Economic Development Contact Information Email Nancy Virtscsun edu

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Economic Development

Economic Development

Contact Information • • Email: Nancy. Virts@csun. edu Phone: 818 -677 -2434 or 2462

Contact Information • • Email: Nancy. Virts@csun. edu Phone: 818 -677 -2434 or 2462 Office: BB 4256 Office Hours: Tuesday and Thursday 1 -2, Thursday 6 -7 and by appointment

Contact • My website can be found through the Econ Dept website under faculty.

Contact • My website can be found through the Econ Dept website under faculty. • It has class syllabus , readings and other course materials • I will post any powerpoints of lectures used • I will contact you by University Email

Class rules • DO NOT DISRUPT THE CLASS IN ANY WAY – No Talking

Class rules • DO NOT DISRUPT THE CLASS IN ANY WAY – No Talking – No Cell Phones – Computers may be used only to look at class material – No Reading of Other Material

Suggestions for Success • Read the syllabus, have it available at home and school

Suggestions for Success • Read the syllabus, have it available at home and school • Attend class both physically and mentally • Have a regular study schedule • Do not take this class if you cannot come every week.

Course Requirements • One Midterm – Essay – worth 100 points • Paper –

Course Requirements • One Midterm – Essay – worth 100 points • Paper – Worth 100 points • Comprehensive final – Will be given only on date scheduled which is December 9 at 8 pm – Worth 200 points

 • Economic growth is very uneven • A look at a satellite photo

• Economic growth is very uneven • A look at a satellite photo taken makes this very clear • Not all area with light have same standard of living • Some dark areas have low population density but not all

Why isn’t the whole world developed? • • Differences in resources Differences in culture

Why isn’t the whole world developed? • • Differences in resources Differences in culture Maybe part of the answer but not all of it Consider the next satellite photo of North and South Korea, countries with similar resources and culture

Why do we care about economic growth? • Economic Growth is connected to well

Why do we care about economic growth? • Economic Growth is connected to well being • Correlation between GDP per capita and life expectancy and literacy

GDP, Life Expectancy, and Literacy Copyright© 2004 South-Western

GDP, Life Expectancy, and Literacy Copyright© 2004 South-Western

Cost of slow growth in India • Economic growth was slow in India prior

Cost of slow growth in India • Economic growth was slow in India prior to 1981 • After economic reforms were implemented in the 1980 s, per capita growth increased from 1. 4 % per year to 2. 89 in the 1980 s, 4. 19% in 1990 s and 6. 78% from 2001 -2006

 • Swaminathan S. Anklesaria Aiyar estimates that if economic reforms had taken place

• Swaminathan S. Anklesaria Aiyar estimates that if economic reforms had taken place 10 years earlier, 14. 5 million infant deaths could have been avoided • In addition there would have bee 261 million fewer illiterates, and 109 million fewer poor people.

No Easy Answers • Will look at growth and development from different perspectives •

No Easy Answers • Will look at growth and development from different perspectives • Before growth can be explained it must be measured. • How do we measure size of economy?

Measurement Issues • When judging whether the economy is doing well or poorly, it

Measurement Issues • When judging whether the economy is doing well or poorly, it is natural to look at the total income that everyone in the economy is earning. • Before WWII there were no statistics to measure the size of the whole economy

THE MEASUREMENT OF GROSS DOMESTIC PRODUCT • Gross domestic product (GDP) is a measure

THE MEASUREMENT OF GROSS DOMESTIC PRODUCT • Gross domestic product (GDP) is a measure of the income and expenditures of an economy. • It is the total market value of all final goods and services produced within a country in a given period of time.

Measurement of GDP • GDP is the Market Value. . . ” – Output

Measurement of GDP • GDP is the Market Value. . . ” – Output is valued at market prices. – Cannot add eggs to cars to oranges directly – GDP is a weighted average – When prices are determined in markets they reflect the marginal value people place on them.

Measurement of GDP • Of All Final. . . ” – It records only

Measurement of GDP • Of All Final. . . ” – It records only the value of final goods, not intermediate goods (the value is counted only once). – If a baker buys flour, it is not part of GDP, the bread produced from it is. If you buy flour in the supermarket it is part of GDP.

Measurement of GDP • Goods and Services. . . “ – It includes both

Measurement of GDP • Goods and Services. . . “ – It includes both goods (food, clothing, cars) and services (haircuts, doctor visits). • Includes only those goods and services produced in market – Not those produced at home • A women marries her gardener and GDP falls • Important to remember because in developing countries many goods may be produced outside the market

– No illegal goods • Prostitution is part of GDP in Nevada, not CA

– No illegal goods • Prostitution is part of GDP in Nevada, not CA • Important to remember differences in legal structure when comparing different countries

Measurement of GDP • “. . . Within a Country. . . ” –

Measurement of GDP • “. . . Within a Country. . . ” – It measures the value of production within the geographic confines of a country. • GNP is a similar measure – total value of all final goods and services produced by a country’s citizens regardless of where produced.

