Part 1: Principles and Concepts
Chapter 1: Introducing Economic Development: A Global
Perspective
1.1 Introduction to some of the world’s biggest questions (more indicative)
1.2 How living levels differ around the world (more indicative)
World most fundamental question: why do living conditions differ so drastically
for people across different countries?
1.3 How countries are classified by their average levels of development – a
first look (more indicative as this is discussed in detail in chapter 2)
Countries classified by level of income and human development => next
chapter
1.4 Economics and development studies (important concepts)
Study of how economies are transformed:
- Stagnation => growth
- Low-income => high-income status
+ overcoming problems of absolute poverty
1.5 The meaning of development (important)
Amartya Sen’s “capability” approach: broader than income
= a normative approach to human welfare that concentrates on the actual
capability of persons to achieve their well-being rather than on their mere right
or freedom to do so
- A person’s capability to function is what really matters
What a person is, or can be, and does or can do
What matters for wellbeing is what use someone can and does
make of commodities
- Freedom of choice – control of one’s life
Some important “Beings” and “Doings” in capability to function:
1. Being able to live long
2. Being well-nourished
3. Being healthy
4. Being literal..
Sen: Five sources of difference between (measured) real income and actual
advantages
1. Personal heterogeneities: disability, illness, age, gender
2. Environmental diversities: heating, clothing, requirements, impact of
pollution
3. Variations in social climate: prevalence of crime and violence, social
capital
4. Distribution: within the family
5. Differences in relational perspectives: some good are essential because
of local customs and conventions
1
,Real income is essential, education and health are necessary to convert chara
cteristics of commodities into functionings. Countries may have high
income but inequality, poor health and educational standards… thus growth
without development.
Core values of development:
- Sustenance: ability to meet basic needs – life-sustaining goods (food,
shelter, health, protection)
- Raising levels of living – enhance material well-being and generating
greater self-esteem: higher income, provision of jobs, education, cultural
and human values
- Freedom from servitude: to be able to choose – economic and social
choices
1.6 Happiness and development (more indicative)
Conclusion: high income buys life satisfaction but not happiness, and low
income is associated both with low life evaluation and low emotional well-being
(D. Kahneman & A. Deaton)
1.7 The sustainable development goals: a shared development mission (more
indicative)
Shared Goals & Targets – unified focus
- Millenium Development Goals (MDGs) 2000-2015
Adopted in 2000
8 goals towards the eradication of poverty and achieving human
development
Targets set comparing the levels of 1990 and 2015
- Sustainable Development Goals (SDGs) since 2015
17 goals
Commiting to substantial achievements in ending
multidimensional poverty and improving quality of live
Critics: not prioritized, stand-alone objectives, no structural
changes, fails to account for intensity of poverty
Chapter 2: Comparative Economic Development
2.1 An introduction
Developing countries are often referred to as a ‘group’
Yet the variation among developing countries is sometimes as great as
between developed and developing countries – North-South
2.2 What is the developing world? Classifying levels of national economic
development (important concepts)
Common used indicators:
- Gross National Income (GNI)
- Gross Domestic Income (GDP)
- Purchasing Power Parity method (PPP)
2
,Adjusted for purchasing power parity
- Official exchange rates do not give adequate picture of purchasing power
of developing countries
- Use of the PPP-method: income gap declines, and incomes become less
volatile
Burger economics: compare the prices of Big Macs to illustrate PPP
- We can estimate how much a currency is under -or overvalued relative to
another
Other common country classifications:
1. G7 (richest countries) – G20 (biggest national economies)
2. Least developed countries
3. Landlocked (no seaside) and small island countries
4. Heavily indebted poor countries
5. Newly industrialized countries: early stage of export-led manufacture
growth
6. Emerging markets
2.3 Comparing countries by health and education and the human
development index (important concepts)
Human development index (HDI):
= Holistic measure of living levels: taking everything into account
3 dimensions
Average health Education Levels of living
Life expectancy at Mean years of schooling GNI/capita
