Development Economics – core course Lecture 2 Growth and development: an overview 1

Klassificeringer Geografisk klassificering: - Afrika syd for Sahara - Europa, Mellemøsten og Nordafrika - Østasien og Stillehavslandene - Sydasien - Latinamerika og Caribien Income classifications (World Bank) GDP per capita (US$ 1995) <765$Low income countries 766 – 9385$ Middle income $ - Lower Middle income $ - Higher Middle income >9386$ High income 2

Income per capita around the world Source: World Data, 1997, World Bank. 3

Growth in GDP per capita Source: World Bank, WDI

Progress from 1965 to 1990 Kilde: WDR, 1992 Progress very mixed, with setbacks in some places. 5

Special problems measuring GDP in developing countries Can we compare GDP across countries? Subsistence sector Small peasants produce mostly for own consumption. Try to capture this. Public goods Amount of non-priced public goods (health, infratsructure, educsation etc) varies across countries Large informal sector 6 Artificial prices

Developing countries are lacking behind 7 Source: World Data WB.

GDP conversions Problem 1: Official exchange rates often deviate from equilibrium value Problem 2: Official exchange rates often do not reflect the real purchasing power of the exchange rate  Comparisons of incoem across countries are problematic Solution: Assume that Purchasing Power Parity (PPP) holds, and convert using PPP exchange rate = units of currency needed to buy same bundle as 1 $ would buy in the US See for eksempel Penn World Tables: 8

Standard GNP and PPP-GNP Source: World Bank Atlas,

Standard GNP and PPP-GNP crossplot Source: World Tables Update, World Bank. 10

Growing inequality: World and selected countries Source: UNDP, Human Development Report, 1992, 1994,

Absolute poverty in percent Source: Ravallion and Chen, The World Bank,

Absolute poverty in numbers Source: Ravallion and Chen, The World Bank,

Growth and income distribution, Source: Dataset to “The East Asian Miracle, World Bank,

Human Development Index (HDI) – UNDP’s indicator Human Development Index 1/3*exp. lifetime 1/3* Real GDP per capita (PPP$) (up to 5000 $) 1/3* Education level (mix of adult literacy and primary, secondary and tertiary enrolment) 15

Health Source: HDR, UNDP,

Expected length of life Source: World Data, 1997, World Bank og human development report 17

Education: stock of human capital Source: IEC, World Bank. 18

Dependency on primary exports Source: World Data, 1997, World Bank. 19

Common features of developing countries (traditional list) Low standard of living (income, health, education etc) Low productivity and lack of physical and human capital Backward technology High population growth rate. Unemployment and Underemployment Dependence on agriculture and primary exports High risk and high volatility in prices and terms of trade Dependence and vulnerability in international relations 20

Other features of developing countries Trade unions not very improtant Lousy infrastructure Special agricultural institutions (sharecropping, common property rights, risk sharing etc) Large informal sector Political instability Violence and conflict Special cultural features and barriers (casts, women’s position, holy cows) Special environmental problems (forest, erosion, indoor climate, unsafe water etc) 21