ISSUES IN GLOBAL ECONOMICS
CHAPTER 1 : INTRODUCING ECONOMIC DEVELOPMENT : A GLOBAL
PERSPECTIVE
Overview
In the last 25 years, developing countries have made big progress in economic
growth and reducing poverty.
Many poor countries have been growing faster than rich ones, and global poverty
has been cut by more than half. But — progress has been uneven and new
challenges have appeared.
Main Points
1. Growth and Poverty Reduction
Many developing countries now grow faster than developed countries.
Poverty rates (people living on very low incomes) have dropped by more
than half.
However, some regions — especially in Africa and fragile states — have not
shared equally in this progress.
2. Changing Global Relations
The global economy is now less one-sided (developing countries are more
influential).
But it’s also more fragile — trade tensions, crises, and global shocks can
spread quickly.
3. Ongoing Challenges
Even with progress, big problems remain:
Conflict and weak governance – wars, corruption, and instability slow
development.
Climate change and environmental damage – threaten agriculture, health,
and cities.
Future of industrialization – manufacturing once lifted countries like China;
now robots and automation may limit jobs for Africa and others.
Global financial stability – risk of another global crisis or recession.
Pandemics – test countries’ social and economic resilience.
4. The Big Question: What Comes Next?
Achieving inclusive growth (where everyone benefits) and ending poverty
completely is not automatic.
We can’t just continue current trends — it requires new strategies, strong
governance, and sustainable development.
1
,Economic development has made huge progress — but the world still faces deep
challenges like inequality, environmental damage, and fragile systems.
To reach zero poverty, we need growth that is inclusive, resilient, and
sustainable.
Four Stylized Living Standards Strata :
The “four living standards strata” describe four broad levels of living
conditions across the world — from the poorest to the richest.
They’re stylized (simplified examples), not exact descriptions of real families.
They help us visualize global inequality and what different income levels
mean in daily life.
They remind us that economic growth and poverty reduction must focus on
improving life for the poorest billions, not just raising country averages.
1) Lowest stratum : extreme poverty
- People: about 1 billion people
- Income: below $1.90/day per person (extreme poverty line)
- Cooking: Open fire inside mud house; smoky
- Food and nutrition: Grow own food; meals the same; not enough
nutrients; malnutrition common
- Clothing: Very basic or worn-out
- Education: Children rarely go to school; most never finish high school
- Housing: Mud or thatch; roof may leak; floor mats on mud; easy for
parasites to enter
- Furnishings: Homemade; very basic
- Water: From streams or springs; long walk; often dirty
- Sanitation: No toilets; high risk of disease
- Transportation: Walk barefoot or worn-out sandals
2) Second-Lowest stratum
- People: 3 billion people
- Income: About $3-4/day per person (just above extreme poverty)
- Cooking: Small stoves or kerosene; not open fire
- Food and nutrition: Better than poorest; still limited variety
- Clothing: Basic, functional clothes
- Education: Children go to school, but may not finish
- Housing: Stronger floors, walls, roof; some protection from weather
- Furnishings: Simple furniture; basic items
- Water: Tap water outside; may need boiling
- Sanitation: Some toilets; still limited
- Transportation: Bicycles; some walking
3) Second-highest stratum
- People: 2+ billion people
- Income: Around $15/day per person (global middle class)
- Cooking: Kerosene or electric stoves
2
,- Food and nutrition: Varied diet; children survive; rare malnutrition
- Clothing: Good quality clothes
- Education: Children attend and often finish secondary school
- Housing: Urban homes; better floors, walls, roof; partial plumbing
- Furnishings: TV, some appliances; basic comfort
- Water: Tap water in house; mostly safe
- Sanitation: Limited plumbing; basic toilets
- Transportation: Motorbikes or cars
4) Highest (“Rich”) Stratum
- People : 1 billion people
- Income: Around $75/day per person (well above the World Bank’s high-income
threshold)
- Cooking: Modern kitchen; electric stove, microwave
- Food and nutrition: Varied diet; fresh food all year; obesity may appear
- Clothing: Modern, good quality clothes
- Education: Complete secondary school; many attend university
- Housing: Comfortable house or apartment; full plumbing; heating/AC
- Furnishings: Fully furnished; appliances, internet, entertainment
- Water: Safe tap water inside the house
- Sanitation: Full toilets and plumbing
- Transportation: Cars; easy travel
Strata = different groups of people around the world, separated by their income and daily living
conditions.
=(plural of “stratum”) means layers or levels.
So, the four strata are simply four broad levels of living standards:
1. Extreme poverty (struggling to survive).
2. Just above poverty (basic but insecure).
3. Middle-income (some comfort, still instability).
4. High-income (modern rich-world lifestyle).
Think of it like “floors in a building” — people live on different floors (strata) depending on their
resources and opportunities.
