Transport Infrastructure and Regional Development Budapest University of Technology and Economics, 2017
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Content Indicators of Economic Development Other measures as alternatives Advices from an expert
Indicators of Economic Development
Population Map
Wealth Map
Indicators of Economic Development
Growth vs. Development Economic growth may be one aspect of economic development but it is not the same Economic growth: A measure of the value of output of goods and services within a time period Economic Development: A measure of the welfare of humans in a society
Growth
Economic Growth Using measures of economic growth can give distorted pictures of the level of income in a country the income distribution is not taken into account A small proportion of the population can own a large amount of the wealth in a country This might be a common picture But this could be just around the corner!
Economic Growth Using measures of economic performance in terms of the value of income, expenditure, and output GDP Gross Domestic Product The total value of all income (= value of final output) accruing to residents of a country, regardless of the sources of that income d GNI Gross National Income (formerly GNP - Product) The value of goods and services produced within a country (i.e. GDP) plus net income from abroad (profits, dividends, interest payments, worker remittances) GDP/GNI per head/per capita GNI divided by the total population
Economic Growth Shopping Mall in Saudi Arabia Copyright : Christo Pacheco, http://www.sxc.hu Dubai Skyline Copyright: zchizzerz, http://www.sxc.hu High economic growth fuelled through capital spending can hide a number of underlying economic problems how is the income and wealth distributed? Who is doing the spending and will it trickle down to the poor?
National Income Problems with using GDP/GNI Reliability of data? How accurate is the data that is collected? Distribution of income? How is the income distributed? Does a small proportion of the population earn a high percentage of the income or is income more evenly spread?
National Income Problems with using GDP/GNI Quality of life? Can changes in economic growth measure changes in the quality of life? Does additional earnings power bring with it additional stress, increases in working hours, increased health and family problems? Impact of exchange rate? Difference in exchange rates can distort the comparisons need to express in one currency, but which one and at what value?
International Comparisons of GNI: Purchasing Power Parity (PPP) Q i,m = output vector of all newly produced final goods or services i, in country M P i,us = price vector for goods and services i in US prices As such PPP measure provides the estimated value of e.g. Mozambique s physical output and income weighted by the prices for such goods and services prevailing in the U.S. Another PPP, but this is not Public-Private Partnership!
National Income Problems with using GDP/GNP It might not be pleasant, but what he finds among the refuse could be all he has. Title: Sierra Leone Liberia. Copyright: Photolibrary Group Black/informal economy? Some economic activity not recorded subsistence farming and barter activity, for example Some economic activity is carried out illegally building work cash in hand, drug dealing, etc. Work of the non-paid, so called contribution in kind may not be considered but may contribute to welfare charity work, housework, etc.
Development
Development Development incorporates the notion of measuring human welfare It is open to interpretation and subjectivity What should it include?
Development Levels of poverty Absolute poverty Relative poverty Inequality Progress what constitutes progress? Our definitions of progress may be highly subjective. What has progress brought to native tribes people across the globe? Title: Navajos refuse casino riches. Copyright: Stock.Xchng
What is Poverty? Romanian gypsies is this man living in poverty? Copyright: ghitulescu radu, http://www.sxc.hu Or is this villager in rural China? Copyright: Mark Forman, http://www.sxc.hu Poverty is a relative term
Poverty in the World
Poverty in the U.S.
How is Poverty Measured? See the World Bank s video about measuring poverty! https://www.youtube.com/watch?v=mfhct W3zQgg&feature=player_embedded
Development Other considerations of human welfare: Political freedoms? Sustenance? Sustainable development? Self esteem? Proportion of activity in different sectors of the economy: Primary Secondary Tertiary
Development Iraqis have supposedly been given their freedom following the American led Operation freedom towards government of Saddam Hussein but has it improved welfare? Copyright: Photolibrary Group
Human Development Index
Human Development Index (HDI) HDI A socio-economic measure Focus on three dimensions of human welfare: Longevity Life expectancy Knowledge Access to education, literacy rates Standard of living GDP per capita: Purchasing Power Parity (PPP)
Human Development Index HDI = 1/3 L + 1/3 E + 1/3 Y E = Educational attainment L = Life Expectancy Y = Income x i = E, L, Y x i = actual value of x i minimum value of x i maximum value of x i minimum value of x i E = 2/3 adult literacy rate (A) + 1/3 combined enrollment ratio (C) max E = 100%; min E = 0% min L= 25 yrs; max L = 85 yrs Y = log (PPP measure of GDP per capita) log (100) log (40,000) log (100)
Calculation of the HDI Example: Albania 2001 L = 73.4 25 = 0.807 85 25 A = 85.3 0 = 0.853 100 0 C = 69 0 = 0.690 100-0 E = 2/3(0.853) + 1/3 (0.690) = 0.798 Y = log(3680) log(100) = 0.602 log(40,000) log (100) HDI = 1/3 L + 1/3 E + 1/3 Y = 1/3 (0.807) + 1/3 (0.798) + 1/3 (0.602) = 0.735
Other Measures?
