Economic Development TodaroSmith - ch02

Chapter 2
Comparative
Economic
Development
Copyright 2009 Pearson Addison-Wesley. All rights reserved.
Comparative Economic Development
Viewed through the lens of human

development, the global village appears
deeply between the streets of the haves and
those of the have-nots.
UNDP,Human Development Report, 2006
Copyright 2009 Pearson AddisonWesley. All rights reserved.
2-2
Common Characteristics of
developing countries
Lower levels of living and productivity

Lower levels of human capital
Higher levels of inequality and absolute poverty
Higher population growth rates
Greater social fractionalization
Larger rural population- rapid migration to cities
Lower levels of industrialization and manufactured exports
Adverse geography
Underdeveloped financial and other markets
Colonial legacies- poor institutions etc.
2-3
Defining the Developing World

There are several classification to define
developing world.
World Bank classified 208 economies with a
population of at least 30,000.
ranks countries on GNP/capita in 2005
Lower Income countries (LIC) $876 or less
Lower middle income countries (LMC)
$ 876 AND $3465
2-4
WORLD BANK CLASSIFICATION

Upper middle income countries (UMC)
$ 3466 --$10725
-High income countries (HIC) $10,726 or more
World Bank has also classified countries in
terms of degree of international indebtedness
1. Severely Indebted
2. Moderately Indebted
3. Less Indebted
2-5
UNDP CLASSIFICATION
UNDP classifies countries according to their
Level of human development including health
and education attainment.
Human Development Index: A measure that
equally weights average income ,health and
educational attainment
2-6
Measuring Development for Quantitative

Comparison across Countries
Gross National Income (GNI)
It comprises GDP plus the difference between the
income of domestic residents receive from abroad less
payment made to nonresident for their services to the
domestic economy.
Gross Domestic Product (GDP)

In 2005 total GDP of the world was $ 45 trillion
$ 35t trillion originated by developed region and less
than $ 10 trillion produced by developing nations while
they constitute 83% of world population
2-7
Measuring Development for

Quantitative Comparison across
Countries
In 2005, per capita income of Switzerland had 345
times the per capita income of Ethiopia
This conversion does not measure the relative
purchasing power of different currencies.
PPP method instead of exchange rates as
conversion factors.
PPP is defined as number of units of a foreign
currency is required to purchase identical quantity
of goods and services in the local market as Rs. 1
would buy in the Pakistan
2-8
Measuring Development for

Quantitative Comparison across
Countries
If LDC domestic prices are lower, PPP
measures of GNI per capita will be higher
than estimated using foreign exchange
rates as the conversion factor
2-9
Some Basic Indicators of

Development
Health
Life Expectancy
Education
2-10
Some Basic Indicators of

Development
HDI as a holistic measure of living levels
HDI ranks all countries on a scale of zero
( lowest human development) to one ( highest HD)
Based on three goals
Longevity as measured by life expectancy at birth
Knowledge: as measured weighted average of
adult literacy (two-third) and mean years of
schooling (one-third)
Standard of living- Real per capita on PPP basis
2-11
Human Development index

HDI=1/3(income index)+1/3(life expectancy
index)+ 1/3( education index)
HDI remind us that development mean
human development, not just higher
income.
2-12
CRITICISM ON HDI
Gross enrollment overstate the amount of
schooling because in many countries a
student who begins primary school is
counted as enrolled without considering
whether the student drops out at some
stage.
Equal weight is given to all three
component.
No attention to the role of quality
2-13
HDI also varies for groups within countries

HDI also varies by region in a country
HDI also reflects rural-urban differences
2-14
Table 2.3 Commonality and

Diversity: Some Basic Indicators
2-15
Figure 2.3 Human Development

Disparities within Selected Countries
2-16
Figure 2.3 Human Development Disparities

within Selected Countries (continued)
2-17
Table 2.4 Human Development for

23 Selected Countries (2004 Data)
2-18
Table 2.4 Human Development for 23

Selected Countries (2004 Data)
(continued)
2-19
Table 2.5 Human Development Index

Variations for Similar Incomes (2004 Data)
2-20
10 Characteristics of the Developing

World: Diversity within Commonality
1. Lower levels of living and productivity
2. Lower levels of human capital (health,
education, skills)
3. Higher Levels of Inequality and Absolute
Poverty
Absolute Poverty
World Poverty
4. Higher Population Growth Rates

Crude Birth rates
2-21
Figure 2.4 Shares of Global Income,

2005
2-22
Table 2.6 The 12 Most and Least

Populated Countries and Their Per
Capita Income, 2005
2-23
Figure 2.5 Under-5 Mortality Rates,

1990 and 2005
2-24
Table 2.7 Primary School Enrollment

and Pupil-Teacher Ratios
2-25
Figure 2.6 Correlation between Under5 Mortality and Mothers Education
2-26
Figure 2.7 People Living in Poverty,

1981-2002
2-27
Table 2.8 Crude Birth Rates Around the

World, 2005
2-28

5. Greater Social Fractionalization
6. larger Rural Populations but Rapid Ruralto-Urban Migration
7. Lower levels of Industrialization and
Manufactured Exports
8. Adverse Geography
Resource endowments
2-29
Table 2.9 The Urban Population in

Developed Countries and Developing
Regions
2-30
Table 2.10 Share of the Population