Movement between strata :
Most people stay within the stratum they’re born into, though they may progress slightly
within it.
Occasionally, transformative jumps happen in a single lifetime (example: rapid rise in living
standards in China over recent decades).
What do we mean by development?
Traditional economic measures :
GNI or Gross National Income Total income earned by a country’s residents
Income per capita GNI is divided by population. Income per capita shows the
average income per person
Problem : Income alone doesn’t show how people live or whether they are truly better off. These
measures don’t show whether income actually improves people’s wellbeing or quality of life.
3
, The new economic view of development: Amartya Sen’s Capabilities Approach
Development is not just about income, but about improving human wellbeing.
True development is about expanding people’s freedoms and their ability to live
the life they value.
Functionings = the things people actually do and are (ex: being healthy,
educated, having a job). Functionings are achievements – the real
outcomes of life.
Capabilities = the freedom to achieve functionings . It’s about having
choices : the real opportunities people have to live the life
they value.
Example : Two people may both be educated (functioning-,
but one had no choice to go to school , only the person
with freedom has capabilities.
Development & True development = increasing people’s capabilities, not
wellbeing just income.
Focus on what people can be and do, rather than just what
they earn.
Development = “beings and doings” — being healthy,
educated, and active; doing meaningful things and having
choices.
Beings and Being able to live long, being healthy, being well-clothed,
doings being able to take part in the life of the community, …..
Goal = improving wellbeing, happiness, and choice, not just more money.
Amartya Sen’s Capability Approach
Approach 1 : Traditional economic approach
- Development is measured by income and production.
- Measures: GNI, GDP and income per capita
- Problem: Only shows average income, not how people actually live.
- Ignores health, education, freedoms:higher income doesn’t always mean real
well-being
Approach 2 : Utility and consumption approach
- Focuses on how much people consume or their satisfaction/pleasure.
- Measures: Levels of consumption or utility.
- Problem: Confuses means with ends — consuming things is a way to live
better, not the final goal.
- Pleasure or utility doesn’t fully reflect what people can actually do or be.
Approach 3 : Amartya Sen’s Capabilities approach (New development view)
- Focuses on what people can be and do (their “functionings”) and their
freedom to choose (“capabilities”).
4
CHAPTER 1 : INTRODUCING ECONOMIC DEVELOPMENT : A GLOBAL
PERSPECTIVE
Overview
In the last 25 years, developing countries have made big progress in economic
growth and reducing poverty.
Many poor countries have been growing faster than rich ones, and global poverty
has been cut by more than half. But — progress has been uneven and new
challenges have appeared.
Main Points
1. Growth and Poverty Reduction
Many developing countries now grow faster than developed countries.
Poverty rates (people living on very low incomes) have dropped by more
than half.
However, some regions — especially in Africa and fragile states — have not
shared equally in this progress.
2. Changing Global Relations
The global economy is now less one-sided (developing countries are more
influential).
But it’s also more fragile — trade tensions, crises, and global shocks can
spread quickly.
3. Ongoing Challenges
Even with progress, big problems remain:
Conflict and weak governance – wars, corruption, and instability slow
development.
Climate change and environmental damage – threaten agriculture, health,
and cities.
Future of industrialization – manufacturing once lifted countries like China;
now robots and automation may limit jobs for Africa and others.
Global financial stability – risk of another global crisis or recession.
Pandemics – test countries’ social and economic resilience.
4. The Big Question: What Comes Next?
Achieving inclusive growth (where everyone benefits) and ending poverty
completely is not automatic.
We can’t just continue current trends — it requires new strategies, strong
governance, and sustainable development.
1
,Economic development has made huge progress — but the world still faces deep
challenges like inequality, environmental damage, and fragile systems.
To reach zero poverty, we need growth that is inclusive, resilient, and
sustainable.
Four Stylized Living Standards Strata :
The “four living standards strata” describe four broad levels of living
conditions across the world — from the poorest to the richest.
They’re stylized (simplified examples), not exact descriptions of real families.
They help us visualize global inequality and what different income levels
mean in daily life.
They remind us that economic growth and poverty reduction must focus on
improving life for the poorest billions, not just raising country averages.
