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November 23, 2013

Presentation On Economic Development Principles and Concepts between Bangladesh and USA



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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