Comparative Economic Development
CHAPTER – 2
Comparative Economic Development
Of course there must be differences between developing
countries, but to maintain that no common ground
exists is to make any discussion outside or across the
frontiers of a single country meaningless.
JULIAN WEST, Oxford University
The developing countries tend to have common in -
Lower levels of living and productivity
Lower levels of human capital
Higher levels of inequality and absolute poverty
Higher population growth rates
Greater social fractionalization
Larger rural populations but rapid rural-to-urban migration
Lower levels of industrialization
Adverse geography
Underdeveloped financial and other markets
Lingering colonial impacts such as poor institutions and
often external dependence
Defining developing world
The most common way to define the developing world
is by per capita income
In the World Bank’s classification system, 209
economies with a population of at least 30,000 are
ranked by their levels of gross national income (GNI)
Developing countries are those with low, lower-middle,
or upper-middle incomes
A special distinction that have achieved relatively
advanced manufacturing sectors as “newly
industrializing countries” or NICs
Developing country
A developing country, also called a lower developed
country, is a nation with an underdeveloped industrial
base, and low Human Development Index (HDI)
relative to other countries.
On the other hand, since the late 1990s developing
countries tended to demonstrate higher growth rates
than the developed ones.
Developing country
The World Bank and the United Nations use different
terminology to define developing countries. Various
terms are used for whatever is not a developed country.
Terms used include less developed country (LDC) or
less economically developed country (LEDC), and for
the more extreme, least developed country (LDC) or
least economically developed country (LEDC).
The World Bank’s main criteria for classifying
economies are gross national income (GNI) per capita,
previously referred to as gross national product, or GNP.
Developing country
The World Bank classifies countries into four income
groups. These are set each year on July 1. Economies
were divided according to 2011 GNI per capita using the
following ranges of income:
Low income countries had GNI per capita of US$1,026 or
less.
Lower middle income countries had GNI per capita
between US$1,026 and US$4,036.
Upper middle income countries had GNI per capita
between US$4,036 and US$12,476.
High income countries had GNI above US$12,476.
Developing country
Criteria for what is not a developed country can be
obtained by inverting the factors that define a
developed country:
people have lower life expectancy
people have less education
people have less money (income)
Measure and concept of development
The development of a country is measured with
statistical indexes such as income per capita (per
person) (gross domestic product), life expectancy, the
rate of literacy (ignoring reading addiction), etc.
The UN has developed the Human Development Index
(HDI), a compound indicator of the above statistics, to
gauge the level of human development for countries
where data is available.
The UN sets Millennium Development Goals (MDGs)
from a blueprint developed by all of the world's
countries and leading development institutions, in
order to evaluate growth.
Measure and concept of development
Developing countries are, in general, countries that
have not achieved a significant degree of
industrialization relative to their populations, and have,
in most cases, a medium to low standard of living.
There is a strong association between low income and
high population growth.
Measure and concept of development
The terms utilized when discussing developing
countries refer to the intent and to the constructs of
those who utilize these terms.
Other terms sometimes used are less developed
countries (LDCs), least economically developed
countries (LEDCs), "underdeveloped nations" or Third
World nations, and "non-industrialized nations".
Conversely, developed countries, most economically
developed countries (MEDCs), First World nations and
"industrialized nations" are the opposite end of the
spectrum.
Growth of Developing Countries
The table below shows the annual percentage change
of global output by region, showing that developing
countries tend to demonstrate higher growth rates
than the developed ones.
Region 2007 2008 2009 2010
World Output 5.4 2.9 -0.5 5.0
Advanced Economies 2.7 0.2 -3.4 3.0
Emerging and Developing Economies 8.8 6.1 2.7 7.3
Least Developed Countries 9.0 6.9 5.2 5.3
Growth of Developing Countries
Factors Stimulating Growth
Human Capital
Trade Policy: Countries with more restrictive
policies have not grown as fast as countries with
open and less distorted trade policies.
Investment: Investment has a positive effect on
growth.
Knowledge Gap
Growth of Developing Countries
Factors Hindering Growth
Illness/Disease: Illness imposes high and regressive cost
burdens on families in developing countries.
Malnutrition/Underdevelopment of the body and brain:
More than 200 million children under five years of age
in developing countries do not reach their
developmental potential.
Knowledge gap
Political Instability
How low income countries differ from
developed countries
Physical and human resource endowments
Per capita incomes and levels of GDP in relation to the
rest of the world
Climate
Population size, distribution and growth
Historical role of international migration
International trade benefits
Basic scientific and technological research and
development capabilities
Efficacy of domestic institutions
Human Development Index
The latest and most ambitious attempt to analyze
the comparative status of socioeconomic
development such as we have just reviewed in both
developing and developed nations systematically and
comprehensively has been undertaken by the United
Nations Development Program (UNDP) in its annual
series of Human Development Reports.
The centerpiece of these reports, which were
initiated in 1990, is the construction and refinement
of the Human Development Index (HDI).
Human Development Index
The HDI attempts to rank all countries on a scale of
0 (lowest human development) to 1 (highest human
development) based on three goals or end products
of development:
Longevity as measured by life expectancy at birth,
Knowledge as measured by a weighted average of adult
literacy (two-thirds) and mean years of schooling (one-
third), and
Standard of living as measured by real per capita income
adjusted for the differing purchasing power parity (PPP) of
each country to reflect cost of living and for the
assumption of diminishing marginal utility of income.
Human Development Index
The HDI ranks all countries into three
groups:
Low human development (0.0 to 0.499),
Medium human development (0.50 to 0.799), and
High human development (0.80 to 1.0).
Calculation of HDI
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