Measuring Economic Growth and Development IB Section 4.1b

Warm-Up: Calculate the real GDP growth rate and doubling time Country Nominal GDP Economic Growth Inflation rate Real GDP growth Adjusted for pop. growth GDP Doubling Time USA 13.84 T 9% 3% 6% Pop=1% 5% 14.4 yrs Mexico 893 B 8% 4% Pop.=2% China 3.25T 16% Pop.=1% What do these statistics tell us? What don’t they tell us? What is the difference between economic growth and development?

Development Difficult to define because it involves normative or value judgment. Development should address these essential conditions: Food Clothing Shelter Healthcare Job Freedom from fear and indignity

Sources of Econ. Growth in LDC’s: Increase quantity of physical capital (infrastructure) Increase quantity of human capital (education) Increase use of technology appropriate to the conditions of the less developed country Institutional Changes

World Bank Classifications: Based on 2017 GNI, per capita Low Income Countries: Y<$995 Middle Income Countries: Lower Middle Income $996 - $3895 Upper Middle Income $3896 - $12,055 High Income Countries: Y>$12,056 Low and Middle Income countries are what we generally refer to as “developing”

Relationship between: level of Y and structure of production Poor Countries: primary sector Example: Middle Income Countries: secondary sector High Income countries: tertiary sector

Characteristics of Less Developed Countries (generalizations): Low GDP per capita growth High poverty (extreme poverty is Y< $1.90/day) Relatively large agricultural sectors High birth rates Large urban informal sectors (black markets)

Poverty Cycle * * Low Standard Of Living Low Standard Of Living Poor health Poor Education Low Savings Low Productivity Low Investment

Income Distribution- Purchasing Power Parity, PPP A more realistic measurement of living standard than GDP Accounts for local buying power of a currency to determine GDP Calculated by the IMF and used by the World Bank in attempt to mitigate the impact of exchange rates. A GDP adjusted for PPP is generally higher than just GDP

Human Development Index HID is an attempt by the United Nations to create a more comprehensive way to measure standard of living across different countries. HDI takes into account: Life expectancy at birth Literacy Rate GNI –Gross National Income

HDI Continued HDI does not tell us: 2018 HDI Update from UNDP   inequalities/distributions across a country poverty levels human security empowerment of peoples 2018 HDI Update from UNDP

Multiple Choice - Growth is not the same as development because: A. Growth always results in higher standards of living but development may not. B. Development is a qualitative concept, growth is a quantitative concept C. Growth is never negative whereas development can be negative D. Development involves economic planning, growth does not.

The unemployment caused by the shrinking shipbuilding industry in country X is largely absorbed by the leisure industry. This represents a shift in employment sectors from: A. terciary to secondary B. primary to secondary C.Secondary to tertiary D.Secondary to primary

Should Foreign Aid be used to help development?