GDP and Welfare • GDP is the best single measure of the economic well-being

GDP and Welfare • GDP is the best single measure of the economic well-being of a society. • GDP person tells us the income and expenditure of the average person in the economy. • Higher GDP person indicates a higher standard of living. • GDP is not a perfect measure of the happiness or quality of life, however.

GDP and Welfare • Some things that contribute to well-being are not included in

GDP and Welfare • Some things that contribute to well-being are not included in GDP. – The value of leisure. – The value of a clean environment. – The value of almost all activity that takes place outside of markets, such as the value of the time parents spend with their children and the value of volunteer work

Problems with GDP measurement for developing economies • Does not include non traded goods

Problems with GDP measurement for developing economies • Does not include non traded goods – Home production – Illegal activities • Data may not be accurate – Limited resources for data collection – Difficult to count production in agricultural area – Incentive to under report production to avoid taxes etc

Growth vs Development • Growth rate of GDP may rise without development – Discovery

Growth vs Development • Growth rate of GDP may rise without development – Discovery of oil or other natural resources • Development measured by increases in literacy, health care etc. • Most of the time they are correlated but not always

GDP per Capita • GDP per Capita is GDP person – GDP/population • GDP

GDP per Capita • GDP per Capita is GDP person – GDP/population • GDP and GDP per capita can be different – China vs. Switzerland • Which measure is best depends on the problem – Marketing Rolex watches vs. KFC

Example Ghana year GDP (PPP) (billion GDP per capita dollars) (PPP) dollars 2007 32.

Example Ghana year GDP (PPP) (billion GDP per capita dollars) (PPP) dollars 2007 32. 56 1400 2008 34. 94 1500 2009 36. 58 1500

Real Vs. Nominal • Nominal GDP values the production of goods and services at

Real Vs. Nominal • Nominal GDP values the production of goods and services at current prices. • Real GDP values the production of goods and services at constant prices

Real vs. Nominal • An accurate view of the economy requires adjusting nominal to

Real vs. Nominal • An accurate view of the economy requires adjusting nominal to real GDP by using a measure of inflation like the GDP deflator or the CPI.

Nominal to Real GDP • Converting Nominal GDP to Real GDP – Nominal GDP

Nominal to Real GDP • Converting Nominal GDP to Real GDP – Nominal GDP is converted to real GDP as follows: Or CPI 20 xx

 • CPI is calculated by finding how the cost of purchasing a fixed

• CPI is calculated by finding how the cost of purchasing a fixed basket of goods changes over time • Problems to be aware of include – Substitution bias (If relative prices change the composition of the basket shifts) – Quality changes

 • How do we compare GDP between different countries with different currencies? •

• How do we compare GDP between different countries with different currencies? • Exchange rates – How much one currency trades for another – Determined by the supply and demand for currency which depends on traded goods only – Fluctuate daily

 • Many goods, like Big Macs are not traded between countries. – Services

• Many goods, like Big Macs are not traded between countries. – Services like haircuts, rents etc, • These tend to be much cheaper in poor countries than developed countries

Purchasing Power Parity • If exchange rates are used to compare the size if

Purchasing Power Parity • If exchange rates are used to compare the size if these countries to developed countries will make them seem smaller than the really are. • Should use PPP to compare size of economies across countries – Calculated by taking a basket of goods and finding how much it costs in different countries

How much difference does it make? • For Ghana in 2009 • GDP in

How much difference does it make? • For Ghana in 2009 • GDP in official exchange rate was 14. 76 billion dollars • GDP in PPP was 36. 58 billion dollars

Alternate Measures • Life expectancy, infant mortality, height by age can all be used

Alternate Measures • Life expectancy, infant mortality, height by age can all be used to judge standard of living

Growth Calculations • Growth rate for a year is calculated by (GDPt+1 –GDPt )/GDPt

Growth Calculations • Growth rate for a year is calculated by (GDPt+1 –GDPt )/GDPt • Growth rate over N years is calculated by GDPt+N=GDPt(1+g)N

Examples • Nominal GDP for Ghana was 16. 7 billion dollars in 2008 and

Examples • Nominal GDP for Ghana was 16. 7 billion dollars in 2008 and 14. 9 billion in 2007. What was the rate of growth? • (16. 7 -14. 9) /14. 9 =. 12 or 12%

 • Do you think these numbers are using exchange rates or PPP? •

• Do you think these numbers are using exchange rates or PPP? • Real GDP growth in Ghana was 7. 3%, what was happening to prices? • Prices were Rising

Examples • If the GDP of Ghana is 16. 7 billion dollars in 2008

Examples • If the GDP of Ghana is 16. 7 billion dollars in 2008 and growth rate of GDP is 5% for 10 years, how much will GDP be in 2018? • GDP 2018=16. 7(1+. 05)10=27. 2