Lecture 1567

Lecture 1
Big Ideas in Development Economics
Sumit Mishra
IFMR, Sri City
January 17, 2018

Three related approaches and definitions of development economics.
1 Todaro and Smith: Economics of contemporary underdeveloped
countries
2 Study of how the developed countries became developed, and why
the rest of the world did not develop
3 Study of the poor within any country: What constraints do the poor
live under that are different? How do they live their lives?
Why Study Development Economics
• Many markets missing: labour, financial, insurance

• Institutions and public infrastructure may be missing: property
rights, laws, transportation
• Development taking place when there is a developed world
elsewhere: aid dependency, technology transfer.
• Speed of development differs from European experience (medical
innovations, directly to the mobile phones)
• History of colonialism
The Nature of Development
• Form groups of two.


• Please write down the most important three characteristics of an
“underdeveloped” country.

• Please write down the most important three characteristics of an
“underdeveloped” country.
• Hold on to the list.
Introduction
Economic growth is an increase in GDP/ per-capita income over a

period of time.
Development is an improvement in the general quality of life for the
majority.
Introduction

period of time.
majority.
While growth can be measured and quantified, development is a far more
complex idea measured by indicators and never easily quantified.
Introduction

period of time.
majority.
While growth can be measured and quantified, development is a far more
complex idea measured by indicators and never easily quantified.
Development is measured by:
• reducing widespread poverty.
• increasing living standards (income, education and health).
• reducing income inequality.
• improving employment opportunities.
Sources of Economic Growth
• increased quantity and quality of physical capital (machines)

• increased quantity and quality of human capital (labour and
entrepreneurs)
• development and use of appropriate technology
• institutional changes (education, health, finance and government)
What is the developing world?
• Rankings: If a country is more or less “developed” that implies a

ranking
• Like sports rankings, development “rankings” are published, argued
about, and disputed.
• Which country is the most “developed” depends on what it is to be
developed.
• Do we care about income, life expectancy, child mortality literacy . .
. (or all of them!)?
Classifying Countries
• Easiest way: divide the world into low income and high income
• World Bank Classifications
• LIC is Low-Income Country
• LMC is Lower-Middle Income Country
• UMC is Upper-Middle Income Country
• HIC is High-Income Country
Classifying Countries
• Easiest way: divide the world into low income and high income
• World Bank Classifications
• LIC is Low-Income Country
• LMC is Lower-Middle Income Country
• UMC is Upper-Middle Income Country
• HIC is High-Income Country
• Sometimes divided into Organization for Economic Cooperation and
Development (OECD) HIC and non-OECD HIC.
• Other designations sometimes used
• LDC is Less Developed Country
• NIC is Newly Industrializing Countries
• Transition Countries (former Soviet countries)
What does it mean to be developed?
• “Typical family” in a developed country

• Has around four people in it
• Has an annual income of over $50,000
• Each member can expect to live to around 80, and everyone is in
good health
• Lives in a house which has more rooms than people (each child has a
separate room, ample common spaces)
• Sends its children to school
• Possesses consumer goods: a television, a refrigerator, a computer.
• Has two cars.
Multiple aspects of development
• The lives of these families are very different and differ in multiple
dimensions
• Income
• Health
• Size of family
• Where they live
• Education
• The poor are not homogeneous.
• The rural poor differ from the urban poor
• Often they differ from each other in as many ways as they differ from
the rich.
The nature of development
• Which country is more developed?


• A country with low income, but high health and social cohesion.
• A country with higher income, but lower health, and much inequality.

• Should the poorer country aspire to develop into the richer country?

• Should the poorer country aspire to develop into the richer country?
• It depends on what we value.
• Which country would you prefer to live in?
• Does your answer depend on whether you will be rich or poor?
Sen approach to development
• Amartya Sen (1998 Nobel in economics).

• Development is about extending “functionings” and capabilities.
Sen approach to development
• Amartya Sen (1998 Nobel in economics).

• Development is about extending “functionings” and capabilities.
• Functionings: the various things a person may value doing or being
• Capabilities: “the freedom a person has in term of the choice of
functionings, given his personal features and his command over
commodities”
So development is about achieving the choices for higher functioning.
• Elementary functionings (roughly “beings”):
• being adequately nourished
• being free from disease
• being able to move about
• Complex functionings (roughly “doings”):
• Complex functionings (roughly “doings”):
• taking part in the community,
• electing ones leaders
• being well educated (so that one knows about other possible
functionings)
• having self-respect
Sen Approach to Development
• What people value may be different at different levels of

“development” and for different cultures and people.

