Week 1, Lesson 2

Week 1, Lesson 2 - ECON 4411A Fall 2011 Development...

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Unformatted text preview: ECON 4411A, Fall 2011 Development Economics Instructor: Dr Ruth Uwaifo Oyelere Overview of Economic Development: Week 1 Part B Quote of the day: Education has for its object the formation of character . Herbert Spencer (1820 - 1903) Measuring Development . A big question is how do we measure develop- ment. Measuring Development is more complex than measuring growth and needs the combination of a number of factors. The United Nations Development Program has published the Human Development Report (HDR) since 1990. Prior to the HDI index, the Morris’ physical quality of life index was used. The HDR provides an index that is a combination of several socio economic indicators. This index is intended to be a mea- sure of human development. Countries are ranked between 0 and 1 based on this index with 0 as the lowest level of human development and 1 the maximum. From 1990 to 2010, the HDI was measured in a specific way which we will highlight below. This methodology has now been updated. (updated methodology highlighted in class). What are the past yards sticks for creating the Human Devel- opment Index? There are three yardsticks based on the three goals or objectives of devel- opment. • Longevity. This is measured as life expectancy at birth. • Standard of living. Real per capita GDP adjusted for purchasing power parity of a country’s currency is used. The log of income is used in this measure to reflect diminishing marginal utility of income. • Knowledge: This is calculated as a weighted average of adult literacy (2/3) and a combination of enrollment rates in primary, secondary and tertiary levels of education (1/3). These 3 yardstick are combined to form the Human Development Index (HDI) with a value between 0 and 1. In the past measure used until 2009, countries were classified into 3 groups based on HDI index. Currently based on the new HDI index, countries can be classed into four groups. Very High Human Development(0.785-1.0), High Human development (0.670-0.784), Medium Human Development (0.488-0.670) and Low Human Development (0-0.470). Why HDI 1 1. The HDI reminds us that by development, we are looking far beyond simply economic growth or economic indicators but rather broader definitions of individuals living standards and welfare. By compar- ing social and economic data, the HDI allows nations to take a wider measure of development. Hence, countries can focus their policies more directly on areas that need immediate attention and improve- ment. 2. It showcases the flaws in just simply focusing on GDP. For example it shows that countries can do much better than is reflected through low levels of income and vise versa. For example Mongolia’s HDI is higher than India’s even though they have similar PCI of about $3000. In the past Tanzania’s HDI was 50% higher than Sierra Leone even though both have similar levels of GDP per capita. China’s GDP per capita is about two third of South Africa’s GDP per capita but its HDI is nearly a sixth higher. Nigeria and Kyrgyzstan. havebut its HDI is nearly a sixth higher....
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Week 1, Lesson 2 - ECON 4411A Fall 2011 Development...

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