Employed in the Industrial Sector in Selected
Countries, 2000-2005 (%)
2-31

9. Underdeveloped Financial and Other markets
Imperfect markets
Incomplete information
10. Colonial Legacy and external dependence

Institutions
Private property
Personal taxation
Taxes in cash rather than in kind
2-32
Low Income Countries Today And

Developed Countries Then
Eight differences
Physical and human resource endowments

Per capita incomes and levels of GDP
Climate
Population size, distribution, and growth
Historic role of international migration
International trade benefits
Scientific/technological research
Efficacy of domestic institutions
2-33
Convergence?
Evidence of unconditional convergence is
hard to find
Per capita income convergence?
2-34
Figure 2.8 Convergence among OECD

Countries but Divergence in the World
as a Whole
2-35
Figure 2.9 Per Capita GDP Growth in

125 Developing Countries, 1995-2005
2-36
Figure 2.10 Growth Convergence and

Absolute Income Convergence
2-37
Long-Run causes of Comparative

Development
Schematic Representation
Geography
Institutional quality- colonial and post-colonial
Colonial legacy- pre colonial comparative
advantage
Evolution and timing of European development
Inequality- human capital
Type of colonial regime
2-38
Figure 2.11 Schematic Representation

of Leading Theories of Comparative
Development
2-39
Role of Institutions
Acemoglu, Johnson, and Robinsons
reversal of fortune and extractive
institutions
Bannerjee and Iyers , property rights
institutions. Landlords versus cultivators
2-40
Case Study: Pakistan

A
2-41
Case Study: Bangladesh
2-42
Concepts for Review
Absolute poverty
Brain drain
Crude birthrate
Convergence
Death rate
Dependency burden
Developed world
Economic Institutions
Foreign exchange
Gross domestic product
(GDP)
Gross national product

(GNP)
Human Development
Index (HDI)
Imperfect markets
Income gap
Income inequality
Incomplete information
2-43
Concepts for Review (contd)

Infant mortality rate
International poverty line
Labor productivity
Least developed
countries (LLDCs)
Levels of living
Low income countries
(LICs)
Malnutrition
Middle-income
countries (MICs)
Mixed economic
systems
Newly industrialized
countries (NICs)
Physical resources
2-44
Concepts for Review (contd)

Primary industrial
sector
Production function
Purchasing power
equivalent
Purchasing power
parity (PPP)
Resource endowment
Secondary industrial
sector
Tertiary industrial
sector
World Bank
2-45

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Chapter 2

Copyright 2009 Pearson Addison-Wesley. All rights reserved.

Comparative Economic Development

Viewed through the lens of human

Copyright 2009 Pearson AddisonWesley. All rights reserved.

Lower levels of living and productivity

Copyright 2009 Pearson AddisonWesley. All rights reserved.

Defining the Developing World

WORLD BANK CLASSIFICATION

Measuring Development for Quantitative

Gross Domestic Product (GDP)

Measuring Development for

Measuring Development for

Copyright 2009 Pearson AddisonWesley. All rights reserved.

Some Basic Indicators of

Copyright 2009 Pearson AddisonWesley. All rights reserved.

Some Basic Indicators of

Human Development index

Copyright 2009 Pearson AddisonWesley. All rights reserved.

HDI also varies for groups within countries

Copyright 2009 Pearson AddisonWesley. All rights reserved.

Table 2.3 Commonality and

Copyright 2009 Pearson AddisonWesley. All rights reserved.

Figure 2.3 Human Development

Copyright 2009 Pearson AddisonWesley. All rights reserved.

Figure 2.3 Human Development Disparities

Copyright 2009 Pearson AddisonWesley. All rights reserved.

Table 2.4 Human Development for

Copyright 2009 Pearson AddisonWesley. All rights reserved.

Table 2.4 Human Development for 23

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Table 2.5 Human Development Index

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10 Characteristics of the Developing

4. Higher Population Growth Rates

Figure 2.4 Shares of Global Income,

Copyright 2009 Pearson AddisonWesley. All rights reserved.

Table 2.6 The 12 Most and Least

Copyright 2009 Pearson AddisonWesley. All rights reserved.

Figure 2.5 Under-5 Mortality Rates,

Copyright 2009 Pearson AddisonWesley. All rights reserved.

Table 2.7 Primary School Enrollment

Copyright 2009 Pearson AddisonWesley. All rights reserved.

Figure 2.6 Correlation between Under5 Mortality and Mothers Education

Copyright 2009 Pearson AddisonWesley. All rights reserved.

Figure 2.7 People Living in Poverty,

Copyright 2009 Pearson AddisonWesley. All rights reserved.

Table 2.8 Crude Birth Rates Around the

Copyright 2009 Pearson AddisonWesley. All rights reserved.

10 Characteristics of the Developing

Table 2.9 The Urban Population in

Copyright 2009 Pearson AddisonWesley. All rights reserved.

Table 2.10 Share of the Population

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10 Characteristics of the Developing

10. Colonial Legacy and external dependence

Low Income Countries Today And

Physical and human resource endowments

Copyright 2009 Pearson AddisonWesley. All rights reserved.

Copyright 2009 Pearson AddisonWesley. All rights reserved.

Figure 2.8 Convergence among OECD

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Figure 2.9 Per Capita GDP Growth in