• A poor person in a rich country may “function” much less well (for
example, take part in the community) than someone with the same
income in a poor country.

• Goods and income are simply means to achieve higher functionings.

• Goods and income are simply means to achieve higher functionings.
• And they are not sufficient to achieve all functionings
• China is richer than India, but most Chinese lack the ability to find
out certain information (such as about Tiananmen Square) and even
the knowledge that they lack that information. Their “functionings”
are restricted.
• Choice and freedom are the goals of development
• Development is the process of extending capabilities item Or of
extending the choice of functionings
• More income typically brings more choice
• Loosens the budget constraint
• But income is not sufficient
• But income is not sufficient
• Healthy enough to enjoy income
• Live in a society where goods that you desire are available
• Be able to choose your leaders
• Being educated to find the functionings one most desires
Comparing Countries
• PPP Method to compare incomes. (DIY)

• We could also rank by life expectancy, education, etc.
• Use UNDP’s HDI ranking.
• Ranks on a scale of 0 (bad) to 1 (good!).
• Includes three measures of wellbeing
• Health
• Education
• Standard of Living- Real GNI per capita (adjusted for PPP)
How to calculate HDI
Combine three indices.

• Health Index, IHealth = (LE − 20)/(85 − 20)

• Income Index,
IIncome = ((ln(PCGNI ) − ln(100))/(ln(75000) − ln(100)).

• Income Index,
IIncome = ((ln(PCGNI ) − ln(100))/(ln(75000) − ln(100)).
• Education index,
IEducation = (YoE − min(YOE ))/(max(YOE ) − min(YOE ))
HDI = (IHealth ∗ IIncome ∗ IEducation )1/3
It’s an Unequal World
The world by income, FY2017

Classified according to World Bank estimates of 2015 GNI per capita
(current US dollar, Atlas method)
Greenland
Low income ($1,025 or less) (Den.)
Lower middle income ($1,026–$4,035)

