Aggregate Indicators of Economic Development "Not everything - - PowerPoint PPT Presentation

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Aggregate Indicators of Economic Development "Not everything that counts is countable and not everything that is countable counts." Albert Einstein Fall 2010 Huw Lloyd-Ellis () Aggregate Indicators Fall 2010 1 / 22 Meaning and

SLIDE 1

Aggregate Indicators of Economic Development

"Not everything that counts is countable and not everything that is countable counts." Albert Einstein Fall 2010

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SLIDE 2

Meaning and Measurement

What do we mean by economic development? Why do we need indicators? Does it matter how we measure it?

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SLIDE 3

Real Per Capita GNP (=GNI)

What is real per capita GNP ? GNP versus GDP ? How do we compute growth rates? How can we decompose growth rates? How should we make comparisons across countries?

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SLIDE 4

PPP Example 1

Two countries and two goods Computers Ice Cream Price of Price of Country Produced Produced Computers Ice Cream per Capita per Capita Local Units Local Units Canada 12 4 2 4 Mexico 3 1 1 1

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SLIDE 5

PPP Example 2

What if consumption baskets are not proportional? DVDs Hair Cuts Price of Price of Country Produced Produced DVDs in Hair Cuts in per Capita per Capita Local Currency Local Currency USA 9 4 2 4 China 3 4 10 10

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SLIDE 6

1997 Asian Financial Crisis

Figure: GNP in US$Billions before and after the Asian Finanical Crisis

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SLIDE 7

Figure: Parade of World Income (Weil, 2009)

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SLIDE 8

Figure: Distribution of Growth Rates, 1970-2005 (Weil 2009)

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SLIDE 9

Figure: Twin-peaks distribution dynamics

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SLIDE 10

Dangers of looking only at per capita GNP

Paraguay South Africa Per capita GNP 4,642 11,110 Education enrollment 69.1% 77.0% No Access to Safe Water 14% 12% Share below $2 per day 29.8% 34.1% Life Expectancy 71.3 50.8 Fraction of not reaching 40 9.7% 31.7% Adult literacy 93.5% 82.4% % under 5 who are underweight 5% 12%

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SLIDE 11

The Human Development Index

An attempt to take account of other factors: HDI = 1

3(longevity) + 1 3(knowledge) + 1 3(standard of living)

where for country A longevity = life expectancy in A 25

max. life expectancy 25

knowledge = 2 3(adult literacy index) + 1 3(enrollment rate) standard of living = log (per capita GNP of A) log(100) log (max per capita GNP) log(100)

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SLIDE 12

Figure: Life Expectancy vs. GDP per capita (Weil 2009)

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SLIDE 13

Figure: Average years of schooling vs. GDP per capita (Weil 2009)

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SLIDE 14

Measures of Inequality

The Kuznets ratio The Lorenz curve The Gini coe¢cient

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SLIDE 15

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Figure: The Lorenz Curve

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Figure: The Gini Coe¢cient

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The Kuznets Curve

Figure: Inequality in the UK: 1820-1915

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SLIDE 19

Figure: Inequality vs. per capita income across countries

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SLIDE 20

Measures of Poverty

The Headcount index The Poverty Gap The Human Poverty Index

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SLIDE 21

Poverty vs. Growth

Figure: Relationship between poverty and growth (Weil, 2009)

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SLIDE 22

Ten Common Characteristics of Developing Nations

Low levels of human capital – education and health

Adverse geography

Poor institutions

High dependence on agriculture

Underdeveloped land markets

Underdeveloped …nancial markets

High rates of unemployment

Large rural populations, but rapid rural-urban migration

High rates of fertility

10 Low levels of industrialization and manufactured exports Huw Lloyd-Ellis () Aggregate Indicators Fall 2010 22 / 22