Cp 2 Comparative Economic Development - Cp 2 Comparative...

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Cp 2 – Comparative Economic DevelopmentI. Defining the Developing WorldTen important features that developing countries tend to have in common:oLower levels of living and productivityoLower levels of human capitaloHigher levels of inequality and absolute povertyoHigher population growth ratesoGreater social fractionalizationoLarger rural populations but rapid rural-to-urban migrationoLower levels of industrializationoAdverse geographyoUnderdeveloped financial and other marketsoLingering colonial impacts as poor institutions and often external dependenceDefining the developing worldoMost commonly used method – income per capitaoSystem used by World Bank – Gross National Income, GNILow-income countries, LIC’sLower middle- income countries, LMC’sUpper middle-income countries, UMC’sMiddle-income countriesHigh income OECD’s, and other high income countriesoNewly industrialized countries, NIC’sA special distinction is often made among UMC’sindicting that some thathave achieved relatively advanced manufacturing sectorsoLeast developed countries201049 countrieso33 – Africao15 – Asia1
oHaitiThree criteriaLow incomeLow human capitalHigh economic vulnerabilityoEmerging marketsIn the finance world, it reflects the presence of active stock and bondmarketsThough financial market development is important, it reflects onlyone aspect of developmentReferring to nations as “markets” may lead to an under-emphasis on somenon-market priorities in developmentDialectic in natureThere is no generally accepted designation of which markets shouldbe labeled emerging or notII. Basic Indicators of Development: Real Income, Health, and EducationPurchasing Power ParityoGross National Income, GNIThe total domestic and foreign output claimed by residents of a given nationConsists of:Gross domestic product, GDPoTotal market value of all final goods and services produceddomestically by both residents and non-residents(+) resident factor incomes earned abroad(-) non-resident factor incomes earned domesticallyTotal domestic and foreignvalue addedclaimed by a country’s residentswithoutdeducting depreciation of domestic capitalFig. 2.2 – Income Per Capita in Selected Countries2
oPurchasing power parityAn alternative calculation of GNI using a common set of international pricesfor all goods and servicesTakes into consideration the purchasing power of different currencies so asto provide better and more accurate comparisons of levels of living acrossnationsIt is a long-term approach to calculating exchange rates and their changesAbsolute PPP modelEH/F= PH/PFNominal exchange rate = ratio of price levelsRelative PPP modelΔEH/F/EH/F= πH– πFRate of depreciation (of nominal exchange rate) = inflation differentialoTable 2.2 – A Comparison of Per Capita GNI, 20053
Indicators of Health and EducationoReflective of corecapabilitiesLife expectancyThe rate of undernourishment

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