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Economic Development <Lecture Note 1> 13.03.08
ED: Introduction: Poverty and
Development
* Some parts of this note are summary of the references for teaching purpose only.
Semester: Spring 2013
Time: Friday 9:00~12:00 am
Class Room: No. 322
Professor: Yoo Soo Hong
Office Hour: By appointment
Mobile: 010-4001-8060
E-mail: [email protected]
Home P.://yoosoohong.weebly.com
1
Issues for Thought and Discussion
❒ Why are there poor countries?
- What are the main barriers to economic development?
❒
What are the proper development models?
- Should every country follow the same or a similar development
model (path) ?
❒
Is it true: “The richer, the happier”, why or why not?
Then what is economic development?
❒
Is growth incompatible or compatible with income equality?
Similarly, is growth a zero-sum game or a positive-sum game?
❒
Does the size of a country matter for economic growth?
2
World Average Per Capita Income
1990 International $
6,000
5,000
4,000
3,000
2,000
1,000
0
100
200
300
400
500
600
700
800
900
1000
1100
1200
1300
1400
1500
1600
1700
1800
1900
2000
Year
Source: Data from Maddison. 2001. Borrowed from Sachs. 2005.
3
Evolution of Global GDP and Per Capita GDP
4
World Key Data
Year
Latest data
GDP (current US$) (billions)
2011
69,982
GNI per capita, Atlas method (current US$)
2011
9,511
Life expectancy at birth, total (years)
2010
69.63
Population, total (millions)
2011
6,973
Population growth (annual %)
2011
1.15
School enrollment, primary (% net)
2011
88.8
Surface area (sq. km) (thousands)
2010
134,269.2
Source: World Bank database
5
World Economic Development Status
 The Classification of Developing Countries
⁻
Classification of less developing countries by UN: ① Least developed, ②
Non-oil-producing developing countries, ③ OPEC members
⁻
Classification of countries by WB (2008): ① Low-income economies
(</=$975),② Lower middle-income countries ($976-$3,855), ③ Upper-middleincome countries (3,856-11,905), ④ High-income countries (>/=$11,906)
 Present Status
⁻
80 percent of the world population live in developing countries.
⁻
The rate of the population in the absolute poverty (e.g. <$1/1.25 per day) is
highest in South Africa below the Sahara Desert and second highest in Latin
America.
⁻
The number of the population in the absolute poverty is highest in South-West
Asia.
6
Income Gap between High-income Countries and the
Rest of the World
7
Regional Share of World Income, 2010
- Comparing incomes: The share of developing economies is higher when measured using purchasing
power parity
Source: World Bank, World Development indicators database
8
Structure of the World Economy (2007)
Range of
GNI
GNI
per capita
($)
Population
(%)
GDP
(%)
Trade
(%)
Trade/GDP
High
income
Over
$11,456
$37,570
15.9
73.9
72.8
56.4
Middle
income
$936~
$3,705
$2,190
64.4
24.5
26.5
61.9
Low
Income
Less than
$935
$574
19.6
1.4
1.65
63.7
100.0
World
$7,995
(6.6 billion
person)
100.0
100.0
($54.3trillion)
($31.1trillion)
Korea
$19,730
0.7
1.7
2.5
(%)
57.3
82.3
Source: World Bank. World Development Indicators. 2009.
9
Regional Poverty Estimates (%)
Region
1984
1987
1990
1993
1998
1999
2002
2005
2008
Share of people living on less than 2005 PPP $2.00 a day(%)
East Asia & Pacific
88.5
81.6
79.8
75.8
64.1
61.8
51.9
38.7
33.2
China
92.9
83.7
84.6
78.6
65.1
61.4
51.2
36.3
29.8
Europe & Central Asia
8.3
6.5
5.6
6.9
10.3
11.9
14.3
12.0
2.4
Latin America & Caribbean
28.1
24.9
21.9
20.7
22.0
21.8
21.6
17.1
13.1
Middle East & North Africa
23.7
22.7
19.4
19.8
20.2
19.0
17.6
16.9
13.9
South Asia
84.8
83.9
82.7
79.7
79.9
77.2
77.1
73.9
70.9
India
84.8
83.9
82.6
81.7
79.8
78.4
77.5
75.6
68.7
Sub-Saharan Africa
75.5
74.0
76.1
75.9
77.9
77.6
75.6
72.9
69.2
Total
67.7
64.3
63.4
61.6
58.3
57.1
53.3
47.0
43.6
Source: PovcalNet, World Bank.
