1. Unit III
A World of Inequality
MEXICO
UNITED STATES

2. What is economic development?
Economic Inequality
What is economic development?
can be defined as efforts that seek to improve the economic well-being and quality of life for a community by creating and/or retaining jobs and supporting or growing incomes and the tax base.
E.g. water, food, clothing, adequate shelter, literacy,education, employment, wealth, health care, sanitation, social mobilization, social security, science and technology, industrialization, urbanization
“The big (global) challenge and threat is the gap in wealth and health that separates rich and poor. These are often styled North and South, because the division is geographic; but a more accurate signifier would be the West and the Rest, because the division is also historic. Here is the greatest single problem and danger facing the world of the Third Millenium.”
David Landes, Economic Historian and author “The Wealth and Poverty of Nations”

3. Economic Inequality
Why is economic development so important?
meets basic needs
reduces extreme poverty
reduces social strife and political conflict
improves economic efficiency
prioritizes investments in education, skills, and technology
provides tax revenue for governments to fund hard and soft infrastructure
creates meaningful and sustainable employment, raising incomes
empowers women and promotes women’s rights
helps to protect the natural environment
overall, it makes people more tolerant, trusting, autonomous, and democratic (although not necessarily)

4. Economic Inequality
What is Economic Disparity?
At its root, disparity means inequality. But it goes further than that - refers to the gap between the rich and the poor.
The poorest 20% of the population receive only 1.0% of the global income while the richest 5% enjoys 40% of all income.
The ratio of GNP per capita between Canada and Mozambique in 2005 is 108:1
As a result of this gap, we lead tremendously (obscenely) rich lives while many cannot meet their most basic needs.

5. Comparing Development
How can we measure economic development?
In economic terms, it is measured by gross domestic product (GDP)
GDP - Gross Domestic Product - is a measure of the value of economic output within a country in a given year
GNP - Gross National Product - is a measure of the total value of economic output produced by a country in a given year
Country
% GDP by Economic Sector
Primary
Secondary
Tertiary
Canada 3 29 68
Malaysia 12 40 48
Ethiopia 52 11 37

6. Comparing Development
How can this data be shown?
Bar chart:
This is fine for 3 countries, but can you imagine trying to show 20 countries this way? Economic policy makers prefer GDP per capita/yr

7. Comparing Development
GDP per capita
the value of production per person within a country (GDP/mid-year population) measuring the average annual income of a country’s citizens
a first step toward understanding the economic strengths and needs of a country, as well as the general standard of living enjoyed by an average citizen
much lower in low-and middle-income countries than in high-income countries
low- and middle-income countries produce about 20% of the world’s goods and services, but have more than 80% of the world’s population
rises in GDP per capita in these countries is therefore often counteracted by rapid population growth
the trend across all countries is for the richest 20 percent of the population to earn incomes many times higher than the poorest 20 percent
by itself, GDP per capita cannot measure people’s well-being or a country’s success in development. It does not show what is being produced, whether all people share equally in the income of a country, or whether a country has depleted or degraded its natural resources to achieve economic growth

8. Comparing Development
2007
GDP per capita
(The Economist)
1. Luxembourg $69, 420
2. Bermuda ,230
3. Channel Islands ,900
4. Norway ,360
5. Switzerland ,660
6. Ireland ,410
7. Denmark ,710
8. Iceland ,910
9. United States ,430
10. Sweden ,920
11. Japan ,170
12. Austria ,090
13. United Kingdom ,760
14. Finland ,750
15. Netherlands ,740
16. Belgium ,210
17. France ,890
18. United Arab Emirates ,610
19. Germany ,220
20. Qatar , 000
High Income Countries > $9,206
(15% of world’s pop)
Middle Income Countries $745 - $9,206
(25% of world’s pop)
209. Tajikistan
210. Mozambique
211. Tanzania
Bhutan
212. Gambia
213. Uganda
Nepal
214. Niger
215. Madagascar
216. Afghanistan
217. Rwanda
Eritrea
218. Sierra Leone
219. Guinea-Bissau
220. Myanmar
221. Malawi
222. Liberia
223. Congo
224. Ethiopia
225. Burundi
Low Income Countries < $745
(60% of world’s pop)

9. Comparing Development

10. Comparing Development

11. Comparing Development
Does GDP per capita give a complete picture of the standard of living of all people in a country?
No, because it is an average. GDP per capita does not show how income is distributed. And although it shows the average income, it does not show whether people lead fulfilling lives. In addition, it does not include unreported income from the informal sector, nor show what goods and services are available and how much people can buy with their money.

12. Comparing Development
In terms of overall development and human well-being, therefore, it is more appropriate to look at the human development index or HDI
Human Development Index
A composite index that measures the average achievements in a country in three ways:
1. Health (measured by life expectancy at birth)
2. Education (measured by literacy rate and school enrollments)
3. Standard of Living (measure by GDP per capita in a common currency)
calculated at five year intervals and covers 177 member UN countries
important for monitoring relative long term trends (cross country comparisons) in human development

13. Comparing Development