Other Measures? How far do these other measures reflect levels of human welfare? Typical other simple measures Unemployment rate Earnings Population Per capita personal income Building permits Commuting to work Poverty rate
Other complex measures applied to indicate development and/or welfare Index of Sustainable Economic Welfare (ISEW) Genuine Progress Indicator (GPI) Gender-related Development Index (GDI) Human Poverty Index (HPI) Sustainable Development Indicators (SDIs) Gini coefficient Regional Well Being Hapiness Indices
Other measures Index of Sustainable Economic Welfare (ISEW) The main macroeconomic indicator of System of National Accounts (SNA), is balanced by such factors as income distribution and cost associated with pollution and other unsustainable costs. ISEW = personal consumption + public non-defensive expenditures - private defensive expenditures + capital formation + services from domestic labour - costs of environmental degradation - depreciation of natural capital
Other measures Genuine Progress Indicator (GPI) The genuine progress indicator is designed to take fuller account of the well-being of a nation, only a part of which pertains to the health of the nation's economy, by incorporating environmental and social factors which are not measured by GDP. GPI = A + B - C - D + I A is income weighted private consumption B is value of non-market services generating welfare C is private defensive cost of natural deterioration D is cost of deterioration of nature and natural resources I is increase in capital stock and balance of international trade
Other measures The gender-related development index: GDI takes into account the differences between women and men on the values of the indicators that enter the HDI. All countries do worse as reflected in the deterioration of their HDI as converted into GDI. The human poverty index: HPI corrects for another weakness of HDI in that it does not show what s happening to the poorest members of society. slightly different variables in the index e.g. % of people not using improved water sources; % of children under five who are underweight, etc.
Other measures Sustainable Development Indicators (SDIs) They are used to monitor the EU Sustainable Development Strategy (EU SDS) of whether the European Union has achieved progress towards sustainable development in terms of the objectives and targets defined in the strategy Of more than 130 indicators, there have been identified headline indicators for the following themes ->
Other measures Sustainable Development Indicators (SDIs)
Other measures GINI coefficient a measure of statistical dispersion intended to represent the income or wealth distribution of a nation's residents, and is the most commonly used measure of inequality. The Gini coefficient = area A/ area(a+b) percentage of income percentage of population
Other measures OECD s Regional Well-Being In this initiative, each region is measured in eleven topics income, jobs, housing, health, access to services, environment, education, safety, civic engagement and governance, community, and life satisfaction. Check a region in the OECD s database!
Other measures Hapiness indices (the most remarkable ones) UN s World Hapiness Report In this initiative, each region is measured in eleven topics income, jobs, housing, health, access to services, environment, education, safety, civic engagement and governance, community, and life satisfaction. Video: March 20th is the International Day of Hapiness! Your Better Life Index by OECD Happy Planet Index by The New Economics Foundation
Advices from Walt Whitmer (PSU) 1. No single number represents the local economy. When thoroughly assessing the local economy, you need to use several measures, as reliance on a single measure provides only limited insight. For example, a high job growth rate may show the community is generating new employment opportunities; but you should be interested in the wages provided by new jobs as well, in order to get a better understanding of the local labor market s true performance. 2. Make comparisons among communities. No community exists in isolation. In order to better understand local economic performance, you should compare your community to similar communities, the state, and the nation.
Advices from Walt Whitmer (PSU) 3. Examine changes over time. While a snapshot analysis provides a good indication of where the community is today, knowing longterm trends in the community is important. With respect to employment, industries that have traditionally been important may now be declining. Trend analysis can be particularly informative as it often provides good predictions about the near future. 4. A reality check is essential. While using the methods here to analyze hard data is a starting point, tapping the insights of local citizens and policy makers is also important. If the data analysis and the insights are at odds, a more indepth examination may be necessary.
Advices from Walt Whitmer (PSU) 5. The analyst, not the data, should tell the story. Always remember, economic data is boring, and no reader wants to pore over reams of tables and charts. The information can be extremely helpful if used to complement a coherent, consistent, and truthful story about the economy. The information is most useful when summarized with themes, interpretations, and conclusions.