Different stages of development NOTES

Economic Development

·         Wider than economic growth

·         Involves improved living standards, reducing poverty, expanding the range of economic/ social choices and increasing freedom/self-esteem.

·         As economy develops, population increases.

The different stages of development

·         Developed economies have high incomes, high living standards, a high proportion of workers employed in the tertiary sector, high levels of productivity and high levels of investment.

·         Developing economies tend to have lower incomes, lower living standards.

·         United Nations divides countries into three levels :
- High human development
- Medium human development
- Low human development

·         World Bank divides countries into :
- High income
- Middle income
- Low income

Measures of development

·         Common method used is Real GDP per head. It measures important aspects – like material living standards but does not measure all aspects of development.

·         A wider measure used is Human Development Index (HDI) which involves life expectancy, educational attainment and real GDP per head.

·         The following is how countries are classified in HDI :
- Over 0.8 – high development
- 0.5 – 0.79 – medium development
- Below 0.5 – Low development

·         Costa Rica, Vietnam and Zaire are ranked higher in terms of HDI than real GDP per head.

·         Kuwait, Pakistan and Saudi Arabia are ranked higher in terms of real GDP per head than HDI

Characteristics of DEVELOPING Economies

Ø  Low incomes per head : On an average, generally people in developing countries are poorer than people in developed countries

Ø  Low levels of saving due to low income : Saving of a country where average income is low, is likely to be low

Ø  Low life expectancy and high infant mortality rate : The expectation to live upto a certain age is different in each country. For example in Japan it is 83 years but in Zimbabwe it is 37 years

Ø  High rates of population growth : In developing countries, the birth rates exceeds death rates and there is a high dependency ratio.

Ø  Low levels of education and health care : Results in low levels of productivity

Ø  Low levels of capital goods and poor infrastructure : Reduce productivity

Ø  Poor housing and sanitation : A significant number of people may not have access to clean water for drinking and washing

Ø  Relatively high number of workers, employed in the primary sector : Underemployment can be high which may lower productivity

Ø  Concentration on a narrow range of exports : Developing countries can be subject to the underdevelopment trap or vicious circle of poverty.

LOW INCOME

                           

                                                                 

LOW SAVING

LOW PRODUCTIVITY

LOW INVESTMENT

 

The Vicious Circle

Differences between developing countries

·         No two developing countries are the same and a developing country may not have all the characteristics expected

·        Some such as Brazil, may lack resources to meet basic human needs. However its real GDP per head is rising and the country is slowly moving from low skilled to higher skilled manufacturing. Its financial sector is also growing

Why governments seek to achieve development

-          Higher Real GDP

-          Higher Living Standards for their citizens

-          Expansion of range of economic and social choices

·        Higher Real GDP : With this, country’s population should be able to enjoy more goods and services. When the income is distributed evenly and poverty is reduced,  all the people will have access to higher living standards which will help achieve development.

·        Higher living standards : A reduction in poverty will bring benefits to both the poor and the wider society.
Benefits to the poor :

-         Access to basic necessities

-         Improves mental and physical health

-         Raises expectations

Benefits to the wider society :

-          People become more productive  which will lower the country’s average costs

-          Makes the country more internationally competitive

-          Reduces pollution as people have more access to sanitation and environmentally friendly forms of heating.

·        Expansion of range of economic and social choices : Includes increasing access to education, health care and participation in the political process. This improves the quality of people’s lives and enhances the future economic performance.
Economic development can create a virtuous circle.

HIGH INCOME

                           

                                                    

HIGH SAVING

HIGH PRODUCTIVITY

HIGH INVESTMENT THE VIRTUOUS CIRCLE