birth Expected years of schooling
Calculation:
- Index for every dimension
- Minimum and maximum values for each dimension
(goalposts)
- Values between 0 and 1
Use of HDI:
Advantage - Countries can be ranked on basis of one number
s - Not only income is considered
- Disaggregation possible based on gender, religion, ethic
group
Disadvanta - Weights given are arbitrary
ges - Approaches of measurement of health and education are
not accurate
Alternative methods:
1. Inequality-adjusted human development index
2. Gender inequality index
3. Planetary pressure-adjusted human development index
4. Multidimensional poverty index
3
, 2.4 Key similarities and differences among developing countries (important)
10 characteristics common among developing countries in comparison to richer
countries:
1. Lower level of income and productivity 6. Greater social fractionalization
2. Lower levels of human capital attainments (health, 7. Lower levels of industrialization
education, skills) 8. Geography and resource endowments
3. Higher levels of inequality and absolute poverty 9. Extent of financial development
4. Higher population growth rate and age structure 10. Quality of institutions
5. Larger rural population (rapid rural-to-urban migration
1. Lower level Low income:
of income - 75% of the population lives in countries where the
and consumption per capita was below the world average
productivity
Low productivity:
- Shortage of complementary inputs such as physical
resources, factories, infrastructure…
- Need for investments physical/human capital and
access healthcare
2. Lower levels Very significant progress in health and education indicators
of human yet great disparities
capital Covid19: increase in undernourished people
attainments
3. Higher levels Absolute poverty line: minimum level of income is necessary
of inequality to satisfy a certain amount of physical basic needs (food,
and absolute clothing, shelter)
poverty - Problem: difference within and between countries
Poverty in %: increase but of population growth
Poverty is absolute numbers: increasing slightly
Large progress in Asia, stagnation in Africa
Income distribution:
- Increasing gap within developing countries
- Historical inequality in Latin America, Africa
- Rising inequality in resource-rich countries
- Lower but rising in Asia
4. Population Developing countries:
growth rate - High birth rates -> problem: dependency burden
and age - Higher mortality rates than developed countries
structure -
Dependency burden: the proportion of the total population
aged 0 to 15 and 65+, which is considered economically
unproductive and therefore not counted in labor force
4
Chapter 1: Introducing Economic Development: A Global
Perspective
1.1 Introduction to some of the world’s biggest questions (more indicative)
1.2 How living levels differ around the world (more indicative)
World most fundamental question: why do living conditions differ so drastically
for people across different countries?
1.3 How countries are classified by their average levels of development – a
first look (more indicative as this is discussed in detail in chapter 2)
Countries classified by level of income and human development => next
chapter
1.4 Economics and development studies (important concepts)
Study of how economies are transformed:
- Stagnation => growth
- Low-income => high-income status
+ overcoming problems of absolute poverty
1.5 The meaning of development (important)
Amartya Sen’s “capability” approach: broader than income
= a normative approach to human welfare that concentrates on the actual
capability of persons to achieve their well-being rather than on their mere right
or freedom to do so
- A person’s capability to function is what really matters
What a person is, or can be, and does or can do
What matters for wellbeing is what use someone can and does
make of commodities
- Freedom of choice – control of one’s life
Some important “Beings” and “Doings” in capability to function:
1. Being able to live long
2. Being well-nourished
3. Being healthy
4. Being literal..
Sen: Five sources of difference between (measured) real income and actual
advantages
1. Personal heterogeneities: disability, illness, age, gender
2. Environmental diversities: heating, clothing, requirements, impact of
pollution
3. Variations in social climate: prevalence of crime and violence, social
capital
4. Distribution: within the family
5. Differences in relational perspectives: some good are essential because
of local customs and conventions
1
,Real income is essential, education and health are necessary to convert chara
cteristics of commodities into functionings. Countries may have high
income but inequality, poor health and educational standards… thus growth
without development.
