Development Economics – core course

Lecture 2

Growth and development: an overview

1

Klassificeringer

Geografisk klassificering:- Afrika syd for Sahara- Europa, Mellemøsten og Nordafrika- Østasien og Stillehavslandene- Sydasien- Latinamerika og Caribien

Income classifications (World Bank)GDP per capita (US$ 1995)<765$ Low income countries766 – 9385$ Middle income 766 - 3035$ - Lower Middle income 3036 - 9385$ - Higher Middle income>9386$ High income

2

Income per capita around the world

28

70

11

0

61

0

20

0

78

0

10

06

0

25

0 21

10

73

0 25

60

24

93

03

50 33

20

49

0

48

80

0

5000

10000

15000

20000

25000G

NP

/cap

ita,

PP

P,

US

$, A

tlas

met

hod

1970 1980 1995

High incomeSouth AsiaLatin America & CaribbeanSub-Saharan AfricaWorld

Source: World Data, 1997, World Bank.

3

Growth in GDP per capitaCountry 1975-84 1985-95 Africa - Kenya 1.1 0.0 - Nigeria -3.5 1.7 - Tanzania - 0.8 - Uganda - 2.7 - Congo -3.2 -8.1 Asia - Bangladesh 2.3 2.1 - India 1.7 3.2 - Indonesia 4.5 6.0 - Philippines 1.3 1.5 - South Korea 5.6 7.7 - Sri Lanka 4.1 2.6 Latin America - Brazil 0.2 -0.9 - Colombia 1.6 2.5 - Guatemala -0.5 0.3 - Mexico 2.0 0.1 - Peru -1.6 -1.6 - Venezuela -3.2 0.5

Source: World Bank, WDI 1997.

4

Progress from 1965 to 1990

Lav Indkomst

Mellem Indkomst

OECD

Aver. annual growth in per capita GDP

2.9% 2.2% 2.4%

Aver. annual growth in industrial production

7.4% 6.7% 2.8%

Total fertility 6.3 3.8 5.4 3.7 2.7 1.7

Child mortality (per 1000 born) 124 69 94 48 24 8

Daily calorie supply /capita 1975 2406 2489 2860 3099 3409

Education, primary (% af agegroup) 73 105 93 102 104 105

Exp. Length of Life: women 50 62 60 69 74 80

Exp. Length of Life: men 48 61 56 64 68 74

Kilde: WDR, 1992

Progress very mixed, with setbacks in some places.

5

Special problems measuring GDP in developing countries

Can we compare GDP across countries?

Subsistence sector

Small peasants produce mostly for own

consumption. Try to capture this.

Public goods

Amount of non-priced public goods (health, infratsructure, educsation etc) varies across countries

Large informal sector

6

Artificial prices

Developing countries are lacking behind

0

5

10

15

20

25

30

Sh

are

of

inco

me

in h

igh

in

com

e co

un

trie

sLatin America &Caribbean

South Asia

Sub-Saharan Africa

7

Source: World Data 1997. WB.

8

GDP conversions

Problem 1: Official exchange rates often deviate from equilibrium value

Problem 2: Official exchange rates often do not reflect the real purchasing power of the exchange rate

Comparisons of incoem across countries are problematic

Solution: Assume that Purchasing Power Parity (PPP) holds, and convert using

PPP exchange rate = units of currency needed to buy same bundle as 1 $ would buy in the US

See for eksempel Penn World Tables:

http://datacentre.epas.utoronto.ca:5680/pwt/index.html

8

Standard GNP and PPP-GNP

37180

243902586025860

40107050

33705630

16205970

5302510

310

1290

2801430

2301350

130410

0 5000 10000 15000 20000 25000 30000 35000 40000

Per capita GNP, 1994

Switzerland

United States

Mexico

Brazil

Colombia

China

India

Nigeria

Bangladesh

Ethiopia

US$, Purchasing Power ParityUS$

Source: World Bank Atlas, 1996.

9

Standard GNP and PPP-GNP crossplot

Crossplot of a PPP est. of GNP per capita against an ordinary estimate of GNP per capita (dollars) and a 45 degree line (1993).

0

5000

10000

15000

20000

25000

30000

35000

40000

0 5000 10000 15000 20000 25000 30000 35000 40000

GNP per capita

PP

P e

st.

of G

NP

per

cap

ita

Source: World Tables Update, 1995. World Bank.

10

1980-94 Real GDP per capita (PPP) - 20% richest / 20% poorest

Colombia 15.5 Brazil 32.1 South Africa 19.2 Kenya 18.3 India 5.0 China 7.1 Sri Lanka 4.4 East Asia 7.1 South Asia 4.8 Latin America & Caribbean 18.7 North America 8.7 Eastern Europe & the CIS 6.6 Western & Southern Europe 5.9 Nordic countries 5.6 All developing countries 8.1 Industrial countries 6.7 Average for the world 7.1

Growing inequality: World and selected countries

Source: UNDP, Human Development Report, 1992, 1994, 1999.

