Development Economics

Development Economics - Chapter Two A high and accessible...

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Chapter Two - A high and accessible level of material well-being is probably a prerequisite for most other kinds of advancements. - The universal features of economic development – health, life expectancy, literacy, and so on – follow in some natural way from the growth of per capita GNP. Income and Growth - Low per capita incomes are perhaps the most important feature of economic underdevelopment. - The world produced $24 trillion in 1996; 20% from low and middle-income countries. - These measures, however, provide biased estimates: - Firstly , underreporting in developing countries is common. ..inefficient tax collection etc. Also, not all production is recorded (e.g. subsistence farmers). - Secondly , prices for many goods in all countries are not appropriately reflected in exchange rates. - To try and solve this problem, the Heston-Summers data set exists: International prices are constructed for an enormous basket of goods and services over all different countries. - National income for a country is then estimated by valuing its outputs at these international prices. Then parity in the purchasing power is maintained. - The purchasing power parity for any country is the ratio of its domestic currency expenditures to the international price value of its output. - This fractionally reduces the disparities in world distribution of income. - Thirdly, GNP measurement converts highly disparate goods into a common currency. - Prevalent prices do not capture the true marginal social value or cost of a good or service (e.g., cost of pollution) Historical Experience - Between 1960-85, the richest 5% of the world’s nations averaged 29 times higher per capita income than the poorest 5% - Both Africa and Latin America declined or stagnated in growth in the 1980s. - Doubling time – the number of years it takes for income to double if it is growing at some given rate. - 70 divided by the annual rate of growth expressed in percentage terms. - It is possible for the world distribution of income to stay the same in relative terms, while at the same time there is plenty of action within that distribution as countries climb and descend the ladder of relative economic achievement. - There is indication that low incomes are very sticky. - Middle income countries have far greater mobility than either the poorest or richest nations.
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- Poor nations lack income mobility…a history of underdevelopment puts countries at a tremendous disadvantage. Mini-summary 1. Over 1960-85, the relative distribution of world income appears to have been stable. 2. This stationary distribution does not mean that there has been little movement of countries within the world distribution (Asian growth). 3.
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This note was uploaded on 04/19/2008 for the course ECON 302 taught by Professor Jeong during the Spring '08 term at McGill.

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Development Economics - Chapter Two A high and accessible...

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