Introduction to International Economics Update to Chapter 20 Growth Table 20.1 gives information on GDP per capita for twelve countries of the world for the year 2010. As we can see in Table 20.1, the range of GDP per capita among countries is significant. The average per capita income in Japan and the United States is more than 100 times that in Ethiopia. From the perspective of development as the level of per capita GDP, we therefore would conclude that Japan and the United States are over 100 times more developed than Ethiopia. 1
Table 20.1 Development Indicators for Selected Countries (2010 except where indicated) Country GDP Per Capita PPP GDP Per Capita Growth Rate of GDP Per Capita Gini Coefficient Index Life Expectancy Mean Years of Schooling Human Development Index (US dollars) (US dollars) (percent) (various years) (years) (years) (0 to 1) Ethiopia 358 1,035 10 30 Haiti 664 1,101-5 59 (2001) India 1,375 3,373 10 33 Indonesia 2,952 4,312 6 34 China 4,433 7,568 10 42 Costa 7,774 11,601 5 51 Rica (2009) Turkey 10,050 15,616 9 39 (2008) Brazil 10,993 11,202 8 55 (2009) 59 1.5 0.358 62 4.9 0.449 65 4.4 0.542 69 5.8 0.613 73 7.5 0.682 79 8.3 0.742 74 6.5 0.739 73 7.2 0.715 South 20,540 28,798 6.. 81 11.6 0.894 Korea Spain 30,026 31,889 0 35 82 10.4 0.876 (2000) Japan 43,063 33,916 4.. 83 11.6 0.899 United States 46,702 46,702 3 41 (2000) 78 12.4 0.908 Source: World Bank and United Nations Development Program Note: The Gini coefficient ranges from 0 to 1. The Gini coefficient index ranges from 0 to 100. 2
millions 2005 PPP US$ Deprivations in per capita GDP (and therefore of per capita GNI) is a central measure of poverty, namely poverty as income deprivation. The World Bank estimates income poverty at three levels: those living below US$2.00 per day, those living below US$1.25 per day, and those living below US$1.00 per day. The data that are available in these series appear in 3 year increments and are presented in Figure 20.1. 1 We can see here that there is both good and bad news. The good news is that the number of extremely poor individuals living on US$1.25 or US$1.00 per day is declining over time. There is broad agreement in the field that most of this decline has been due to development processes in China and, to a lesser extent, India. The bad news is that the number of poor, while appearing to be on a recent downward trend, is still approximately 2.5 billion. The poverty challenge is therefore immense. Figure 20.1 Recent Evolution of World Poverty (millions of persons) 3500 3000 2500 2000 1500 1000 500 0 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 $1.00 per day $1.25 per day $2.00 per day Source: World Bank, World Development Indicators Online 1 The longest tracking of world poverty is provided by Bourguinon and Morrison (2002). These estimates cover the 1820 to 1992 period. 3
Human Development The most fundamental contribution of the HDR was the introduction of the human development index (HDI). A brief description of its originator, Pakistani economist Mahbub ul Haq, is presented in the accompanying box. The HDI measures development as reflecting three important components: per capita income, health, and education. The construction of the HDI can be represented as in Figure 20.2. The HDI consists of equal, one-third components of per capita income, life expectancy, and education. The per capita income component is calculated using PPP Gross National Income (GNI) per capita. Life expectancy is taken as an overall measure of health. Education is measured with one-half weights given to mean years of schooling and expected years of schooling. HDI measures for our sample of countries, along with information on life expectancy and mean years of schooling, are presented in Table 20.1 above. 2 There are a two major points concerning human development to note in Table 20.1. First, achievements in health (life expectancy) and education (mean years of schooling) vary substantially. Just within this sample of countries, life expectancy varies by a range of nearly 25 years! 3 Similarly, mean years of schooling rages by over 10 years. These dramatically different levels of human development result in a wide range of HDIs reported in the last column of Table 20.1. If there is a single-most important indicator of human development, it is perhaps life expectancy. Table 20.1 above reports life expectancy for a single year, but it is instructive to consider how life expectancy has changed in recent decades. This is presented in Figure 20.3 for 1970 to 2010. The data are reported for low, middle and high income countries. We can see that the increases in life expectancy for these three groups of countries have been 11 years for middle- and high-income countries and 16 years for low-income countries. So, despite the 2 For each component, an index is calculated as follows: For the educational index component, the following geometric mean is used: For the overall index, the following geometric mean is used: 3 Two further points can be made here. First, low life expectancies have traditionally been associated with high rates of infant and child mortality (currently just under 10 million children per year). The exception to this rule is the HIV/AIDS crisis. Second, the HIV/AIDS crisis in some countries has caused life expectancies to begin declining rather than increasing. 4
disparities of Table 20.1, there is a general improvement of life expectancy over time in most instances. That is welcome news. 5
Figure 20.2 The Human Development Index HDI 1/3 1/3 1/3 PPP per capita income with declining weight for higher incomes Life expectancy Education 1/2 1/2 Mean years of schooling Expected years of schooling 6
years Figure 20.3 Life Expectancy in Low, Middle and High Income Countries (years) 90 80 70 60 50 40 42 48 69 45 57 71 50 62 73 53 64 75 55 67 78 59 69 80 30 20 10 0 1960 1970 1980 1990 2000 2010 Low income Middle income High income Source: World Bank, World Development Indicators Online New References Beddoes, Z.M. (2012) For Richer, For Poorer, The Economist, October 13. 7