevelopingworldinthat
a. populationgrowthrateswerehigher.
b. moreadvancedtechnologywasavailable.
c. thereweremoreopportunitiesfordevelopmentassistance.
d. noneoftheabove.
Answer: D
16. Mostsuccessfulexamplesofmoderneconomicgrowthhaveoccurredinacountrywith
a. atemperatezoneclimate.
b. amarketeconomy.
c. exportsofmanufacturedgoods.
d. alloftheabove.
Answer: D
17. WhichofthefollowingisnotanindicatorthatisusedbytheWorldBankinmeasuringthelevel
ofeconomicdevelopment?
a. lifeexpectancyatbirth.
b. adultliteracyrate.
c. infantmortalityrate.
d. alloftheabovearenotusedbytheWorldBank.
Answer: D

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Chapter2ComparativeEconomicDevelopment18

18. Thedependencyburdenis
a. ameasureofthedegreetowhichthelessdevelopedcountriesaredependentontherichindustrial
countries.
b. theaveragenumberofchildrenthatawomangivesbirthtoduringherlifetime.
c. thenumberofbabiesbornper1000persons.
d. thepercentofthepopulationthatisbelow15andabove65yearsofage.
Answer: D
19. Howmanypeoplestillliveonlessthantheequivalentof$1.25perday(newdefinitionofextreme
poverty)?
a. 100million.
b. 500million.
c. 1.4billion.
d. 2.2billion.
Answer: C
20. WhichofthefollowingisnotanindicatorthatisusedtocomputetheHumanDevelopmentIndex?
a. lifeexpectancyatbirth.
b. realGDPpercapita.
c. infantmortalityrate.
d. adultliteracyrate.
Answer: C
21. ThecombinedGDPofdevelopingcountriesconstitutesapproximately
a. 5percentofglobalGDP.
b. 20percentofglobalGDP.

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c. 30percentofglobalGDP.
d. 40percentofglobalGDP.
Answer: D
22. Developingcountriesarestartingtoconvergewithdevelopedcountriesinthelongruninwhat
respect?
a. Growthrate
b. Incomeinequality
c. Population
d. Percapitaincome
Answer: D
23. WhichregionintheworldhasthelowestGNIpercapitabasedontheWorldBankAtlasmethod?
a. SubSaharanAfrica
b. EastAsia/Pacific
c. SouthAsia
d. LatinAmerica/TheCaribbean
Answer: C

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