International Development
1. Introduction
1.1 What is development? (Sen)
Development as Freedom is a 1999 book about international development by Indian
economist and philosopher Amartya Sen.
- “Sen argues that development should be seen as a process of expanding the
capabilities and freedoms of people, rather than simply focusing on economic growth.
He discusses how factors such as political freedoms, social opportunities, and
economic provisions are essential for human development and well-being.”
- Freedom is not just an end but also a means. It is the process of “removing
unfreedoms.”
- The Five Freedoms (Which is the most important freedom? How do the freedoms
complement each other? Do any freedoms have priority over the other?)
1. Political Freedoms – The rights to participate in governance, express opinions
freely, scrutinize authorities, and choose between political parties.
2. Economic Facilities – The access to resources, income, and credit necessary
for consumption, production, and exchange.
3. Social Opportunities – The provision of education, healthcare, and essential
social services to enhance well-being.
4. Protective Security – The social safety net ensures protection from extreme
deprivation through institutional and emergency support.
5. Transparency Guarantees – The assurance of openness, accountability, and
clear disclosure to prevent corruption and misconduct.
How do we measure a multidimensional view of development?
- Human Development Index
1. Long and healthy life (e.g., life expectancy)
2. Knowledge (e.g., expected years of schooling, mean years of schooling)
3. A decent standard of living (e.g., GNI per capita PPP $)
,Stevenson & Wolfers, 2008 → Life satisfaction and GDP have a strong positive
correlation.
Measuring development with GDP (“the value of all goods and services in the economy”)
GDP per capita v. GNI per capita (used by the World Bank)
- GDP is the market value of the production of final goods and services carried out in
an economy, in one year, by the productive factors located in the country.
- Y = C + I + G + (X – M).
- GNI is the market value of the production of final goods and services carried out in an
economy, in one year, by domestically owned productive factors.
The production function
- GDP (Y) is produced with capital (K, price-weighted) and labor (N, hours). A is Total
Factor Productivity (TFP), an index of efficiency (technology).
- Y = A F(K, N) or Y = A F(K, N, other inputs such as oil or energy)
- The problem with TFP is that it is not observable. TFP is a “catch-all” for anything
that affects output other than K and N.
- A is the “residual,” or what is left over.
The Malthusian Trap refers to the idea that population growth would always outstrip food
production, leading to widespread poverty and stagnation. According to the Malthusian Trap,
any increase in the food supply would result in higher population growth, which would
eventually consume the surplus, keeping living standards low.
- Before the Industrial Revolution, the UK, like other pre-modern economies, was
largely agrarian and experienced cyclical periods of economic growth and decline.
Economic growth was slow, and any increase in food production led to higher birth
rates, which offset the benefits of increased resources. This cycle kept wages at
subsistence levels.
- Characteristics: Slow Technological Progress, High Mortality Rates
(Epidemics, Famines, War), Low Productivity, Stagnant Living Standards
- The Industrial Revolution (starting in the mid-18th century) played a crucial role in
breaking the Malthusian cycle. Several factors contributed to this escape:
- Technological Innovation (Agricultural Revolution and Industrial
Mechanization)
- Structural Economic Changes
- Declining Birth and Mortality Rates
- Property Rights & Capitalism
- Education & Human Capital
- Global Trade and Colonial Resources
How did human society exit the Malthusian trap?
1.2 Poverty
Why are some countries so much richer than others?
Extreme poverty ($1 or $2 a day)
, - The experience of poverty varies enormously around the world, even within a
neighborhood. But certain features tend to be consistent, such as:
- Casual and sporadic employment
- Limited support from the state
- Poor social circles
- Primary spending on food
- Reduced food consumption at certain periods
- Inability to afford “luxuries” such as medical care and advanced schooling
- Debt-financed expenditures (e.g., sickness, weddings)
Is there any problem using GDP per capita to measure economic well-being? What’s it like
to live on $1 or $2 per day?
Economic Lives of the Poor (B&D, 2007)
- Household Structure – Extended family, Many children staying at home with parents,
More young individuals
- Spending – Food is ½ to ¾ of the budget. Alcohol and tobacco are about 1%-8%.
- The poor do not maximize calorie consumption.
- The poor spend on forms of entertainment to substitute for modern
electronics.
- Education has very little expenditure.
- Assets
- Land ownership is highly variable and often small, such as in Mexico (4%),
Guatemala (37%), and Panama (85%).
- The poor have few other assets (e.g., livestock, homes)
- Income Generation
- Multiple occupations for risk diversification (often seasonal or part-time)
- Income is “small, irregular, uncertain”
- Temporary migration regular
- Lack of specialized skills
- Need for help to manage basic finances, cope with risks, and raise lump
sums.
