Measuring Development

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POVERTY TRAP/ CYCLES

Measuring Development

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Relative Poverty

Comparative level of poverty Someone is considered to be in relative

poverty if they don’t reach a specified level of income.

In the UK that would be below 60% of the average income

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Absolute Poverty

- Measured in terms of the basic necessities for survival.

- Amount that a person needs to have in order to live - The World bank used an absolute poverty line of US$

1.25 per day. - If a person is below this level- extreme poverty.

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Population below income poverty line

(%) Country $1.25 a day

Mali 50.4

Nigeria 64.4

Central African Republic 62.4

Zambia 64.3

Niger 65.9

Madagascar 67.8

World Bank Absolute Poverty Figures % of population 2009 www.igcseeconomics.com - Resources, Past Papers, Notes, Exercises & Quizes

Poverty Trap

A poverty trap is any linked combination of barriers to growth

and development that forms a circle, thus self-perpetuating

unless that circle can be broken www.igcseeconomics.com - Resources, Past Papers, Notes, Exercises & Quizes

Poverty Cycle

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Growth Development

Low Economic Growth

Low levels of

investment

Low levels of savings

Low Incomes

Low levels education & healthcare

Low levels of human

capital

Low productivity

Examples of Poverty Cycles www.igcseeconomics.com - Resources, Past Papers, Notes, Exercises & Quizes

How do we measure economic development? Single Indicators Single indicators are solitary measures The first is financial GDP per capital and GNI per capita are often

used to assess both growth and development Per capita means per head GDP includes all economic activity regardless

of who owns the assets within the country GNI includes all economic activity but only by

the country’s assets and it doesn’t matter where they operate

If a developing country has a large amount of FDI then the GDP will tend to be much larger than the GNI but it will include profits that are repatriated

Also developing countries often have a large inflow of money sent home by workers living abroad

Hence GNI is the main measure of development

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How do we measure economic development? Single Indicators The second set of financial

measures is GDP per capital at purchasing power parity

The same good can cost different amounts of money in different countries

This means that the purchasing power of the person in the country where the good is cheapest is much higher

The GDP per capita in Nigeria converted into $ is 1,370 but that has much more purchasing power than in the US

We convert this using the PPP exchange rate to try to equate purchasing power

The PPP most widely used is calculated by the World Bank

The economist has another based on the price of a Big Mac and call this the study of Burgernomics!

Watch this video http://www.youtube.com/watch?v=Fmyv6BiNmsU

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How do we measure economic development? Single Indicators The second set of single indicators are health

measures We can measure life expectancy at birth – the

average number of years that a person may expect to live from the time they are born

An increase in life expectancy could be the result of an improvement in health care, clean water, sanitation, education, supplies of food, healthy diets and lifestyles; low levels of poverty and a lack of conflict and would hence show some economic development

The infant mortality rate (number of deaths of babys under the age of 1) are another measure as these are also connected with health care, sanitation, food and poverty

Watch this video http://www.youtube.com/watch?v=jbkSRLYSojo

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How do we measure economic development? Single Indicators The third set of single indicators are

education measures Adult literacy (measuring the proportion

of adults over 15 that can understand, write and read a short statement)

This will be affected by the level of educational opportunities which is heavily influenced by the wealth of a country, the distribution of income and poverty levels

Net enrolment ratio in primary education is another measure which again is affected by the same (wealth, distribution, poverty etc) www.igcseeconomics.com - Resources, Past Papers, Notes, Exercises & Quizes

How do we measure economic development? Composite Indicators Composite indicators are a combination

of single indicators given a weighting The HDI (Human Development Index) is

the most commonly used It is a combination of life expectancy,

adult literacy and standard of living in terms of GDP per capita converted using PPP

The value will be between 0 and 1 (1 being the best)

This table shows that we cannot assume that high GDP means high economic development

Consider Saudi Arabia ranked 40th for GDP per capital but 59th for HDI

Its GDP is significantly more than Argentina but ranked 10 places below in HDI ranking

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How do we measure economic development? Composite Indicators Is the HDI sufficient to measure economic development No but it is more efficient than a simple GDP number It is still just an average number which can mask inequalities within

a country Inequalities may exist between urban and rural citizens, between

men and women and between different ethnic groups

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