Core values of development:
- Sustenance: ability to meet basic needs – life-sustaining goods (food,
shelter, health, protection)
- Raising levels of living – enhance material well-being and generating
greater self-esteem: higher income, provision of jobs, education, cultural
and human values
- Freedom from servitude: to be able to choose – economic and social
choices
1.6 Happiness and development (more indicative)
Conclusion: high income buys life satisfaction but not happiness, and low
income is associated both with low life evaluation and low emotional well-being
(D. Kahneman & A. Deaton)
1.7 The sustainable development goals: a shared development mission (more
indicative)
Shared Goals & Targets – unified focus
- Millenium Development Goals (MDGs) 2000-2015
Adopted in 2000
8 goals towards the eradication of poverty and achieving human
development
Targets set comparing the levels of 1990 and 2015
- Sustainable Development Goals (SDGs) since 2015
17 goals
Commiting to substantial achievements in ending
multidimensional poverty and improving quality of live
Critics: not prioritized, stand-alone objectives, no structural
changes, fails to account for intensity of poverty
Chapter 2: Comparative Economic Development
2.1 An introduction
Developing countries are often referred to as a ‘group’
Yet the variation among developing countries is sometimes as great as
between developed and developing countries – North-South
2.2 What is the developing world? Classifying levels of national economic
development (important concepts)
Common used indicators:
- Gross National Income (GNI)
- Gross Domestic Income (GDP)
- Purchasing Power Parity method (PPP)
2
,Adjusted for purchasing power parity
- Official exchange rates do not give adequate picture of purchasing power
of developing countries
- Use of the PPP-method: income gap declines, and incomes become less
volatile
Burger economics: compare the prices of Big Macs to illustrate PPP
- We can estimate how much a currency is under -or overvalued relative to
another
Other common country classifications:
1. G7 (richest countries) – G20 (biggest national economies)
2. Least developed countries
3. Landlocked (no seaside) and small island countries
4. Heavily indebted poor countries
5. Newly industrialized countries: early stage of export-led manufacture
growth
6. Emerging markets
2.3 Comparing countries by health and education and the human
development index (important concepts)
Human development index (HDI):
= Holistic measure of living levels: taking everything into account
3 dimensions
Average health Education Levels of living
Life expectancy at Mean years of schooling GNI/capita
birth Expected years of schooling
Calculation:
- Index for every dimension
- Minimum and maximum values for each dimension
(goalposts)
- Values between 0 and 1
Use of HDI:
Advantage - Countries can be ranked on basis of one number
s - Not only income is considered
- Disaggregation possible based on gender, religion, ethic
group
Disadvanta - Weights given are arbitrary
ges - Approaches of measurement of health and education are
not accurate
Alternative methods:
1. Inequality-adjusted human development index
2. Gender inequality index
3. Planetary pressure-adjusted human development index
4. Multidimensional poverty index
3
, 2.4 Key similarities and differences among developing countries (important)
10 characteristics common among developing countries in comparison to richer
countries:
1. Lower level of income and productivity 6. Greater social fractionalization
2. Lower levels of human capital attainments (health, 7. Lower levels of industrialization
education, skills) 8. Geography and resource endowments
3. Higher levels of inequality and absolute poverty 9. Extent of financial development
4. Higher population growth rate and age structure 10. Quality of institutions
5. Larger rural population (rapid rural-to-urban migration
1. Lower level Low income:
of income - 75% of the population lives in countries where the
and consumption per capita was below the world average
productivity
Low productivity:
- Shortage of complementary inputs such as physical
resources, factories, infrastructure…
- Need for investments physical/human capital and
access healthcare
2. Lower levels Very significant progress in health and education indicators
of human yet great disparities
capital Covid19: increase in undernourished people
attainments
3. Higher levels Absolute poverty line: minimum level of income is necessary
of inequality to satisfy a certain amount of physical basic needs (food,
and absolute clothing, shelter)
poverty - Problem: difference within and between countries
Poverty in %: increase but of population growth
Poverty is absolute numbers: increasing slightly
Large progress in Asia, stagnation in Africa
Income distribution:
- Increasing gap within developing countries
- Historical inequality in Latin America, Africa
- Rising inequality in resource-rich countries
- Lower but rising in Asia
4. Population Developing countries:
growth rate - High birth rates -> problem: dependency burden
and age - Higher mortality rates than developed countries
structure -
Dependency burden: the proportion of the total population
aged 0 to 15 and 65+, which is considered economically
unproductive and therefore not counted in labor force
4