- Finance
- High load of expensive debt, but defaulting is rare
- Lots of relational borrowing and lending in kind (e.g., rice, lentils) from friends,
family, neighbors, and moneylenders
- High variance in transaction costs
- Infrastructure is lacking, especially in rural areas
Questions Regarding Poverty Measurement
- What do we mean by “poverty?” Earnings, Consumption (e.g., calories, nutrition,
dollars), Health, Liberty (Development as Freedom)?
- Temporally, how does “poverty” span? At this moment, this season, this year, this
lifetime?
- To what level is “poverty” aggregated? Individuals, households, villages, towns,
states?
The Poverty Line: Measures Extreme Poverty
, - Binary (one is either above or below the line)
- Commonly used to determine eligibility for social programs
- Example: India targets health insurance using the Below Poverty Line
Consensus
- History:
- Developed in 1963-1964
- Based on the amount required to afford the cheapest adequate diet
- Global poverty lines have been developed by the World Bank
- Poverty is measured at the international poverty line of $2.15 a day.
- Today, almost 700 million people (8.5% of the global population) live
in extreme poverty.
- The poverty line is a highly disputed metric. Is it based on empirical evidence for all
countries? Does it account for what is needed to achieve normal human life
expectancy and reduce infant mortality?
Poverty Gap – the ratio by which the mean income of the poor falls below the poverty line
Do poverty traps matter in practice?
- According to Kraay and McKenzie (2014), there is limited evidence.
Poverty Traps and the “Big Push”
- What explains the situation of countries stuck in poverty and stagnation? If they are
“trapped,” what can be done to get them out?
Millennium Villages Project (2005-2015)
- The MVP was an ambitious development initiative launched in 2005 by Jeffrey Sachs
that aimed to demonstrate that targeted investments in key areas, such as
agriculture, health, education, infrastructure, and business development, could help
lift rural African communities out of poverty and set them on a path to sustainable
development.
- The MVP was designed to help communities achieve the UN Millennium
Development Goals (MDGs), which focused on reducing extreme poverty, hunger,
child mortality, and disease while improving education, gender equality, and
environmental sustainability.
- The project involved 14 villages across 10 African countries, including Kenya, Ghana,
Ethiopia, and Uganda, impacting around 500,000 people. The core idea was that a
“big push” in coordinated aid and interventions could help villages escape the poverty
trap, a concept similar to the Malthusian Trap, where low productivity and poor
infrastructure keep communities stuck in a cycle of poverty.
- The project tackled multiple dimensions of poverty simultaneously, applying the
following strategies:
1. Introduction
1.1 What is development? (Sen)
Development as Freedom is a 1999 book about international development by Indian
economist and philosopher Amartya Sen.
- “Sen argues that development should be seen as a process of expanding the
capabilities and freedoms of people, rather than simply focusing on economic growth.
He discusses how factors such as political freedoms, social opportunities, and
economic provisions are essential for human development and well-being.”
- Freedom is not just an end but also a means. It is the process of “removing
unfreedoms.”
- The Five Freedoms (Which is the most important freedom? How do the freedoms
complement each other? Do any freedoms have priority over the other?)
1. Political Freedoms – The rights to participate in governance, express opinions
freely, scrutinize authorities, and choose between political parties.
2. Economic Facilities – The access to resources, income, and credit necessary
for consumption, production, and exchange.
3. Social Opportunities – The provision of education, healthcare, and essential
social services to enhance well-being.
4. Protective Security – The social safety net ensures protection from extreme
deprivation through institutional and emergency support.
5. Transparency Guarantees – The assurance of openness, accountability, and
clear disclosure to prevent corruption and misconduct.
How do we measure a multidimensional view of development?
- Human Development Index
1. Long and healthy life (e.g., life expectancy)
2. Knowledge (e.g., expected years of schooling, mean years of schooling)
3. A decent standard of living (e.g., GNI per capita PPP $)
,Stevenson & Wolfers, 2008 → Life satisfaction and GDP have a strong positive
correlation.
Measuring development with GDP (“the value of all goods and services in the economy”)
GDP per capita v. GNI per capita (used by the World Bank)
- GDP is the market value of the production of final goods and services carried out in
an economy, in one year, by the productive factors located in the country.
- Y = C + I + G + (X – M).
- GNI is the market value of the production of final goods and services carried out in an
economy, in one year, by domestically owned productive factors.
The production function
- GDP (Y) is produced with capital (K, price-weighted) and labor (N, hours). A is Total
Factor Productivity (TFP), an index of efficiency (technology).
- Y = A F(K, N) or Y = A F(K, N, other inputs such as oil or energy)
- The problem with TFP is that it is not observable. TFP is a “catch-all” for anything
that affects output other than K and N.
- A is the “residual,” or what is left over.
The Malthusian Trap refers to the idea that population growth would always outstrip food
production, leading to widespread poverty and stagnation. According to the Malthusian Trap,
any increase in the food supply would result in higher population growth, which would
eventually consume the surplus, keeping living standards low.