30 32

45

61

78

0

10

20

30

40

50

60

70

80

20%

ric

hes

t /

20%

poo

rest

1960 1970 1980 1991 1994

11

Absolute poverty in percent

29.726

0.63.5

2223.5

4.74.1

45.4

43.138.5

39.1

30.729.4

0 5 10 15 20 25 30 35 40 45 50

Percent of population consuming less than 1$PPP pr capita/day

East Asia

Eastern Europe and Central Asia

Latin America

Middle East and North Africa

South Asia

Sub-Saharan Africa

Total

19931987

Source: Ravallion and Chen, The World Bank, 1996.

12

Absolute poverty in numbers

464445.8

2.214.5

91.2109.6

10.310.7

479.9

514.7179.6

218.61227.1

1313.9

0 200 400 600 800 1000 1200 1400

Number of people consuming less than 1$/day

East Asia

Eastern Europe and Central Asia

Latin America

Middle East and North Africa

South Asia

Sub-Saharan Africa

Total

19931987

Source: Ravallion and Chen, The World Bank, 1996.

13

Growth and income distribution, 1965-92

Venezuela

Thailand

PeruMexico

Mauritania Italy

SpainUnited Kingdom

Ghana

Cote d'Ivoire

Australia

Argentina

AustriaBelgium

Bolivia

BotswanaBrazil

Chile

Colombia

France

Gabon

Hong Kong

IndiaIndonesia

Japan

Kenya

Rep. of Korea

Sudan

Malawi

Malaysia

Mauritius

Nepal

Pakistan

Philippines

SingaporeSri LankaSwitzerland

Zambia

0.25

5.25

10.25

15.25

20.25

25.25

30.25

-4 -2 0 2 4 6 8 10

Total average growth in per capita GNP from 1965-1992

20%

ric

hes

t/20

poo

rest

(av

erag

e)

Source: Dataset to “The East Asian Miracle, World Bank, 1993

14

Human Development Index (HDI) – UNDP’s indicator

Human

Development

Index

1/3*exp. lifetime

1/3* Real GDP per capita (PPP$) (up

to 5000 $)

1/3* Education level (mix of adult literacy and

primary, secondary and tertiary enrolment)

15

Health

64

104

105

6

58

0 20 40 60 80 100 120Infant mortality per 1000 births, 1997

All developing

Least developed

Sub-Saharan Africa

Industrial countries

World

78,7

112,5

129,3

14,8

68,5

0 20 40 60 80 100 120 140Tuberculosis cases per 100,000 people, 1996

All developing

Least developed

Sub-Saharan Africa

Industrial countries

World

Source: HDR, UNDP, 1997.

16

Expected length of life

71

77

59

67

54

51

59

67

0 20 40 60 80

Life expectancy at birth, years

Hich income

Middle income

Low income

Total

19971970

Source: World Data, 1997, World Bank og human development report

17

Education: stock of human capital

5.277.58

2.314.42

1.655.21

1.393.54

4.026.27

2.647.72

1.44.14

0.852.63

0.552.44

10.73

11.617.92

9.14

0 2 4 6 8 10 12Human capital stock, total mean years of education

Argentina

Brazil

China

India

Sri Lanka

Korea, Republic of

Kenya

Mozambique

Nigeria

United States

Denmark

19871960

Source: IEC, World Bank.

18

Dependency on primary exports

Source: World Data, 1997, World Bank.

Brazil

Mexico

India

South Korea

Kenya

Mozambique

USA

75.228.3

48.814.3

35.318.8

16.74.3

7566.1

80.365.5

20.914.4

0 20 40 60 80 100

Primary commodities (excl. fuels), % of total exports

Brazil

Mexico

India

South Korea

Kenya

Mozambique

USA

19911970

19

Common features of developing countries (traditional list)

Low standard of living (income, health, education etc)

Low productivity and lack of physical and human capital

Backward technology

High population growth rate.

Unemployment and Underemployment

Dependence on agriculture and primary exports

High risk and high volatility in prices and terms of trade

Dependence and vulnerability in international relations

20

Other features of developing countries

Trade unions not very improtant

Lousy infrastructureSpecial agricultural institutions

(sharecropping, common property rights, risk sharing

etc)

Large informal sector

Political instabilityViolence and conflict

Special cultural features and barriers

(casts, women’s position, holy cows)Special environmental problems

(forest, erosion, indoor climate, unsafe water etc)

21