1. WHAT IS DEVELOPMENT?

2. Economic development
Economic development is the major priority of the world’s nations. All nations are being challenged by the crucial task of improving income, well-being and economic capabilities of people.
Every year aid is distributed, investments are made, policies are framed, and elaborated plans are hatched to achieve this goal.

3. Major issues What is development? How to measure development?
What is the minimum requirement?
Why is it so important?
What are the indicators?
Where is it occurring?
Who is getting the benefits?
How to distinguish economic growth and development?

4. Key elements to development
People of the country must be major participants in the process
Growth should not benefit only a tiny, wealthy minority,whether domestic or foreign
Finally, no development can occur without economic growth

5. Economic growth and development
Growth refers to rise in national or per capita income or product.
Economic development implies more than increase in the production of goods and services
Libya and South Korea since 1960 would be the best example

6. GNP and GDP
The sum of the value of finished goods and services produced by a society during a given year. This excludes intermediate goods.
Total national income and total output
Per capita
Difference between GNP and GDP

7. Limitations Poor quality statistics
Definition - Goods and services that are sold in the market (unpaid work ????)
Exchange rate problems
To overcome this problem, common set of prices are used to measure output of every country (hair cut in India is priced the same as on in the US)
This measure of average income is called Purchasing Power Parity (PPP)

8. Social indicators for the early 1990s (GDP per capita, PPP)
<1000$ $ $
,000$
>10,000$
Infant deaths/1000 live births
107 73 33 30 6
Life expectancy 49 57 68 69 76
Physicians per 1000 88
161
181
231
Energy consumption per capita 46
189
977
2029
4857
Adult literacy 52 60 85 83 96

9. Human development index
Life expectancy at birth (this will indirectly reflect infant and child mortality)
Educational attainment of the society which is a composite index (It takes weighted average of adult literacy (with weight of 2/3) and a combination of enrolment rates in primary, secondary and tertiary education (with weight of 1/3).
Per capita income (adjusted)
HDI is calculated using average of the above three indicators.

10. Comparison of per capita income and HDI, 1998
GDP per capita (PPP)
HDI
Sri Lanka
1,610
0.721
Ethiopia
500
0.298
China
3,220
0.701
Hungary
6,730
0.857
Sweden
19,480
0.923
USA
29,340
0.927

11. Development and human welfare
Increase in per capita income during 1965 and 1998 in most developing countries raises many questions
Inequality- relative welfare of different groups
Poverty- number of poor and their state of well being
What is the relevance of economic growth in the context of mass living standards and distribution of income ?

12. Reasons for failure For power and glory of the state
(Ancient Egypt on Pyramids and some developing countries on ballistic missiles and nuclear weapons)
Resources invested for the future growth
Unequal distribution - The rich get richer and the poor get poorer ? (Karl Marx and Charles Dickens)

13. Income distribution and Lorenz curve
Lorenz curve: We take income recipients from low to high on the x- axis and the resulting shape shows degree of inequality of income distribution
A straight line with a 45 degree incline at the origin, or a slope of 1 is a Lorenz curve with perfect equality

14. Lorenz curve 100 80 Line of complete equality 60
national income (cumulative)
Percentage share of 40 20
Lorenz curve O O 20 40 60 80
100
Percentage of population

15. A B Gini coefficient = A / (A + B) 100 80 Line of complete equality 60
national income (cumulative)
Percentage share of A 40 B 20
Lorenz curve O O 20 40 60 80
100
Percentage of population

16. The Gini-Coefficient
Divide A by the sum of A + B to get the Gini coefficient
If the Lorenz curve is on the 45 deg. Line, the Gini coefficient would be 0
Range 0-1
Limitations
For a numerical measurement of the inequity in the distribution of wealth, the Gini index (or Gini coefficient) is derived from the Lorenz curve. To calculate the Gini index, find the area between the 45 degree line of perfect equality and the Lorenz curve. Divide this quantity by the total area under the 45 degree line of perfect equality (this number is always the area of triangle with sides of length 1). If the Lorenz curve is the 45 degree line then the Gini index would be 0; there is no area between the Lorenz curve and the 45 degree line. If, however, the Lorenz curve is a backwards "L", then the Gini-Index would be 1 -- the area between the Lorenz curve and the 45 degree line is 0.5; this quantity divided by 0.5 is 1. Hence, equality in the distribution of wealth is measured on a scale of 0 to 1 -- more inequity as the one travels up the scale.

17. L1 L2 100 80 Line of complete equality 60 national income (cumulative)
Percentage share of 40 L1 L2 20 O O 20 40 60 80
100
Percentage of population

18. Comparison of two hypothetical income distributions
Income group
Distribution 1
Distribution 2
Lowest 25 %
7.5
13.3
Next 25%
42.5
Highest 25%
60.0
Gini coefficient
0.35

19. Inequality scenario in the world
Sri Lanka: Equal distribution of income
South Korea and Taiwan: Equal distribution combined with rapid growth
Latin America: High inequality
Ethiopia, Kenya, Zambia, Philippines, Colombia, Peru, Thailand, Brazil, Malaysia, Venezuela and Mexico: Unusually high inequality
Bulgaria, Poland and Hungary (transition economies)
Australia, Singapore and USA (developed countries)

20. Equality and equity
Equality: Every one gets the same income or owns the same wealth
Equity: Ethical concept
Basic human needs and social indicators

21. Poverty measures
Poverty refers to low income received by certain households
Both Absolute and relative income are important
Measurement of poverty
Poverty line
Poverty head count

22. Strategies for growth with equity
Redistribute and growth approach
Redistribute and develop approach
Redistribution with growth approach
Basic Human Needs approach
Structural adjustment approach