ECON 370 Lecture 2

Problems with using GDP as an indicator of development Well being (accidents may increase GDP, leisure because of better productivity may reduce it) Quality, new products, particularly services Sustainability (current vs long term – whether well being lasts)

For better understanding of well being Consumption and income rather than production Consider wealth Households rather than indivivuals Distribution (top, bottom, median), inequalities Non-market activities, leisure Social political security concerns Sustainability of stocks of natural resources Depreciaiton Substitutability of capital (natural, physical, human, social)

Multidimensional poverty Headcount does not show How people are poor Intensity of poverty Multidimensional poverty aims to show how people are poor, and the intensity Range of deprivations (e.g. income, education, health care, social security, housing, access to food) Weighted Gross National Happiness Index of Bhutan

Who needs development and assistance most and what kind? In 2000s many people out of poverty – most poor In middle income countries (World Bank GNI per cap) Guyana 9% poverty China 36% Congo DR 54% Fragile states (28 in 2006, 37 in 2011) especially new large ones (Nigeria, Pakistan, Yemen) Figure in Gertz and Chandy Poor in stable low income <50 per cent of all (India, Bangladesh) Development policy based on stable low income paradigm invalid but other environments unknown for international development community, standard tools (financial technical assistance and macro policy) not for them Middle income do not need finance Fragile need mostly political and governance

“Development biz” “Development biz” governments, aid agencies like 5 billion poor, they can work anywhere – the bottom billion much more difficult Large offices in “nice” countries “Development buzz” touch the bottom billion but do not know what to do Governments non-functional International environment more hostile Are there development traps? No, if correct policies (the “conservative” view from the right) Yes, geography, disease (poverty does not allow taking necessary measures – Sachs)

Four traps of Paul Collier The conflict trap, The natural resources trap, The trap of being landlocked with bad neighbors, The trap of bad governance Seventy percent of the 1 billion are in Africa, and most Africans are living in countries that have been in one or another of the traps. Add to that Haiti, Bolivia, the Central Asian countries, Laos, Cambodia, Yemen, Burma, and North Korea.

Bottom billion vs other developing Average life expectancy 50 years vs 67 years Infant mortality—the proportion of children who die before their fifth birthday—14 % vs 4 % The proportion of children with symptoms of long-term malnutrition 36 % vs 20 % “Bottom billion” (other developing) GDP per cap growth rates % pa: 1970s 0.5 (2.5) 1980s -0.4 (4.0) 1990s 0.5 (4.0) 2000s1.7 (4.5) Massive divergence - bottom billion average GDP per cap 1/5 of other developing