Jan Svejnar University of Michigan November 2006 Economic Development: Overview

Introduction Development = a post WWII phenomenon World Bank (WB), IMF, GATT, UN = key institutions IMF – surveillance, macro-lending and tech. assistance WB – sectoral, project and program financing, technical assistance WB and IMF established at Bretton Woods in 1944 Original goal – postwar reconstruction => economic development Considerable resources Emphasis on “professionalism” Approach to development (make-up of staff) varies over time Official capital flows (complement bilateral and private flows) Critiques

What do we mean by development? “By the problem of economic development I mean simply the problem of accounting for the observed pattern, across countries and across time, in levels and rates of growth of per capita income. This may seem too narrow a definition, and perhaps it is, but thinking about income patterns will necessarily involve us in thinking about many other aspects of societies too, so I would suggest that we withhold judgment on the scope of this definition until we have a clear idea of where it leads us.” Robert E. Lucas (1988) “[W]e should never lose sight of the ultimate purpose of the exercise, to treat men and women as ends, to improve the human condition, to enlarge people’s choices… A unity of interest would exist if there were rigid links between economic production (as measured by income per head) and human development (reflected by human indictors such as life expectancy or literacy or achievements such as self-respect, no easily measured). But these two sets of indicators are not very closely related. Paul P. Streeton [1994]

Social Indicators as Measures of Development: Physical Quality of Life Index (PQLI) Developed by M. D. Morris. Based on an unweighted average of each of the following indices going from 1 to 100 (with 100 being “best”): Life Expectancy at Age 1 Index =1 for lowest value (35 in Guinea-Bissau) Index = 100 for highest value (79 in Sweden) Infant mortality Scaled to: ; upper limit of 9/1000 achieved in Sweden Literacy (Actual percent)

Social Indicators as Alternative Measures of Development: Human Development Index (HDI) Undertaken by the UNDP and found in the Human Development Report (annual series, begun in 1990). Ranks countries on a scale of 0 (worst) to 1 (highest level of human development) based on 3 goals: Longevity (life expectancy at birth) Knowledge (weighted average of adult literacy (66%) and mean years of schooling (33%)) Standard of Living (real per capita income in PPP)

Number of people living on less than $1 per day Source: World Bank, Global Economic Prospects Middle East & North Africa Latin America & Caribbean East Asia & Pacific South Asia Sub-Saharan Africa C. & E. Europe & C. Asia 1999 Millions % of pop 1990 Millions % of pop

What other measures might we have of poverty? As suggested by Sen, Easterly and Meier? Freedom Economic: Debt bondage Political: ability to make public decisions Social: Violence against ethnic minorities; women (example of Kader Mia a Muslim daily laborer)

Note: For Europe & Central Asia the average is from 1990 – 1995 Source: World Bank World Development Indicators Average GDP per Capita Growth (annual %)

Source: World Bank – Global Development Finance 2006 Net Resource Flows to Developing Countries (Billion USD)

Source: World Bank World Development Indicators Average Annual Investment 1990 – 2004 (% of GDP)

FDI inflows and Investment as % of GDP Source: EIU

Source: World Bank. World Development Indicators. (per 1,000 people)

Source: World Bank – Global Development Finance 2003; and William Davidson Institute calculations Illiteracy Rate (% of people ages 15 and above)

Tertiary School Enrollment (% gross) * Latin America & Caribbean and Sub-Saharan Africa data from 2003 Source: World Bank World Development Indicators

Concluding observations Development = a long term process Various measures and degrees of success Globalization increases wealth but uneven distribution Many countries, groups and individuals left behind Role of institutions – IMF and World Bank Question of how best to organize and focus institutions