10
Regional poverty estimates
Poverty headcount ratio at $2 a day (PPP) (% of population)
Source: World Bank.
11
Growth Rate of GDP Per Capita, by Level of
Development, 2000-2012
12
Growth Trends in World Output (%)
Source: IMF. 2011
13
GDP Growth of Main Countries and Regions
Source: IMF, World Economic Outlook Database
East Asia including 18 countries/regions: Japan, China, Korea, Hong Kong, Taiwan,
ASEAN10, Australia, New Zealand, India
14
Divergence in Economic Performance in
Developing Country Regions, 1960-2006
15
Poverty Change by Region
Proportion of people living on less than $1.25 a day, 1990 and 2005 (%)
Source: Millennium Development Goals Report. 2011
16
Proportion of Working Poor, 2003, 2008 and 2009
Source: International Labour Organization, Global Employment Trends
January 2010 (Geneva: ILO). Note: Data refer to the proportion of workers
earning less than $2 per day
(purchasing power parity).
17
Growth of the World Population and Some Major
Events in the History of Technology-9,000 B.C. to
Present
18
Population Growth to 2030
19
Trade Share
Note: EU18:Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland,
Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden, the United Kingdom,
the Czech Republic, Hungary, and Poland.
Source: IMF, Direction of Trade Statistics (DOTS).
20
World Exports, 1975-2005 (Current US$)
21
Developing Countries’ Share of World
Exports (Current US$)
22
Developing Countries’ Share of World
Exports (Constant US$)
23
Global Migration and Remittances, 1960 to 2005
24
Remittances in Relation to FDI and Aid, 1970- 2007
Source: World Bank. World development Indicators and Global Development Finance.2007.C
25
Exports of Knowledge-based* Commercial
Services
- Dominated by the United States and the European Union
Balance of exports in knowledge based services
Source: World Bank. World development Indicators 2010.
26
Foreign Reserve Accumulation
by Developing Countries, 2007~2010
Source: IMF, Statistics Department COFER database; and International Financial
Statistics.
27
Trends in World Population
Note: Data after 2005 are based on projections.
Source: UN Population Division, 2005
28
Relationship between Human Development and Economic Growth
- Economic growth does not necessarily assure the human development.
(%) Index of HDI
100
80
60
40
20
0
-4
-2
0
2
4
6
8
Rate of annual economic growth (%)
10
12
29
GDP Growth and Changes in Quality of Life
1960s and 1990s
Index of ‘quality of life’
Examples of indicators
Industrial Countries
• Infant survival rate
• Calorie and protein intake
Some indicators were
improved during growth
Some indicators were
insensitive to growth
Some indicators
were deteriorated
during growth
Developing Countries
1960s
• Secondary school enrollment
• Gini coefficient of income
• Carbon dioxide per capita
• Sulfur dioxide per capita
1980s/90s
Note: The case of countries that achieved economic growth.
30
Gini Coefficient by Region
Note: Gini Coefficient is an income inequality index.
Source: Human Resource Development Report, 2007-8
31
Concept
 What is economic development?
– The definition and concept of economic development have changed over
time in accordance with changing trends of the world economy and views
(approaches) of theorists.
– Early economic development theory immediately after the World WarII
viewed development in the context of growth and industrialization.
– However, economic development implies the progress in human wellbeing so that it includes changes in not only material (economic)
dimension of life but also cultural, social, political and even spiritual
dimensions of life.
32
 Concepts of Economic Growth and Economic Development
• Economic Growth
- Quantitative growth in GNP per capita (i.e. a quantitative concept)
- Here, GNP (or GDP) per capita is regarded as an index for the average level
of welfare.
• Economic Development
- Process not only increasing income, but also enhancing ability and right of
people (i.e. a qualitative concept)
- Transition to an economy in which people can enhance living standards and
conditions which seek self-esteem and freer choice, etc.
33
 Why do we study this subject?
- One sixth of the world population today live under the absolute poverty line
(with 1 dollar per day).
