Topic 1: Measuring Development
What are traditional measures of measuring development?
Income
GDP
GNI
Used by World Bank: income produced by residents of that country, e.g. remittances.
What are some wider measures of development?
GDP + Reduction of poverty, inequality and unemployment
Improvement in wellbeing, more broadly understood
What are some problems with comparing exchange rates across countries?
Official exchange rates may be too volatile (and subject to manipulation)
May be drastically different to market exchange rate, so prone to arbitrage.
Low income countries tend to
have managed exchange rates whereas high income countries tend to have free floating.
What are methods of adjusting income (GDP, GNI) figures across countries?
Atlas Method
World Bank categorises countries based on income: LIC, LMC, UMC, HIC
Average of exchange rates over 3 years, adjusted for inflation.
Purchasing Power Parity
Foreign currency required to buy $1 of a standard basket of goods.
Homogeneity.
The Atlas Method and PPP don’t line up very well across countries.
Is income (GDP, GNI) a good measure of development?
Doesn’t say anything about inequality.
Doesn’t show the relative utility of that income.
Sen’s ‘Capability’ approach.
Focusing on what capabilities and freedoms people can access rather than purely income.
e.g. a bike is useful for travel, increasing a person's capability. But this is not reflected in its income value. The value of a bike in income does not reflect the opportunity it brings.
What are methods of measuring development?
HDI: United Nations Human Development Index
Scores development at the country level.
MPI: Multidimensional Poverty Index
Scores development at the individual level, e.g. a person is classed as poor if…
Uses micro-level survey data which is infrequent, so perhaps not accurate.
Sen’s Capability Approach
Focusing on what capabilities and freedoms people can access rather than purely income.
e.g. a bike is useful for travel, increasing a person's capability. But this is not reflected in its income value. The value of a bike in income does not reflect the opportunity it brings.
What is convergence?
Convergence considers growth rates of countries based on their income status.
Small differences in growth rates lead to large differences over time (compounding).
What are the two types of convergence?
Unconditional convergence
Low income countries grow faster and high income countries grow slower.
Catching up over time.
Very weak evidence for this.
Conditional converge
Convergence to a country-specific level based on savings rates, population growth rates, e.g. Solow model steady state.
There is evidence of conditional convergence within specific income groups.
What are traditional measures of measuring development?
Income
GDP
GNI
Used by World Bank: income produced by residents of that country, e.g. remittances.
What are some wider measures of development?
GDP + Reduction of poverty, inequality and unemployment
Improvement in wellbeing, more broadly understood
What are some problems with comparing exchange rates across countries?
Official exchange rates may be too volatile (and subject to manipulation)
May be drastically different to market exchange rate, so prone to arbitrage.
Low income countries tend to
have managed exchange rates whereas high income countries tend to have free floating.
What are methods of adjusting income (GDP, GNI) figures across countries?
Atlas Method
World Bank categorises countries based on income: LIC, LMC, UMC, HIC
Average of exchange rates over 3 years, adjusted for inflation.
Purchasing Power Parity
Foreign currency required to buy $1 of a standard basket of goods.
Homogeneity.
The Atlas Method and PPP don’t line up very well across countries.
Is income (GDP, GNI) a good measure of development?
Doesn’t say anything about inequality.
Doesn’t show the relative utility of that income.
Sen’s ‘Capability’ approach.
Focusing on what capabilities and freedoms people can access rather than purely income.
e.g. a bike is useful for travel, increasing a person's capability. But this is not reflected in its income value. The value of a bike in income does not reflect the opportunity it brings.
What are methods of measuring development?
HDI: United Nations Human Development Index
Scores development at the country level.
MPI: Multidimensional Poverty Index
Scores development at the individual level, e.g. a person is classed as poor if…
Uses micro-level survey data which is infrequent, so perhaps not accurate.
Sen’s Capability Approach
Focusing on what capabilities and freedoms people can access rather than purely income.
e.g. a bike is useful for travel, increasing a person's capability. But this is not reflected in its income value. The value of a bike in income does not reflect the opportunity it brings.
What is convergence?
Convergence considers growth rates of countries based on their income status.
Small differences in growth rates lead to large differences over time (compounding).
What are the two types of convergence?
Unconditional convergence
Low income countries grow faster and high income countries grow slower.
Catching up over time.
Very weak evidence for this.
Conditional converge
Convergence to a country-specific level based on savings rates, population growth rates, e.g. Solow model steady state.
There is evidence of conditional convergence within specific income groups.
