Chapter 2 Comparative Development Differences and Commonalities among

Chapter 2 Comparative Development: Differences and Commonalities among Developing Countries Copyright © 2006 Pearson Addison-Wesley. All rights reserved.

Aim of the Chapter In this chapter, we introduce the study of comparative economic development. We begin by defining the developing world and describing how development is measured so as to allow for quantitative comparisons across countries. Average income is one, but only one, of the factors defining a country’s level of economic development. This is to be expected, given the discussion of the meaning of development in Chapter 1. 2 -2

Important common features of developing countries Important features that developing countries tend to have in common, on average, in comparison to more developed countries are as the following; 1. Lower levels of living and productivity 2. Lower levels of human capital 3. Higher levels of inequality and absolute poverty 4. Higher population growth rates 5. Greater social fractionalization 6. Larger rural populations but rapid rural-to-urban migration 7. Lower levels of industrialization 8. Adverse geography 9. Underdeveloped financial and other markets 10. Lingering colonial impacts such as poor institutions and often external dependence. 2 -3

Defining the Developing World n n The UN’s System World Bank’s System – Classification by levels of GNI per capita (Table 2. 1) n The UNDP’s Human Development Index – Classification by levels of human development (Table 2. 9) n The OECD’s system Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 2 -4

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TABLE 2. 1 (Continued) 2 -6

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Basic indicators of development: Real income per capita; Health, and Education In this section, we examine basic indicators of three facets of development: n real income per capita adjusted for purchasing power; n health as measured by life expectancy, undernourishment, and child mortality; and n educational attainments as measured by literacy and schooling. Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 2 -11

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Commonality and Diversity: Some Basic Indicators Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 2 -13

Human Development Index The most widely used measure of the comparative status of socioeconomic development is presented by the United Nations Development Program (UNDP) in its annual series of Human Development Reports. The HDI attempts to rank all countries on a scale of 0 (lowest human development) to 1 (highest human development) based on three goals or end products of development – longevity as measured by life expectancy at birth, – knowledge as measured by a weighted average of adult literacy (two-thirds) and gross school enrollment ratio (one third), and – standard of living as measured by real per capita gross domestic product adjusted for the differing purchasing power parity of each country’s currency to reflect cost of living and for the assumption of diminishing marginal utility of income. 2 -14

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The Structural Diversity of Developing Economies n n Size and income level (Table 2. 2) Historical background Physical and human resources Ethnic and religious composition Copyright © 2006 Pearson Addison-Wesley. All rights reserved. n n Relative importance of public and private sectors Industrial structure (Table 2. 3) 2 -22

Table 2. 2 Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 2 -23

Table 2. 3 Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 2 -24

Common Characteristics of Developing Nations n Low levels of living – Per capita national income (Figure 2. 2) Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 2 -25

Figure 2. 2 Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 2 -26

Table 2. 4 Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 2 -27

Common Characteristics of Developing Nations n Low levels of living – Per capita national income – Relative growth rates of national and per capita income (Table 2. 5) Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 2 -28

Table 2. 5 Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 2 -29

Common Characteristics of Developing Nations n Low levels of living – Per capita national income – Relative growth rates of national and per capita income – Distribution of national income (Table 2. 6) Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 2 -30

Table 2. 6 Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 2 -31

Common Characteristics of Developing Nations n Low levels of living – Per capita national income – Relative growth rates of national and per capita income – Distribution of national income – Extent of poverty (Table 2. 7) Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 2 -32

Table 2. 7 Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 2 -33

Common Characteristics of Developing Nations n Low levels of living – Per capita national income – Relative growth rates of national and per capita income – Distribution of national income – Extent of poverty – Health (Figure 2. 3 and Table 2. 8) Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 2 -34

Figure 2. 3 Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 2 -35

Table 2. 8 Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 2 -36

Common Characteristics of Developing Nations n Low levels of living – Per capita national income – Relative growth rates of national and per capita income – Distribution of national income – Extent of poverty – Health Copyright © 2006 Pearson Addison-Wesley. All rights reserved. – Education – The Human Development Index 2 -37

Table 2. 9 Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 2 -38

Table 2. 10 Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 2 -39

Common Characteristics of Developing Nations n n n Low levels of living Low levels of productivity High rates of population growth and dependency burdens (Table 2. 11) Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 2 -40

Table 2. 11 Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 2 -41

Common Characteristics of Developing Nations n n Low levels of living Low levels of productivity High rates of population growth and dependency burdens Substantial dependence on agricultural production and primary exports (Table 2. 12 and Figure 2. 4) Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 2 -42

Table 2. 12 Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 2 -43

Figure 2. 4 Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 2 -44

Common Characteristics of Developing Nations n n n Low levels of living Low levels of productivity High rates of population growth and dependency burdens n n n Copyright © 2006 Pearson Addison-Wesley. All rights reserved. Substantial dependence on agricultural production and primary-product exports Prevalence of imperfect markets Dependence and vulnerability 2 -45

How Developing Countries Today Differ from Developed Countries in Their Earlier Stages n n n Physical and human resource endowments Per Capita incomes and levels of GDP in relation to the rest of the world Climate Population size, distributions and growth Historical role of international migration Copyright © 2006 Pearson Addison-Wesley. All rights reserved. n n International trade benefits Basic R&D capabilities Stability and flexibility of political-social institutions Efficacy of domestic economic institutions 2 -46

Convergence? n n Evidence of unconditional convergence is hard to find (Figure 2. 5) There is some (controversial) evidence of conditional convergence Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 2 -47

Figure 2. 5 Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 2 -48

Concepts for Review n n n n n Absolute poverty Brain drain Crude birthrate Convergence Death rate Dependency burden Developed world Foreign exchange Gross domestic product (GDP) Copyright © 2006 Pearson Addison-Wesley. All rights reserved. n n n Gross national product (GNP) Human Development Index (HDI) Imperfect markets Income gap Income inequality Incomplete information 2 -49

Concepts for Review (cont’d) n n n Infant mortality rate International poverty line Labor productivity Least developed countries (LLDCs) Levels of living Low income countries (LICs) Copyright © 2006 Pearson Addison-Wesley. All rights reserved. n n n Malnutrition Middle-income countries (MICs) Mixed economic systems Newly industrialized countries (NICs) Physical resources 2 -50

Concepts for Review (cont’d) n n Primary industrial sector Production function Purchasing power equivalent Purchasing power parity (PPP) Copyright © 2006 Pearson Addison-Wesley. All rights reserved. n n Resource endowment Secondary industrial sector Tertiary industrial sector World Bank 2 -51

Figure A 2. 1 Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 2 -52

Figure A 2. 2 Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 2 -53

Figure A 2. 3 Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 2 -54

Figure A 2. 4 Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 2 -55