- We want to understand why some people and countries cannot escape from
this trap while others can.
- We want to find the way all human beings can live a decent life.
- The knowledge can be useful for our future career and activities in the areas of
international relations, business, politics, NGO activities and academic
research.
34
Poverty: Deprivation in Outcomes and Means
•
•
•
•
Tangible: shortfalls in basic needs (food, shelter, clothing, education,
health)
Intangible: e.g. vulnerability in times of crisis, exclusion
Adequacy of means/resources to meet basic needs
– Not only income
– Common property resources
– State-provided goods
Institutions, rules of entitlement to means/resources
– Not only markets
– Family, kin
– Community
– Participation
35
Approaches to Measure
 Income/Consumption Approach
• Based on physical/material deprivation model
• Measurements look at:
– minimum food-energy needs, food basket
– food plus basic material needs
• Proxy measure: income or consumption expenditure level (absolute
poverty line, e.g. $1/day/person)
 Human Deprivation Approach
• Focuses on material well-being (outcomes)
• Broader dimensions: health, education, access to basic services, basic
living standards
• Composite measures (well-known)
– Human Development Index (HDI)
– Gender-related Development Index (GDI)
– Human Poverty Index (HPI)
36
 Basic Human Needs: Material and Non-material
• The ILO approach in the 1970s
• Concerned with access to material resources to meet immediate body
needs: food, clothing, shelter, water, housing
• And goes beyond: access to participation in decision-making in society

•
•
•
•
Multi-Dimensional Approach
Not only lack of material well-being
But lack, or exclusion from, resources, rights and opportunities
Lack of material and non-material capital: human, physical, financial,
social
Requiring new methods of measurement
37
Adult and Youth Literacy Rates
38
Related Concepts
 Inequality
• Inequality encompasses:
– Income distribution
– Disparities in access / rights to economic resources
– Disparities in social, cultural, political rights
– Disparities in well-being (outcomes)
• Poverty focuses on deprivation
• Extent of poverty is affected by inequality
 Social Exclusion
• Social exclusion:
– denial to individuals or groups of social or citizenship rights to goods,
services, resources, employment, representation
• Refers to multi-dimensional processes that lead to poverty, & trap people in
poverty
39
 Discrimination
• Discrimination: distinction, exclusion, restriction or preference
– Based on any social group, e.g. sex, race, colour, language, religion,
political opinion, national or social origin
– Aimed at nullifying or impairing recognition, enjoyment or execise by all
persons on equal footing of all rights and freedoms
• A process that could lead to poverty; hampers escape from poverty
 Vulnerability
• Probability of exposure to risks and shocks that could erode income and
well-being
• The risk that an individual or household will experience an episode of
poverty
• Risks linked to capacity to insure oneself from effects of risks: physical
assets, savings, multiple income sources, social support networks; access
to formal safety net, access to credit market
40
Differences and Commonalities in Development
 Some Views
-
The range of human development in the world is vast and uneven, with
astounding progress in some areas amidst stagnation and dismal decline in
others.
− UNDP. Human Development Report. 2003
-
Of course there must be differences between developing countries…[but] to
maintain that no common ground exists is to make any discussion outside or
across the frontiers of a single country meaningless.
− Julian West. Oxford University
-
Rates of growth of real per capita GNP are diverse, even over sustained
periods…Is there some action a government of India could take that would lead
the Indian economy to grow…? If so, what, exactly? The consequences for
human welfare involved in questions like these are simply staggering: Once one
starts to think about them, it is hard to think about anything else.
− Robert Lucas. Nobel Laureate in Economics
41
- The growth position of the less developed countries today is significantly
different in many respects from that of the presently developed countries on the
eve of their entry into modern economic growth.
− Simon Kuznets. Nobel Laureate in Economics
 Differences and Development
- The gaps between the poorest and richest developing countries are greater
than those between the rich economies and upper-middle-income
developing nations.
- While almost all of these countries are relatively poor in money terms, they
are diverse in culture, economic conditions, and social and political
structures.
- Large size entails complex problems of national cohesion and
administration while offering the benefits of large markets, a wide range of
resources, and economic diversity.
42
- Small countries may have problems including limited markets, shortages of
skills, scarce physical resources, and weak bargaining power.