Upper middle income ($4,036–$12,475) Faroe Russian Federation
Iceland Islands
(Den.)
High income ($12,476 or more) Finland
Norway Sweden
Canada Netherlands
No data Estonia
Isle of Man (U.K.)
Russian Latvia
Denmark Fed.
Lithuania
Ireland U.K. Germany Poland Belarus
Belgium
Channel Islands (U.K.) Ukraine Kazakhstan Mongolia
Luxembourg
France Moldova
Switzerland Romania
Uzbekistan Dem.People’s
United States Liechtenstein Bulgaria Georgia Azer- Kyrgyz Rep.of Korea
Monaco Rep. Japan
Spain Armenia baijan Turkmenistan Rep.of
Portugal Greece Turkey Tajikistan
Andorra Korea
Gibraltar (U.K.) Malta Syrian China
Cyprus
Arab Afghanistan
Tunisia Lebanon Rep. Iraq Islamic Rep.
Bermuda Israel
(U.K.)
Morocco Jordan
of Iran Bhutan
West Bank and Gaza
Kuwait Nepal
Algeria Pakistan
Libya Arab Rep. Bahrain
The Bahamas Western Saudi Qatar
Cayman Is. (U.K.) of Egypt United Arab
Bangladesh
Sahara Arabia India Hong Kong SAR, China
Cuba Turks and Caicos Is. (U.K.) Emirates Myanmar Lao
Mexico Macao SAR, China
Haiti Cabo Mauritania Oman PDR N. Mariana Islands (U.S.)
Belize Jamaica Verde Mali Niger
Rep. of Thailand Vietnam
Guatemala Honduras Senegal Chad Sudan Eritrea Guam (U.S.)
El Salvador The Burkina Yemen Marshall
Cambodia Philippines
Nicaragua Gambia Faso Djibouti Federated States Islands
Guinea Benin
Costa Rica Guyana Guinea- Brunei of Micronesia
Sri
R.B. de Suriname
Bissau CôteGhana Nigeria Central South Ethiopia Lanka
Darussalam
Panama Venezuela Sierra Leone African
French Guiana (Fr.) d’Ivoire Cameroon Republic Sudan Somalia Palau
Colombia Liberia Togo Malaysia
Maldives
Equatorial Guinea Uganda
São Tomé and Príncipe Gabon Kenya Kiribati
Ecuador Singapore Nauru
Rwanda
Kiribati Dem.Rep. Burundi
Rep. of of Congo I n d one s i a Papua Solomon
Congo Tanzania Comoros
Seychelles New Guinea Islands
Peru Brazil Tuvalu
Timor-Leste
Angola
Malawi
Samoa Zambia Mayotte Mauritius
(Fr.)
Caribbean Inset Bolivia Mozambique Europe Inset Fiji
American Namibia Zimbabwe Vanuatu
Samoa (U.S.) U.S. Virgin British Virgin Anguilla (U.K.) Madagascar
Fiji French
Islands (U.S.) Islands (U.K.)
Botswana Poland
Paraguay La Réunion
Germany
Dominican Saint-Martin (Fr.)
Tonga Polynesia (Fr.)
Ukraine
(Fr.) Czech
RepublicPuerto Rico Sint Maarten (Neth.)
New
(U.S.) Saint-Barthélemy (Fr.) Republic
Saba (Neth.) Antigua and Barbuda Swaziland Slovak Australia Caledonia
Sint Eustatius (Neth.)
Republic (Fr.)
Saint Kitts and Nevis
Montserrat (U.K.) South Lesotho
Guadeloupe (Fr.)
Dominica
Africa Austria
Hungary
Martinique (Fr.)
Aruba (Neth.)
Saint Lucia
Chile Argentina Uruguay Slovenia Romania
Curaçao (Neth.)
Bonaire Saint Vincent & Barbados Croatia
(Neth.) the Grenadines
Grenada
San Bosnia and Serbia
Marino Herzegovina
Trinidad and New
Bulgaria
Italy
R.B. de Venezuela Tobago Zealand
Montenegro FYR
Kosovo Macedonia
Albania
Greece
Note: The World Bank classifies economies as low-income, lower-middle-income, upper-middle-income, or
high-income based on gross national income (GNI) per capita. For more information see https://datahelpdesk
.worldbank.org/knowledgebase/articles/906519-world-bank-country-and-lending-groups.
East Asia and Pacific Micronesia, Fed. Sts. Lower middle income Europe and Central Asia Georgia Upper middle income Montenegro Upper middle income Latin America and the Caribbean
American Samoa Upper middle income Mongolia Lower middle income Albania Upper middle income Germany High income Netherlands High income Antigua and Barbuda High income
Australia High income Myanmar Lower middle income Andorra High income Gibraltar High income Norway High income Argentina Upper middle income
Brunei Darussalam High income Nauru High income Armenia Lower middle income Greece High income Poland High income Aruba High income
Cambodia Lower middle income New Caledonia High income Austria High income Greenland High income Portugal High income Bahamas, The High income
China Upper middle income New Zealand High income Azerbaijan Upper middle income Hungary High income Romania Upper middle income Barbados High income
Fiji Upper middle income Northern Mariana Belarus Upper middle income Iceland High income Russian Federation Upper middle income Belize Upper middle income
French Polynesia High income Islands High income Belgium High income Ireland High income San Marino High income Bolivia Lower middle income
Guam High income Palau Upper middle income Bosnia and Isle of Man High income Serbia Upper middle income Brazil Upper middle income
Hong Kong SAR, China High income Papua New Guinea Lower middle income Herzegovina Upper middle income Italy High income Slovak Republic High income British Virgin Islands High income
Indonesia Lower middle income Philippines Lower middle income Bulgaria Upper middle income Kazakhstan Upper middle income Slovenia High income Cayman Islands High income
Japan High income Samoa Lower middle income Channel Islands High income Kosovo Lower middle income Spain High income Chile High income
Kiribati Lower middle income Singapore High income Croatia High income Kyrgyz Republic Lower middle income Sweden High income Colombia Upper middle income
Korea, Dem. Solomon Islands Lower middle income Cyprus High income Latvia High income Switzerland High income Costa Rica Upper middle income
People’s Rep. Low income Thailand Upper middle income Czech Republic High income Liechtenstein High income Tajikistan Lower middle income Cuba Upper middle income
Korea, Rep. High income Timor-Leste Lower middle income Denmark High income Lithuania High income Turkey Upper middle income Curaçao High income
Lao PDR Lower middle income Tonga Lower middle income Estonia High income Luxembourg High income Turkmenistan Upper middle income Dominica Upper middle income
Macao SAR, China High income Tuvalu Upper middle income Faroe Islands High income Macedonia, FYR Upper middle income Ukraine Lower middle income Dominican Republic Upper middle income
Malaysia Upper middle income Vanuatu Lower middle income Finland High income Moldova Lower middle income United Kingdom High income Ecuador Upper middle income
Marshall Islands Upper middle income Vietnam Lower middle income France High income Monaco High income Uzbekistan Lower middle income El Salvador Lower middle income
HDI Ranking: 2016
Historical Experience
• Between 1980 and 1993, China’s per capita income grew at an