1) Lowest stratum : extreme poverty
- People: about 1 billion people
- Income: below $1.90/day per person (extreme poverty line)
- Cooking: Open fire inside mud house; smoky
- Food and nutrition: Grow own food; meals the same; not enough
nutrients; malnutrition common
- Clothing: Very basic or worn-out
- Education: Children rarely go to school; most never finish high school
- Housing: Mud or thatch; roof may leak; floor mats on mud; easy for
parasites to enter
- Furnishings: Homemade; very basic
- Water: From streams or springs; long walk; often dirty
- Sanitation: No toilets; high risk of disease
- Transportation: Walk barefoot or worn-out sandals
2) Second-Lowest stratum
- People: 3 billion people
- Income: About $3-4/day per person (just above extreme poverty)
- Cooking: Small stoves or kerosene; not open fire
- Food and nutrition: Better than poorest; still limited variety
- Clothing: Basic, functional clothes
- Education: Children go to school, but may not finish
- Housing: Stronger floors, walls, roof; some protection from weather
- Furnishings: Simple furniture; basic items
- Water: Tap water outside; may need boiling
- Sanitation: Some toilets; still limited
- Transportation: Bicycles; some walking
3) Second-highest stratum
- People: 2+ billion people
- Income: Around $15/day per person (global middle class)
- Cooking: Kerosene or electric stoves
2
,- Food and nutrition: Varied diet; children survive; rare malnutrition
- Clothing: Good quality clothes
- Education: Children attend and often finish secondary school
- Housing: Urban homes; better floors, walls, roof; partial plumbing
- Furnishings: TV, some appliances; basic comfort
- Water: Tap water in house; mostly safe
- Sanitation: Limited plumbing; basic toilets
- Transportation: Motorbikes or cars
4) Highest (“Rich”) Stratum
- People : 1 billion people
- Income: Around $75/day per person (well above the World Bank’s high-income
threshold)
- Cooking: Modern kitchen; electric stove, microwave
- Food and nutrition: Varied diet; fresh food all year; obesity may appear
- Clothing: Modern, good quality clothes
- Education: Complete secondary school; many attend university
- Housing: Comfortable house or apartment; full plumbing; heating/AC
- Furnishings: Fully furnished; appliances, internet, entertainment
- Water: Safe tap water inside the house
- Sanitation: Full toilets and plumbing
- Transportation: Cars; easy travel
Strata = different groups of people around the world, separated by their income and daily living
conditions.
=(plural of “stratum”) means layers or levels.
So, the four strata are simply four broad levels of living standards:
1. Extreme poverty (struggling to survive).
2. Just above poverty (basic but insecure).
3. Middle-income (some comfort, still instability).
4. High-income (modern rich-world lifestyle).
Think of it like “floors in a building” — people live on different floors (strata) depending on their
resources and opportunities.
Movement between strata :
Most people stay within the stratum they’re born into, though they may progress slightly
within it.
Occasionally, transformative jumps happen in a single lifetime (example: rapid rise in living
standards in China over recent decades).
What do we mean by development?
Traditional economic measures :
GNI or Gross National Income Total income earned by a country’s residents
Income per capita GNI is divided by population. Income per capita shows the
average income per person
Problem : Income alone doesn’t show how people live or whether they are truly better off. These
measures don’t show whether income actually improves people’s wellbeing or quality of life.
3
, The new economic view of development: Amartya Sen’s Capabilities Approach
Development is not just about income, but about improving human wellbeing.
True development is about expanding people’s freedoms and their ability to live
the life they value.
Functionings = the things people actually do and are (ex: being healthy,
educated, having a job). Functionings are achievements – the real
outcomes of life.
Capabilities = the freedom to achieve functionings . It’s about having
choices : the real opportunities people have to live the life
they value.
Example : Two people may both be educated (functioning-,
but one had no choice to go to school , only the person
with freedom has capabilities.
Development & True development = increasing people’s capabilities, not
wellbeing just income.
Focus on what people can be and do, rather than just what
they earn.
Development = “beings and doings” — being healthy,
educated, and active; doing meaningful things and having
choices.
Beings and Being able to live long, being healthy, being well-clothed,
doings being able to take part in the life of the community, …..
Goal = improving wellbeing, happiness, and choice, not just more money.
Amartya Sen’s Capability Approach
Approach 1 : Traditional economic approach
- Development is measured by income and production.
- Measures: GNI, GDP and income per capita
- Problem: Only shows average income, not how people actually live.
- Ignores health, education, freedoms:higher income doesn’t always mean real
well-being
Approach 2 : Utility and consumption approach
- Focuses on how much people consume or their satisfaction/pleasure.
- Measures: Levels of consumption or utility.
- Problem: Confuses means with ends — consuming things is a way to live
better, not the final goal.
- Pleasure or utility doesn’t fully reflect what people can actually do or be.
Approach 3 : Amartya Sen’s Capabilities approach (New development view)
- Focuses on what people can be and do (their “functionings”) and their
freedom to choose (“capabilities”).
4