- Despite variations, developing nations share a common set of problems,
both domestic and international-problems that in fact define their state of
underdevelopment. The study of development puts these problems, shared
objectives and underlying requirements for growth in comparative historical,
geographic, international economic relations, and institutional context.
(Todaro, 2006)
43
Meaning of Development
 Traditional economic meaning
-
Development is the capacity of the national economy, whose initial
economic condition has been more or less static for a long time, to
generates and sustain an annual increase in its gross national product
(GDP) at rates of 5% to 7%.
-
For this there is a stress on the industrialization often at the expense of
agriculture and rural development.
-
Development is seen as an economic phenomena in which rapid gains in
overall growth would either trickle down to the masses in the form of jobs
and other economic opportunities.
44
 New Economic View
-
Development is the reduction or elimination of poverty, inequality and
unemployment within the context of a growing economy. The development
of people rather than development of things.
-
The challenge of development is to improve the quality of life. Especially
in the world’s poor countries.
-
Development means less poverty, cleaner environment, more equal
opportunity, greater individual freedom and a richer cultural life.
45
-
Development must be conceived of as a multidimensional process.
-
Development must involve major changes in social structures, popular
attitudes and national institutions as well as acceleration of economic
growth, the reduction of inequality and the eradication of poverty.
-
Development must represent the whole set of changes by which an entire
social system tuned to the diverse basic needs and desires of individuals
and social groups within that system , moves away from a condition of life
widely perceived as unsatisfactory toward a situation or condition of life
regarded as materially and spiritually better.
46
Core Values of Development

SUSTENANCE: The Ability to Meet Basic Needs
-
When life sustaining basic human needs like food, shelter, health and
protection are absent underdevelopment exists.
-
One clearly has to “have enough in order to be more”.
-
Purpose of development is to create an environment in which all people
can expand their capabilities and opportunities can be enlarged for both
the present and future generations.
-
Real foundation of human development is universalism in acknowledging
the life claims of everyone.
47
Poverty: New Approach Needed
•
•
•
•
•
•
•
Poverty as an insufficiency in one or several essential dimensions: lack
of information, irrationality, imperfect markets, public services
Income is not sufficient to fully explain child nutrition, education, health,
etc. (Provision of public goods)
A more pragmatic and humanitarian approach than the utilitarian
approach, focusing on minimum attainments.
Effort to go beyond monetary measures and an exclusive focus on
growth: Failure of poor to participate in benefits of growth
Policies targeted at directly satisfying the perceived basic needs of the
poor, rather than their income.
Lack of consensus on basic needs and minimum attainments:
geographic and individual variations (age, sex, metabolism, activities, etc.)
Examples of minimum attainments (basic needs): nutrition (consumption,
access to water), health (access to a dispensary, incidence of infectious
disease, sanitation), housing (income, access, credit), education (income,
access to and quality of schools), etc.
48
Poverty: Facts
People living on less than US$ 1/day (2005)
% of total
Population
50
Sub-Saharan Africa
Eastern and South-Eastern Asia
Southern Asia
Latin America and the Caribbean
Rest of the World
TOTAL WORLD
18
39
8
3
22
In Millions
381
339
575
44
61
1400
Source: UN MDG Report, 2008
▪ Greater number of poor people in Asia, but
▪ Highest poverty rates in Sub-Saharan Africa
71% (1billion) are children
49
Energy Poverty: Facts
 Access:
- 1.4 billion people have no access to electricity and 1 billion people have
unreliable access.
- 2.5 - 3 billion rely on biomass (wood, agricultural residues and dung) for
their basic needs.
 No electricity means: No light, no computers in schools, no night time
study, No evening adult literacy classes, no steady pumping of water, no
refrigeration for vaccines and medicines.
- Living without electricity also means no industrial activity, restricted
agricultural productivity ( irrigation, processing capacity).
- Electricity is vital to development as it enhances income generating.

-
Relying on biomass means
1.45 million deaths per year.
Less time at school
More deforestation activities
50
The Least Developed Countries (LDCs)
 What are the LDCs?
