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1first%20lectures - What is development about Start from a...

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What is development about? Start from a broader view: What does it mean to say that a country develops? We might mean several things by the development process. For example, economic growth, increased capitalization, shifts away from agriculture and towards industry, increasing urbanization, development of political institutions which ensure good governance, etc. We might also mean something about what happens to the livelihoods of individual people living in those countries. For example, life expectancy, literacy, education, health, income, hours worked and working conditions, etc. Obviously, both these economy-wide issues and the quality of life issues are related. With economic growth and mechanization comes increases in incomes; increases in incomes can lead to greater investments in health, education, and other things. Symmetrically, with increases in education and health comes economic growth as the labor force becomes more productive. First, let°s talk about how we might try and measure which countries are or are not developed. From the discussion above, by "development" we really mean something quite complicated - one country might have more GDP than another but also a lower life expectancy, etc. Thus It°s very di¢ cult to ±gure out a speci±c measure of how "developed" a country is that°s really satisfying. However, there are three main candidates that prop up constantly: ° Real GDP per capita ° de²ates GDP per capita by the exchange rate ° However, still pretty far removed from saying anything about purchasing power (and hence living standards). Many goods are much, much cheaper in exchange rate terms in developing countries than in the US. ° PPP GDP per capita ° This approach develops a price index for local goods, and then de²ates GDP per capita by this index. 1
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° An improvement over GDP per capita, however, still says nothing about the distribution of income ³a country with a few very rich people and many very poor people will look the same, by this measure as a country with mostly middle income people. Price indices are also somewhat arbitrary. Also says nothing about education, literacy, health, etc. ° UN HDI ³This measure tries to incorporate health and education into GDP measures. Speci±cally, it is an average of an index of education (2/3 literacy rate + 1/3 primary, secondary, and tertiary enrollment rates), life expectancy at birth, and PPP GDP per capita (which is weighted less for gdp/per capita > $5000). As a strength, this measure does include something about health and education. However, it is still pretty arbitrary ³why equal weights? Why the $5000 cut-o/ for a lower weighting? Between these indicators, we have some measure for how developed a country is, which in turn tells us something about the quality of life of the people who live there. We can imagine two ways to approach development ³micro and macro. A micro approach would ask "what kinds of problems cause individuals to be poor/sick/uneducated? How can we solve these?" A macro approach would ask "Why are some countries so poor and others so rich?
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