Download Consequences of Growth

Measuring Development
Development Economics
4.2a
Review . . .
What is the difference between economic growth
and economic development? Is it possible to
have one without the other?
– Growth: increase in economies real level of output
over time. Quantitative – GDP ect.
– Development: The process to improve the lives of all
people in a country. This include increase living
standards (goods and services), improved dignity,
respect and self-esteem, freedom etc. Qualitative.
– YES! Growth is possible w/o development.
Production Possibility Frontiers
Manufactures
Weak Agricultural Sector
D
C
B
A
Food
Land and agriculture are
key to studying
development
Supply of land is fixed
and with growing
populations this leads to
law of diminishing
returns.
Here manufacturing is
growing, but food output
is growing at smaller and
smaller increments as
population grows
Production Possibility Frontier
manufactures
Improved land quality
D
C
B
A
food
Main development
goal is to improve
productivity of land.
–
–
–
–
Irrigation
Drainage
Use of fertilizers
Pest control
So here improving the
quality of land allows
the food supply to
increase.
Consequences of Growth
1. Externalities
2. Income Distribution
3. Poverty Cycle
Consequence of Growth # 1:
Externalities
LDC’s Pollution and Environmental
Degradation
– Increased population puts pressure on land
– Soil erosion as people more likely to farm
marginal land
– Forests cut down for fuel
– Desertification stemming from overgrazing
– Over-fishing
Externalities continued:
Industrialized countries and CO2
emissions.
– Positive correlation between CO2 and national
income
– 80% of all fuel is burnt by 20% of the richest
people
– In 1997 China had 500 bikes for every car . . .
Today???
Consequence of Growth #2:
Income Distribution
Income distribution is a key concern for
development economics.
Goal: development plan that promotes
evenly distributed income.
Consequence of Growth 2:
Income Distribution and Saving
Rates
Some assume that development will follow
growth
– To encourage growth encourage technology
and investment, BUT
– Increased investment means increased
saving is necessary. For saving to increase
income more likely to be unevenly distributed.
Rich = higher propensity to save
Poor = high propensity to consume
Income DistributionLorenz Curve
Percentage of income
Lorenz Curve
Lorenz
Curve
Percentage of income
Recipients (population)
A way to measure
income distribution
and the degree of
inequality
The more unequal
the income
distribution the more
bowed the curve.
Income DistributionGini Coefficient
Lorenz Curve
Percentage of income
D
A
Shaded area A
area BCD
Lorenz
Curve
B
C
Percentage of income
Recipients (population)
The GINI coefficient
converts the Lorenz
curve into a single
statistic
Equation:
Smaller coefficient is
better
Income Inequality in America
2. Income DistributionPurchasing Power Parity, PPP
A more realistic measurement of living
standard than GDP
Accounts for local buying power of a
currency to determine GDP
Calculated by the IMF and used by the
World Bank in attempt to mitigate the
impact of exchange rates.
A GDP adjusted for PPP is generally
higher than just GDP
3. Poverty Cycle
*
*
Low Standard
Of Living
Low Standard
Of Living
Low
Investment
Low
Savings
Low
Productivity
Poor health
Poor Education
Now some practice . . .
Measuring
Development 4.2
practice worksheet.