- Before the Industrial Revolution, the UK, like other pre-modern economies, was
largely agrarian and experienced cyclical periods of economic growth and decline.
Economic growth was slow, and any increase in food production led to higher birth
rates, which offset the benefits of increased resources. This cycle kept wages at
subsistence levels.
- Characteristics: Slow Technological Progress, High Mortality Rates
(Epidemics, Famines, War), Low Productivity, Stagnant Living Standards
- The Industrial Revolution (starting in the mid-18th century) played a crucial role in
breaking the Malthusian cycle. Several factors contributed to this escape:
- Technological Innovation (Agricultural Revolution and Industrial
Mechanization)
- Structural Economic Changes
- Declining Birth and Mortality Rates
- Property Rights & Capitalism
- Education & Human Capital
- Global Trade and Colonial Resources
How did human society exit the Malthusian trap?
1.2 Poverty
Why are some countries so much richer than others?
Extreme poverty ($1 or $2 a day)
, - The experience of poverty varies enormously around the world, even within a
neighborhood. But certain features tend to be consistent, such as:
- Casual and sporadic employment
- Limited support from the state
- Poor social circles
- Primary spending on food
- Reduced food consumption at certain periods
- Inability to afford “luxuries” such as medical care and advanced schooling
- Debt-financed expenditures (e.g., sickness, weddings)
Is there any problem using GDP per capita to measure economic well-being? What’s it like
to live on $1 or $2 per day?
Economic Lives of the Poor (B&D, 2007)
- Household Structure – Extended family, Many children staying at home with parents,
More young individuals
- Spending – Food is ½ to ¾ of the budget. Alcohol and tobacco are about 1%-8%.
- The poor do not maximize calorie consumption.
- The poor spend on forms of entertainment to substitute for modern
electronics.
- Education has very little expenditure.
- Assets
- Land ownership is highly variable and often small, such as in Mexico (4%),
Guatemala (37%), and Panama (85%).
- The poor have few other assets (e.g., livestock, homes)
- Income Generation
- Multiple occupations for risk diversification (often seasonal or part-time)
- Income is “small, irregular, uncertain”
- Temporary migration regular
- Lack of specialized skills
- Need for help to manage basic finances, cope with risks, and raise lump
sums.
- Finance
- High load of expensive debt, but defaulting is rare
- Lots of relational borrowing and lending in kind (e.g., rice, lentils) from friends,
family, neighbors, and moneylenders
- High variance in transaction costs
- Infrastructure is lacking, especially in rural areas
Questions Regarding Poverty Measurement
- What do we mean by “poverty?” Earnings, Consumption (e.g., calories, nutrition,
dollars), Health, Liberty (Development as Freedom)?
- Temporally, how does “poverty” span? At this moment, this season, this year, this
lifetime?
- To what level is “poverty” aggregated? Individuals, households, villages, towns,
states?
The Poverty Line: Measures Extreme Poverty
, - Binary (one is either above or below the line)
- Commonly used to determine eligibility for social programs
- Example: India targets health insurance using the Below Poverty Line
Consensus
- History:
- Developed in 1963-1964
- Based on the amount required to afford the cheapest adequate diet
- Global poverty lines have been developed by the World Bank
- Poverty is measured at the international poverty line of $2.15 a day.
- Today, almost 700 million people (8.5% of the global population) live
in extreme poverty.
- The poverty line is a highly disputed metric. Is it based on empirical evidence for all
countries? Does it account for what is needed to achieve normal human life
expectancy and reduce infant mortality?
Poverty Gap – the ratio by which the mean income of the poor falls below the poverty line
Do poverty traps matter in practice?
- According to Kraay and McKenzie (2014), there is limited evidence.
Poverty Traps and the “Big Push”
- What explains the situation of countries stuck in poverty and stagnation? If they are
“trapped,” what can be done to get them out?
Millennium Villages Project (2005-2015)
- The MVP was an ambitious development initiative launched in 2005 by Jeffrey Sachs
that aimed to demonstrate that targeted investments in key areas, such as
agriculture, health, education, infrastructure, and business development, could help
lift rural African communities out of poverty and set them on a path to sustainable
development.
- The MVP was designed to help communities achieve the UN Millennium
Development Goals (MDGs), which focused on reducing extreme poverty, hunger,
child mortality, and disease while improving education, gender equality, and
environmental sustainability.
- The project involved 14 villages across 10 African countries, including Kenya, Ghana,
Ethiopia, and Uganda, impacting around 500,000 people. The core idea was that a
“big push” in coordinated aid and interventions could help villages escape the poverty
trap, a concept similar to the Malthusian Trap, where low productivity and poor
infrastructure keep communities stuck in a cycle of poverty.
- The project tackled multiple dimensions of poverty simultaneously, applying the
following strategies:
