ECON 450 Development Economics

Transcription

1 ECON 450 Development Economics Comparative Economic Development University of Illinois at Urbana-Champaign Summer 2017

2 Outline 1 Defining the Developing World 2 Indicators of The New Human Development Index (NHDI)

3 World Bank Classification In the World Bank s classification system, 210 economies with a population of at least 30,000 are ranked by their levels of gross national income (GNI) per capita. These economies are then classified as low-income countries (LICs), lower-middle-income countries (LMCs), upper-middle-income countries (UMCs), high-income OECD countries, and other high-income countries.

4 World Bank Classification As of 1 July 2016, LICs are defined as those with a GNI per capita of $1,025 or less in 2015; Middle-income economies (LMCs and UMCs) are those with a GNI per capita of more than $1,025 but less than $12,475; LMCs are are defined as those with a GNI per capita of more than $1,025 but less than $4,035; UMCs are are defined as those with a GNI per capita of more than $4,035 but less than $12,475; High-income economies are those with a GNI per capita of $12,476 or more.

5 Classification of Economies by Region and Income (2013)

6 Classification of Economies by Region and Income (2013)

7 Classification of Economies by Region and Income (2013) Figure: Source: Data from Atlas of Global Development, 4th ed., pp : World Bank and Collins ATLAS OF GLOBAL DEVELOPMENT: A VISUAL GUIDE TO THE WORLD S GREATEST CHALLENGES, FOURTH EDITION. Washington, DC and Glasgow: World Bank and Collins. doi: / License: Creative Commons Attribution CC BY 3.0

8 Income per capita in Selected Countries (2011)

9 Classification of Economies We can use the World Bank s classification to divide the world in two main groups: 1 Developing Countries 2 Developed Countries With a number of important exceptions, the developing countries are those with low-, lower-middle, or upper-middle incomes.

10 Classification of Economies (Generalization) Developing world Sub-Saharan Africa North Africa Middle East Asia (except Japan and South Korea) Latin America and Caribbean "Transition countries" in eastern Europe and Central Asia Developed world Western Europe North America Japan South Korea Australia New Zealand

11 Outline Defining the Developing World 1 Defining the Developing World 2 Indicators of The New Human Development Index (NHDI)

12 In this section, we examine basic indicators of three facets of development: 1 Income per capita 2 Health Life expectancy Undernourishment Child mortality 3 Educational attainment Literacy Schooling

13 Gross National Income (GNI) vs. Gross Domestic Product (GDP) GNI measures the total domestic and foreign output claimed by residents of a country, consisting of gross domestic product (GDP) plus factor incomes earned by foreign residents, minus income earned in the domestic economy by nonresidents.

14 Gross National Income (GNI) vs. Gross Domestic Product (GDP) GDP measures the total final output of goods and services produced by the country s economy within the country s territory by residents and nonresidents, regardless of its allocation between domestic and foreign claims.

15 Gross National Income (GNI) vs. Gross Domestic Product (GDP) Thus GNI comprises GDP plus the difference between the income residents receive from abroad for factor services (labor and capital) less payments made to nonresidents who contribute to the domestic economy.

16 Gross National Income (GNI) vs. Gross Domestic Product (GDP) For example, a large number of Filipinos have found work in Malaysia, where there are abundant opportunities for low-skilled workers. The value of the output produced by these workers count as part of the Philippines GNI but not its GDP. By contrast, the value of this work counts as part of Malaysia s GDP but not its GNI.

17 Gross National Income (GNI) vs. Gross Domestic Product (GDP) GNI per capita is often used as a summary index of the relative economic well-being of people in different nations. World Bank s income-based country classification scheme. How to compare GNI for different countries? Exchange rate as conversion factor?

18 Gross National Income (GNI) vs. Gross Domestic Product (GDP) GNI per capita is often used as a summary index of the relative economic well-being of people in different nations. World Bank s income-based country classification scheme. How to compare GNI for different countries? Exchange rate as conversion factor?

19 Gross National Income (GNI) vs. Gross Domestic Product (GDP) GNI per capita is often used as a summary index of the relative economic well-being of people in different nations. World Bank s income-based country classification scheme. How to compare GNI for different countries? Exchange rate as conversion factor?

20 Gross National Income (GNI) vs. Gross Domestic Product (GDP) GNI per capita is often used as a summary index of the relative economic well-being of people in different nations. World Bank s income-based country classification scheme. How to compare GNI for different countries? Exchange rate as conversion factor?

21 I ll open my own hotel!!

22 Do you think most things in less-developed countries are as expensive as they are in developed countries? Let s see!

23 Do you think most things in less-developed countries are as expensive as they are in developed countries? Let s see!

24 PPP is calculated using a common set of international prices for all goods and services. In a simple version, purchasing power parity is defined as the number of units of a foreign country s currency required to purchase the identical quantity of goods and services in the local developing country market as $1 would buy in the United States.

25 The ratio of PPP conversion factor to market exchange rate is the result obtained by dividing the PPP conversion factor by the market exchange rate. The ratio, also referred to as the national price level, makes it possible to compare the cost of the bundle of goods that make up gross domestic product (GDP) across countries.

26 Clearly, if domestic prices are lower, PPP measures of GNI per capita will be higher than estimates using foreign-exchange rates as the conversion factor.

27 Comparison of Per Capita GNI in Selected Countries

28 Classification of Economies by Region and Income Most recent World Bank s ranking: worldbank.org/data/download/gnipc.pdf

29 The Economist s Big Mac Index "...After all, it is sold in 41 countries, with only the most trivial changes of recipe. That ought to say something about comparative prices."

30 The Economist s Big Mac Index Let s see how to use the big mac price as a PPP measure. The next table (taken from World Bank s website) presents an example.

31 The Economist s Big Mac Index

32 The Economist s Big Mac Index The PPP between Australia and the United States for a Big Mac is the price paid in Australia in its national currency divided by the price paid in the United States (4.56/4.07 = 1.12). This means a consumer pays $A 1.12 to make a purchase in Australia that would cost $1.00 in the United States. Column (3) provides the PPPs for the other countries to the United States.

33 The Economist s Big Mac Index

34 The Economist s Big Mac Index When the cost of a Big Mac in Brazil is divided by the exchange rate, the result is how many U.S. dollars are needed to purchase a Big Mac in Brazil (9.5/1.54 = $6.17). Big Macs, then, are more expensive in Brazil than they are in the United States ($4.07). The same column shows they are much cheaper in China ($2.28) and South Africa ($2.87) than they are in the United States.

35 The Economist s Big Mac Index These price level differences are measured by a price level index, which can be computed in two ways: One is simply the ratio of the PPP to the exchange rate, which for China is 3.61/6.45 =.56. The other is the ratio of the cost in U.S. dollars of purchasing a Big Mac in China to the cost in the United States, or 2.28/4.07 =.56.

36 Indicators of Despite its importance, income alone does not provide the full picture of a nation s level of development. Besides average incomes, it is necessary to evaluate a nation s average health and educational attainments, which reflect core capabilities.

37 Indicators of Life expectancy The average number of years newborn children would live if subjected to the mortality risks prevailing for their cohort at the time of their birth. Undernourishment Consuming too little food to maintain normal levels of activity Birth rate The ratio of total live births to total population in a specified community or area over a specified period of time. Literacy The fraction of adult males and females reported or estimated to have basic abilities to read and write.

38 Some Basic Indicators

39 HDI is a holistic measure of living levels. It s the most widely used measure of the comparative status of socioeconomic development. 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: income; health; education.

40 It is computed as the geometric average NHDI = H 1/3 E 1/3 I 1/3 HDI can be calculated for groups and regions in a country HDI varies among groups within countries HDI varies across regions in a country HDI varies between rural and urban areas

41 2013 New Human Development Index and its Components for Selected Countries

42 Questions Defining the Developing World 1 Which measure uses a common set of international prices for all goods and services produced? 1 purchasing power parity income levels 2 GNI price deflators 3 foreign exchange rate conversions to U.S. dollars 4 the exchange rate

43 Questions Defining the Developing World 1 Which measure uses a common set of international prices for all goods and services produced? 1 purchasing power parity income levels 2 GNI price deflators 3 foreign exchange rate conversions to U.S. dollars 4 the exchange rate

44 Questions Defining the Developing World 2 The number of units of developing country currency required to purchase a basket of goods and services in a developing country that costs one dollar in the U.S. is given by 1 GNI price deflator. 2 Human Development Index ranking. 3 purchasing power parity. 4 the exchange rate.

45 Questions Defining the Developing World 2 The number of units of developing country currency required to purchase a basket of goods and services in a developing country that costs one dollar in the U.S. is given by 1 GNI price deflator. 2 Human Development Index ranking. 3 purchasing power parity. 4 the exchange rate.

46 Questions Defining the Developing World 3 One of the components of the human development index is 1 the percentage of the population who are high school graduates. 2 the average daily intake of protein. 3 life expectancy at birth. 4 the number of doctors per hundred people in the population.

47 Questions Defining the Developing World 3 One of the components of the human development index is 1 the percentage of the population who are high school graduates. 2 the average daily intake of protein. 3 life expectancy at birth. 4 the number of doctors per hundred people in the population.