Measuring Development Chapter 28

POVERTY TRAP/ CYCLES Measuring Development

Relative Poverty  Comparative level of poverty  Someone is considered to be in relative poverty if they don’t reach a specified level of income.  In the UK that would be below 60% of the average income

Absolute Poverty -Measured in terms of the basic necessities for survival. -Amount that a person needs to have in order to live -The World bank used an absolute poverty line of US$ 1.25 per day. -If a person is below this level- extreme poverty.

Population below income poverty line (%) Country$1.25 a day Mali50.4 Nigeria64.4 Central African Republic62.4 Zambia64.3 Niger65.9 Madagascar67.8 World Bank Absolute Poverty Figures % of population 2009

Poverty Trap A poverty trap is any linked combination of barriers to growth and development that forms a circle, thus self-perpetuating unless that circle can be broken

Poverty Cycle

Growth Development Low Economic Growth Low levels of investment Low levels of savings Low Incomes Low levels education & healthcare Low levels of human capital Low productivity Examples of Poverty Cycles

How do we measure economic development?  Single Indicators  Single indicators are solitary measures  The first is financial  GDP per capital and GNI per capita are often used to assess both growth and development  Per capita means per head  GDP includes all economic activity regardless of who owns the assets within the country  GNI includes all economic activity but only by the country’s assets and it doesn’t matter where they operate  If a developing country has a large amount of FDI then the GDP will tend to be much larger than the GNI but it will include profits that are repatriated  Also developing countries often have a large inflow of money sent home by workers living abroad  Hence GNI is the main measure of development

How do we measure economic development?  Single Indicators  The second set of financial measures is GDP per capital at purchasing power parity  The same good can cost different amounts of money in different countries  This means that the purchasing power of the person in the country where the good is cheapest is much higher  The GDP per capita in Nigeria converted into $ is 1,370 but that has much more purchasing power than in the US  We convert this using the PPP exchange rate to try to equate purchasing power  The PPP most widely used is calculated by the World Bank  The economist has another based on the price of a Big Mac and call this the study of Burgernomics! Watch this video watch?v=Fmyv6BiNmsU

How do we measure economic development?  Single Indicators  The second set of single indicators are health measures  We can measure life expectancy at birth – the average number of years that a person may expect to live from the time they are born  An increase in life expectancy could be the result of an improvement in health care, clean water, sanitation, education, supplies of food, healthy diets and lifestyles; low levels of poverty and a lack of conflict and would hence show some economic development  The infant mortality rate (number of deaths of babys under the age of 1) are another measure as these are also connected with health care, sanitation, food and poverty Watch this video watch?v=jbkSRLYSojo

How do we measure economic development?  Single Indicators  The third set of single indicators are education measures  Adult literacy (measuring the proportion of adults over 15 that can understand, write and read a short statement)  This will be affected by the level of educational opportunities which is heavily influenced by the wealth of a country, the distribution of income and poverty levels  Net enrolment ratio in primary education is another measure which again is affected by the same (wealth, distribution, poverty etc)

How do we measure economic development?  Composite Indicators  Composite indicators are a combination of single indicators given a weighting  The HDI (Human Development Index) is the most commonly used  It is a combination of life expectancy, adult literacy and standard of living in terms of GDP per capita converted using PPP  The value will be between 0 and 1 (1 being the best)  This table shows that we cannot assume that high GDP means high economic development  Consider Saudi Arabia ranked 40 th for GDP per capital but 59 th for HDI  Its GDP is significantly more than Argentina but ranked 10 places below in HDI ranking

How do we measure economic development?  Composite Indicators  Is the HDI sufficient to measure economic development  No but it is more efficient than a simple GDP number  It is still just an average number which can mask inequalities within a country  Inequalities may exist between urban and rural citizens, between men and women and between different ethnic groups