Transcript Diverse Structures and Common Characteristics of

Economic Development &
Classification Systems
IB-SL Economics
P. Messere
Assessing Living Standards
Increase in GDP for World’s regions (1980-2000)
GDP Increase
Region
(% annual average change)
1980-85
Developed Market Economies
1985-90 1990-00
2.5
3.7
2.4
Developing Countries
3
4.5
4.8
E. European countries
3.1
1.5
-2.3
According to the above table, which region has
shown the greatest improvement in economic
welfare?
Development – What & For Whom?
Has an economy developed when economic growth (increased
GDP per capita) occurs but the following conditions are also
present?
– Incomes for the poorest 25% to 50% of the population remain
unchanged
– Large proportion of the population is unable to meet basic needs
for food, shelter, sanitation, health care etc…
– Long term unemployment increases with improved productivity
– The growth is fuelled by a few wealthy land owners producing
primary goods for export rather than domestic consumption &
profits are reinvested abroad, rather than at home
Economic Growth vs. Development

Economic Growth
– The increase in real national income
(GDP/GNP) during a given time period,
usually one year
– Economic growth is a quantitative concept
allowing for comparisons both between
countries and over time
Economic Growth vs. Development

Economic Development (Past)
– Originally referred to the process of
industrialization (structural transformation of
economy primarily dependent on agriculture to
one producing manufactured goods) accompanied
by increased real per capita GDP/GNP
• Definition proved too narrow for development
economists as it did not illustrate true
development in terms of increased living
standards or quality of life for citizens
Economic Growth vs. Development

Economic Development (recent)
– Includes economic growth but must include
reduction of:
• Poverty
• Income inequality
• Unemployment
– Development is qualitative concept
accounting for questions of what is being
produced and who is getting it?
Development – Broader Context
Classifications of Developing
Countries: World Bank (IBRD)

World Bank (International Bank for
Reconstruction & Development) System
– divides 133 countries (both developed & and
developing) with populations in excess of 1
million into four groups according to per capita
income levels:
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Low income: per cap. GNP < $785 in1997
Middle income: $786 - $3,125
Upper middle-income: $3,126 - $9,655
High income: per cap. GNP > $9656 in 1997
Classifications of Developing
Countries: World Bank (IBRD)

World Bank’s System
– first three groups (per cap. GNP to $9655)
comprise 107 mostly developing countries
– last group (high income economies) made up
of 26 nations; 24 from First World and other
two (Kuwait & UAE) classified as developing
Classifications of Developing
Countries: OECD

OECD (Organization for Economic
Cooperation & Development) divides third
world into four groups:
– 61 low-income countries (LICs) with per cap.
income less than $659 including 29 least
developed countries (LLDCs)
– 73 middle-income countries (MICs)
– 11 newly industrializing countries (NICs)
– 13 members of OPEC
Alternative Measures of
Development

To overcome problem of using GDP growth as
measure of development, economists construct
measurements based on relatively quantifiable and
identifiable variables showing relative living
standards and overall human welfare
– Such common indicators include:
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‘Distance’ between richest 10% and poorest 10% in society
Doctors per 1,000 people & average travel time to hospital
Number of people with access to clean drinking water
Average daily caloric intake per person
Road km & other transportation networks in km per capita
Telephones/computers/internet access per 1,000 inhabitants
Alternative Measures of
Development (con’t)
– Additional indicators include:
• Infant mortality rates
• Life expectancy
• Percentage spent on public education relative to national
budget/GDP
• GDP/GNP adjusted for pollution / environmental damage /
non-monetary activities such as barter
• Adjusting income figures showing long-run sustainability by
factoring in depreciation of environmental capital eg. natural
resources
Composite Indexes

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No single indicator can show overall
development
Composite indexes created where number of
different variables used together and indexed
in order to make comparisons possible
– Physical Quality of Life Index
– United Nations Human Development Index (most
commonly used)
– Human Poverty Index
Alternative Measures of
Development: PQLI

Physical Quality of Life Index (PQLI)
– PQLI uses three indicators (weighted equally)
to form a simple composite index where
performance of each country is rated on a
scale of 1 (worst) to 100 (best):
• life expectancy: 100 = 77 yrs, & 28 yrs. = 1
• infant mortality:100 = 9 per 1000 & 1 = 229 per
1000
• literacy rates (as per country data)
Alternative Measures of
Development: United Nations HDI

The United Nations Human
Development Index (HDI)
– HDI attempts to rank all countries on scale of
0 (lowest human development) to 1 (highest
human development) based on three goals:
• life expectancy at birth (longevity)
• educational attainment (knowledge)
• real per capita income (living standard)
The Structural Diversity of
Developing Economies

Size and income
level
The Structural Diversity of
Developing Economies

Size and income level

Historical background
Physical and human resources
Ethnic and religious composition
Relative importance of public and private
sectors
Industrial structure
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The Structural Diversity of
Developing Economies
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Size and income
level
Historical
background
Physical and human
resources
Ethnic and religious
composition
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Relative importance
of public and private
sectors
Industrial structure
External
dependence
Political structure,
power, and interest
groups