-
Since 1971, the United Nations has recognized the Least Developed
Countries (LDCs) as the “poorest and weakest segment” of the
international community. Extreme poverty, the structural weaknesses of
their economies and the lack of capacities related to growth, often
compounded by structural handicaps, hamper the efforts of these countries
to improve the quality of life of their people. These countries are also
characterized by their acute susceptibility to external economic shocks,
natural and man-made disasters and communicable diseases.
 How many countries are the LDCs?
-
As of 2007 the list of LDCs includes 49 countries: 33 in Africa, 15 in Asia
and the Pacific and one in Latin America.
51
 Which countries are recognized as LDCs?
- Africa : 33 countries
Angola, Benin, Burkina Faso, Burundi, Central African republic, Chad,
Comoros, Democratic Republic of Congo, Djibouti, Equatorial Guinea,
Eritrea, Ethiopia, Gambia, Guinea, Guinea-Bissau, Lesotho, Liberia,
Madagascar, Malawi, Mali, Mauretania, Mozambique, Niger, Rwanda,
Sao Tome and Principe, Senegal, Sierra Leone, Somalia, Sudan, Togo,
Uganda, Tanzania, and Zambia.
- Asia and the Pacific: 15 countries
Afghanistan, Bangladesh, Bhutan, Cambodia, Kiribati, Lao Peoples
Democratic Republic, Maldives, Myanmar, Nepal, Samoa, Salomon
Islands, Timor-Leste, Tuvalu, Vanuatu, and Yemen.
- Latin America and the Caribbean: 1 country
Haiti
52
 What characterizes a country to be an LDC?
- The United Nations Committee for Development Policy (CDP) uses the
following criteria to identify LDCs:
- Low-income, measured by an average income per person over three years.
An average income less than $745 per person per year is considered for
inclusion, and above $900 for graduation;
- Weak human resources, as measured by indicators of nutrition, mortality
of children aged five years or under; secondary school enrolment; and adult
literacy rate;
- High economic vulnerability, measured by population size; remoteness;
diversity of goods exported, share of agriculture, forestry and fisheries in the
economy; instability of agricultural production; instability of exports of goods
and services; and homelessness owing to natural disasters.
53
 What are the main challenges facing the LDCs?
-
High levels of poverty: More than half the 800 million people in the LDCs
live on less than a dollar a day. Women in LDCs have a one in 16 chance of
dying in childbirth, compared to one in 3500 in North America.
- Food insecurity: More than 300 million Africans, where 33 out of the 49
LDC are located, are food insecure.
- Economic vulnerability: LDCs are highly dependent of external sources of
funding, including official development assistance, workers’ remittances and
foreign direct investment. This overly exposes them to external shocks such
as the global financial crisis, which has had a severe impact on their
economies.
- Environmental vulnerability: While they contribute least to climate
change, LDCs are among the groups of countries most affected by climate
change. Poor housing, over-dependence on natural resources and the lack
of adaptive capacity all people in LDCs at a greater risk to the impact of
climate change than people in other countries. Many LDCs are also small
islands whose very survival is threatened by rising sea levels.
54
References
Commission on Growth and Development. 2008. Growth Report:
Strategies for Sustainable Growth and Inclusive Development.
World Bank.
IMF 2011. World Economic Outlook.
Sachs, Jeffrey D. 2005. The End of Poverty. New York: Penguin Press.
Sen, Amartya. 1999. Development as Freedom. New York: Alfred A. Knopf.
Todaro, Michael P. and Stephen C. Smith. 2006. Economic Development
(9th Ed.). Pearson.
United Nations New York. 2010. World Economic Situation and Prospects
2011.
UN. 2011. World Economic Situation and Progress 2012.
55
UNDP. (20th Anniversary Edition.) 2010. Human Development
Report 2010: The Real Wealth of Nations: Pathways to Human
Development.
World Bank. 2000. The Quality of Growth. Oxford University Press.
World Bank. 2005. World Development Report 2006.
World Bank. 2009. Development Economics through the Decades:
A Critical Look at 30 Years of the World Development Report .
World Bank. 2009, 2010, 2011. World Development Report 2009, 2010,
2011.
(e)Atlas of Global Development
(http://issuu.com/worldbank.publications/docs/978082138538)
Economics: A Guide to Selected Resources
(http://www.nichols.edu/commoncontent/library/economics.pdf)
56