Definition of Economic Development: 1950s
In economic terms,
development is the capacity of a nation to generate and sustain an annual
increase in its GNP of 5% or more with institutional changes.
Traditional economic
measures:
GDP: is the market value
of all final goods and services produced within a country in a given period of
time
Y=C+I+G+NX
GNP: is the market value
of all final goods and services produced by permanent residents of a country in
a given period of time
GNP= GDP+ net factor income from abroad
Is USA fifty times developed than
Bangladesh?
Though production is same,
GDP shows that USA has 10 times higher GDP than Bangladesh.
Suppose, production of USA
& Bangladesh is same. Both the country produced only one kilo paddy this
year. Price per kilo of paddy is $5.00 in USA & BDT 40.00 in Bangladesh.
Though production is same,
GDP shows that USA has 10 times higher GDP than Bangladesh.
Problems:
GDP at nominal Dollar
ignores purchasing power parity.
The aggregate output (GDP)
omits household production.
GDP does not take into
account a few important factors like health and life expectancy.
GDP ignores political
freedom and social justice within a nation.
A High proportion of
income is generated for self-consumption.
Prices of non-traded goods
are not appropriately reflected in exchange rates.
GDP includes products that
do not increase welfare.
The GDP also ignores the
underground economy. A study suggests that the shadow economy in Bangladesh was
about 35 per cent of the official GDP in FY2001. However, it was 26 per cent in
FY1990.
Definition of Economic Development:
1970s
Dethronement of GNP in the
1970s and increasing emphasis on “redistribution from growth”
Increasing emphasis on
non-economic social indicators
Economic development
consists of the reduction or elimination of poverty, inequality and
unemployment within the context of a growing economy.
Human
goals of economic development : Sen’s “Capabilities” Approach: 1985
Economic growth is not an
end in itself and has to enhance the lives people lead and the freedoms that
they enjoy
Capability to function is
what matters for status as a poor/non-poor person and it goes beyond the availability
of commodities
Capabilities: “freedom
that a person has in terms of the choice of his functions
Functions is what a person does with commodities by given
characteristics that they possess/control
Human Development Index in 1990
Initiated in 1990 and
undertaken by UNDP in its annual series of HDRs.
Developed by Amartya Sen
and Mahbub UL Haq
HDI is based on 3 goals:
Longevity
Knowledge
Standard of living
HDI= 1/3(Income
index)+1/3(Life expectancy index)+1/3(education index)
Initiative to omit disparity of income
in HDI from 2010
PPP Measure: the number of
units of a country’s currency required to purchase the same basket of goods and
services in the local market that a US $1 would buy in the USA. Under PPP,
exchange rates should adjust to equalize the price of a common basket of goods
and services across countries. Penn World Tables rank countries using
the PPP method.
GDP per capita: Bangladesh
GDP per capita: USA
Definition of Economic Development:
“Development is a multidimensional
process involving changes in social structures, popular attitudes, and national
institutions, as well as the acceleration of economic growth, the reduction of
inequality, and the eradication of poverty.” (Todaro and Smith, 2004)
Indicators
of Economic Development:
Growth
versus Development
Economic growth may be one aspect of economic development
but is not the same
Economic growth:
·
A measure of the value of output of goods and
services within a time period
Economic Development:
·
A measure of the welfare of humans in a society
Economic
Growth
Economic
Growth
l Using measures of economic performance in terms of the
value of income, expenditure and output
l GDP – Gross Domestic Product
l The value of output produced within a country during a
time period
l GNP – Gross National Product
l The value of output produced within a country plus net
property income from abroad
l GDP/GNP per head/per capita
l Takes account of the size of the population
l Real GDP/GNP
l Accounts for differences in price levels in different
countries
Development
Development
l The development incorporates the notion of a
measure/measures of human welfare
l As such it is a normative concept – open to
interpretation and subjectivity
l What should it include?
Inequality measurement:
Gini coefficient
Development
l Other considerations of human welfare:
l Political freedoms?
l Sustenance?
l Sustainable development?
l Self esteem?
l Proportion of activity in different sectors of the
economy:
l Primary
l Secondary
l Tertiary
Human
Development Index
Human Development
Index (HDI)
l HDI – A socioeconomic measure
l Focus on three dimensions of human welfare:
l Longevity – Life expectancy
l Knowledge – Access to education, literacy rates
l Standard of living – GDP per capita: Purchasing Power
Parity (PPP)
Other
Measures?
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