annual rate of 8.2%.
• The average annual per capita growth during the period 1960-1985
was close to 2%.
• Nigeria and Tanzania barely grew during this period.
Growth and Development
There is a clear correlation between growth and development, generally

speaking but this is not always the case.
The higher the GDP per capita of a country, the more developed it tends
to be.
Growth and Development
There is a clear correlation between growth and development, generally

speaking but this is not always the case.
The higher the GDP per capita of a country, the more developed it tends
to be.
Exceptions to this include many of the oil exporting countries that have a
high GDP/capita but have not really developed. So growth can occur
without development taking place. Development, limited in its nature,
can occur without growth and this has been the case in some smaller less
economically developed countries (e.g. Sri Lanka)
Characteristics of Developing Countries
Less Economically Developed Countries (LDCs) have some common

characteristics including.
• Low levels of GDP/capita.
• High levels of poverty.
• Relatively large agricultural (primary) sectors.
• Relatively large informal sectors.
• High fertility rates
Causes and Consequences of Uneven Growth
• Roots
• Technological change
• Roots
• Structural transformation
• Roots
• Globalization
• Roots
• Globalization
• Corruption
• Consequences
• Occupational Choice
• Roots
• Globalization
• Corruption
• Consequences
• Cross-sector percolation
• Roots
• Globalization
• Corruption
• Consequences
• Political economy
• Roots
• Globalization
• Corruption
• Consequences
• Political economy
• Conflict
The Tunnel Effect
The Tunnel Effect
• Imagine you are driving in a two lane tunnel with both lanes headed
in the same direction. All traffic is jammed as far as you can see -
which is not very far. Suddenly the lane next to you starts to move.
Initially you feel better, even though you are still stuck, because this
signals to you that the jam has ended and your own lane will soon
start moving too.
The Tunnel Effect
start moving too.
• But after waiting at a standstill and watching the other lane moving
for some time, your feelings change. You become envious and
furious.
• In economic terms, we are all driving in the tunnel, and in every
society - whether developed or developing - some people are surging
forward, while others are stuck.
The Tunnel Effect
start moving too.
• But after waiting at a standstill and watching the other lane moving
for some time, your feelings change. You become envious and
furious.
• In economic terms, we are all driving in the tunnel, and in every
society - whether developed or developing - some people are surging
forward, while others are stuck.
• The “tunnel effect” was first articulated decades ago by Albert
Hirschman, one of the world’s most original economic thinkers.
Hirschman’s keenly observed insights live. There is something for us
all - for the emerging economies with high but uneven growth, and
for the developed economies, where growth has stagnated.

Lecture 1567

Încărcat de

Informații document

Drepturi de autor

Formate disponibile

Partajați acest document

Partajați sau inserați document

Opțiuni de partajare

Vi se pare util acest document?

Este necorespunzător acest conținut?

Drepturi de autor:

Formate disponibile

Lecture 1567

Încărcat de

Drepturi de autor:

Formate disponibile

Lecture 1

Big Ideas in Development Economics

January 17, 2018

• Many markets missing: labour, financial, insurance

• Form groups of two.

• Form groups of two.

• Form groups of two.

Economic growth is an increase in GDP/ per-capita income over a

Economic growth is an increase in GDP/ per-capita income over a

Economic growth is an increase in GDP/ per-capita income over a

• increased quantity and quality of physical capital (machines)

• Rankings: If a country is more or less “developed” that implies a

• “Typical family” in a developed country

• Which country is more developed?

• Which country is more developed?

• Which country is more developed?

• Which country is more developed?

• Amartya Sen (1998 Nobel in economics).

• Amartya Sen (1998 Nobel in economics).

• What people value may be different at different levels of

• What people value may be different at different levels of

• What people value may be different at different levels of

• What people value may be different at different levels of

• PPP Method to compare incomes. (DIY)

Combine three indices.

Combine three indices.

Combine three indices.

The world by income, FY2017

Lower middle income ($1,026–$4,035)

• Between 1980 and 1993, China’s per capita income grew at an

There is a clear correlation between growth and development, generally

There is a clear correlation between growth and development, generally

Less Economically Developed Countries (LDCs) have some common

S-ar putea să vă placă și