Development Economics

Gross Domestic Product per capita: the value of goods and services produced within a country in a given time frame, divided by its population.

Gross National Income per capita: This includes the personal consumption expenditure, the gross private investment, the government consumption expenditures, the net income from assets abroad and the gross exports of goods and services minus the gross imports of goods and services. However it deducts any indirect business tax.

The GNI is similar to the gross national product (GNP), without the inclusion of indirect business taxes.

By including business tax into GNI, economists can tell the true value of the goods and services being sent to a home country. Imagine a company works abroad and sells $10 000 worth of goods and services. This money is then sent home would be recorded on both GDP and GNI for the company's country. However, if business tax increased to 10% the next year, GDP would still remain at $10 000 whilst GNI would be $9 000. GNI thus gives a more accurate reflection of the true value of goods and services entering a country.

GDP and GNI for the Eurozone 2008
	Year	Latest data
GDP (current US$)	2008	13,542,635,337,404
GDP growth (annual %)	2008	0.4
GNI per capita, (current US$)	2008	38,477
GNI, (current US$)	2008	12,686,179,836,075

GDP per capita: this is simply the value of goods and services produced within a country divided by its population.

GDP per capita @PPP exchange rates: Purchasing Power Parity attempts to eliminate price differences on GDP. To do this each country is shown as what their buying power can get with $1. It attempts to work in buying power to GDP.

For example if two countries had a GDP per capita of $1000 but goods cost twice as much in one country than another, then the first country is actually worse off. PPP attempts to eliminate the price differences in order to give a true reflection. To do this, PPP exchange rates are used - these are calculations that show a country's buying power equivalent to $1. MEDC's thus end up with lower GDP per capita when using PPP exchange rates, as goods and services in their countries tend to be lower.

Most Developed Countries' GDP per capita PPP

Rank	Country	Intl. $
1	Luxembourg	89,012
2	Qatar	88,314
—	Macau	77,079
3	Singapore	60,688
4	Norway	60,405
5	Kuwait	54,283
6	Brunei	51,760

Most Developed Countries' nominal GDP per capita

Rank	Country	US $, 2011
1	Liechtenstein	171,465
2	Monaco	170,373
3	Luxembourg	114,232
4	Norway	98,081
5	Qatar	92,501
—	Bermuda	91,780

Least Developed Countries GDP per capita PPP

Rank	Country	US $, 2011

177	Niger	727
178	Burundi	604
179	Eritrea	585
180	Liberia	585
181	Congo, Dem. Rep.	373

Least Developed Countries GDP per capita nominal

Rank	Country	US $, 2011

185	Sierra Leone	374
186	Malawi	371
187	Liberia	281
189	Congo, Democratic Republic of the	231
190	Somalia	139

http://data.worldbank.org/indicator/NY.GNP.ATLS.CD

 

Total Adult Literacy Rate (%) - Adult (15+) literacy rate (%). Total is the percentage of the population age 15 and above who can, with understanding, read and write a short, simple statement on their everyday life. Generally, ‘literacy’ also encompasses ‘numeracy’, the ability to make simple arithmetic calculations. This indicator is calculated by dividing the number of literates aged 15 years and over by the corresponding age group population and multiplying the result by 100.

Singapore - 96%
Costa Rica - 96%
Kenya - 87%
Guinea - 41%

Public Spending on Education (% of GDP) - Public expenditure on education as % of GDP is the total public expenditure (current and capital) on education expressed as a percentage of the Gross Domestic Product (GDP) in a given year.

Singapore - 3.3% (2009)
United Kingdom - 5.6% (2009)
Iceland - 7.8% (2009)
Costa Rica - 6.3% (2009)
Guinea - 3.1% (2009)

The Human Development Index

This is the most common composite index for welfare that is used. Used by the UN and created by Pakistani economist Mahbub ul Haq, who based his work on Amartya Sen. It has recently changed so that currently it includes three individual elements

1. Life Expectancy at birth
2. Education (average time spent in school)
3. Income (GNI per capita using PPP exchange rates)

Each indicator is given 1/3 weighting, and using complex formulas give each a score out of 1 (with 1 being the best), and this is then divided by 3 to give a final score out of 1. Currently Norway tops the HDI with a score of 0.955

Countries that have very high GDP per capita rankings don't always score highly on the HDI for the following reasons:

• GDP (or GNI) is overstated
• Education is < than GDP
• Literacy is < than GDP
• HDI calculates PPP GNI - for developing countries this will be higher thhan GDP owing to low prices in their economy

Some countries score higher on the HDI than on their GDP per capita rankings for the following reasons:

• GDP (or GNI) is understated
• Education is > than GDP
• Literacy is > than GDP
• HDI calculates PPP GNI - for developing countries this will be higher than GDP owing to low prices in their economy

1. Education and Health

http://www.undp.org/content/undp/en/home/ourwork/

capacitybuilding/successstories/Bangladesh indigenous-languages-education/

http://news.bbc.co.uk/2/hi/8548923.stm

http://mdgs.un.org/unsd/mdg/Resources/Static/Products/Progress2012/
English2012.pdf#page=44

2. Appropriate Technology

 

3. Microfinance

Positives:

Negatives:

4. Income Equality

 

5. Gendar Equality

Pushing toward gendar equality

1. Over-specialization on a narrow range of products

Although countries may have a comparative advantage in producing a certain product, over-specializing in this - or a narrow range - of products will result in low economic growth in the long run for LEDCs. This is because commodities often have a low value-added price, meaning that most of the profit made from a commodity comes when it is packaged and sold, not from the raw product (for example, coffee beans cost ___ whilst in the UK the average cost of a cup of coffee is 2 pounds)

Furthermore over specializing in a few goods means that a country's workforce does not create a variety of skills that can help generate new industries or services.

Finally, having only a small range of products means that should anything go wrong (a bad harvest, a new substitute, a fall in demand), then there is no plan B. LEDCs will subsequently be left with a larger deficit and no economic growth. This money cannot then be used in development.

2. Price volatility of primary products

LEDCs often produce commodities, especially agricultural products, as these are labour-intensive and they often have a comparative advantage in producing them. However, primary products face the most uncertain, or fluctuating, prices owing to the weather and demand patterns.

Remember, commodities are price inelastic in demand so any changes in supply will have large fluctuations in price.

3. Inability to access international markets

Although trade blocs may be very beneficial for their members, they are often harmful for those on the outside, owing to their protectionist policies to non-members. As a result, large economic blocs like the EU result in higher prices from goods from LEDCs, making them less competitive compared to domestic competition, and causing less to be exported. This thus means that LEDCs firms cannot grow as they are unfairly discriminated against.

Furthermore LEDCs often have hostile relations with their neighbours and thus have high protectionist policies, thus scuppering the prospect of regional growth.

4. Inability to access international markets

Although trade blocs may be very beneficial for their members, they are often harmful for those on the outside, owing to their protectionist policies to non-members. As a result, large economic blocs like the EU result in higher prices from goods from LEDCs, making them less competitive compared to domestic competition, and causing less to be exported. This thus means that LEDCs firms cannot grow as they are unfairly discriminated against.

4. Long-term changes in the terms of trade

There are three other things that result in long-term deteriorations in terms of trade for LEDCs.

a) Low YED -

b) Proectionism

c) Technology

• Countries with low business tax rates
• Countries with sufficient infrastructure
• Countries with large or growing markets
• Countries with stable macroeconomic and political conditions
• Countries with cheap factors of production

• Provide jobs
• Improve skill-sets
• Provide tax revenue
• Knock-on effects for local industries
• Investment

• Often pay low tax rates
• Local jobs are often unskilled
• Profits are sent home not spent domestically
• Act as a barrier to entry for local businesses
• Political leverage and environmental damage
• Encourage unneccessary/harmful spending patterns.
  
  

photo courtesy of freedigitalphotos.net -  tiverylucky,

• Developmental aid - money that is given by the donor country for the specific purpose of improving the infrastructure of the recipient's economy. This can take many forms such
  • Debt Relief - when one country forgives a portion - or all - of the debt it is owed by another country
  • Technical Assistance - the provision of skilled workers from one country to another in order to help train local workers or provide specific skills. e.g. Shell workers in Brunei.
  • Project Development - when money is given for specific large scale building works, such as Dams or energy projects.
• Unconditional aid (grants) - money given from a government or organisation to another, with no strings attached. The money may be spent anywhere.
• Conditional aid -
  
  
  • Tied Aid - when a receipient country must spend a portion of the aid it receives on goods and services from the donor country
• Humanitarian aid - this is either goods and services or cash given in order to prevent or solve national emergencies or disasters.

• Bilateral - from one country or organisation to another
• Multilateral - from more than one country or organisation to another
• ODA - Official Development Assistance
• NGO - Non-governmental organisations. These are often small charities that aim to provide a specific service or good.

• Humanitiarian reasons - often aid is needed in emergencies, such as after the Asian tsunami of 2004 or the food crisis in Sudan 2012
• Political reasons - sometimes aid is sent as a political lever in order to foster friendly relations between countries
• Historical reasons - countries that have a history of colonizing other countries may feel they owe a debt of responsibility to the colonized countries - India (even though it has its own space program) still receives aid from Britain.
• Economic reasons - tied aid can act as an incentive for both economies to grow; Spain for example often uses tied aid to boost domestic industry. Furthermore, boosting markets abroad may offer long-term benefits economically.

• Humanitarian Relief - there is a moral agument to sending aid, especially if there has been some sort of disaster. The Asian tsunami is an example of this.
• Escape from poverty trap - aid is often the only way in which some sectors of society are able to break free of their situations - they can then use this to start a small firm.
• Platform for economic growth and development - merit and public goods can be provided for countries that need it most. This helps create better skilled workers, jobs and tax revenue. It may also provide education which can prevent future poverty.