Economic (development)
diversity in world economy
Class 1
2015/2016
THE DEVELOPMENT GAP –
IS IT NARROWING OR
WIDENING?
Development gap
• The causes of the development gap
• The consequences of the development
gap
• Reducing the development gap
But first:
•
•
Identify the evidence that there is a develpment gap
Determine the extent to which this is shrinking or widening
What development is?
• Development is a complex social, economic and
political phenomenon. It is about economic growth
and social progress involving living standards and
wealth.
•
The UNDP (UN development programme) describes
development as: 'the three essentials of development
include the ability to lead a long and healthy life, to
acquire knowledge, and to have a decent standard of
life'.
•
Some people also believe that the political health of a
country is an important factor in its development,
which includes freedom of speech and demonstration.
• Poverty?
• Inequality?
• Vulnerability?
• Poverty defined as whether households or
individuals have enough resources or
abilities today to meet their needs;
inequality in the distribution of income,
consumption or other attributes across the
population; and vulnerability, defined as
the probability or risk today of being in
poverty – or falling deeper into poverty -in
the future.
facts…
• Almost half the world (>3 billion) live on <$2.50
a day.
• The GDP of the 41 ‘Heavily Indebted Poor
countries’ (567 million people) is less than the
wealth of the world’s 7 richest people
combined.
• Nearly a billion people entered the 21st century
unable to read a book or sign their names.
Other facts…
• Less than one per cent of what the world spent
every year on weapons was needed to put
every child into school by the year 2000 and yet
it didn’t happen.
•
•
•
•
•
1 billion children live in poverty (1 in 2 in the world).
640 million people live without adequate shelter.
400 million have no access to safe water
270 million have no access to health services.
10.6million died in 2003 before they reached the age
of 5 (or roughly 29,000 children per day)
The North South Divide
• 1980 – The West German Chancello Willy Brandt
produced „The Brandt Report”
• The report identified „the Development Gap”.
The Rich North
The Poor South
Brandt line
Simply he said
• The North possess 80% of the world’s wealth
• The South only 20%
Positives of the Map:
- Simplifies data, so that it’s easy to understand
- GDP is used, which is an easy to access data source
Negatives of the Map:
- Doesn’t include some countries which are more
economically developed
- Generalised patterns with some countries above the
Brandt line less developed less tan some below
Measuring the GAP
• Measurements require data
• Data is based on the formal economy
• Ignores much unpaid, subsistence and
informal work
• Two indicators are commonly used:
- GDP
- GNI
GDP
• Gross Domestic Product
• value of goods and services produced in a
country over a year.
• Divided by the population to give
a per capita value which is converted to
US$ to enable comparisons
GNI
• Gross National Income
• Like GDP but also includes income from
overseas investments. As such is a better
measure than GDP
• Like GDP it is given as a per capita value
What’s wrong with these two
measures?
• Non of these take into account the Purchasing
Power Parity, i.e. what this income is actually
worth in terms of the cost of living
• As $100 in the UK will buy a lot less than a $100
in the USA even more so from a country like
China
• China’s GDP in 2009 was $ 4,985 however
when converted to PPP$ it was $ 9,104, this
show it is cheaper to live here than in the USA
WORLD STRUCTURE (GDP criterium)
• Low income countries- $ 750 or less
• Middle income countries:
lower middle-income countries
$ 746 - 2975
upper middle-income countries
$ 2976 - 9205
• High income countries - $ 9206 or more
•
•
•
•
High income
Upper-middle income
Lower-middle income
Low income
The North (rich) –South (poor)
Advanced economies
Emerging and developing economies (not least developed)
Emerging and developing economies (least developed)
Are this only measure of
development?
• Try to think of diffrent ways that we can
measure development.
The Human Development Index
(HDI)
• Copmposite index that measures a country’s
average achievements in three basic aspects of
human developmnet: health, knowledge, and a
decent standard of living
• Health is measured by life expectancy at birth
• Knowledge is measured by a combination of the
adult literacy rate and the combined primary,
secondary and tertiary gross enrolment ratio
• Standard of living - by GDP per capita (PPP
US$)
The HDI Value
• The value range from 1 (high) to 0 (low)
• Longest live expectancy is in Japan – 82;
lowest – Zambia- 32
• Japan = 1, Zambia= O (country with – 57
could be 0,5)
• This is done for each of the three
measures
• http://hdr.undp.org/en/data/map/
HDI group of countries
most developed countries - 0,8 - 1,0
developed countries - 0,7 -0,8
middle developed countries - 0,5 - 0,7
less developed countries - 0,5 -0,0
•
•
•
•
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DC – Developed country
NCI - Newly industrialized country
RIC – Russia, India and China
MEDC – Middle economically developed country
LEDC - Less economically developed country
LDC - Least Developed Countries
FCC- Former Communist Countries
Current NIC
South Africa
Mexico
Brazil
China
India
Malaysia
Philippines
Thailand
Turkey
Current LDC -48
1. Africa – 33 countries
2. Asia+ Oceania – 14
countries
3. Haiti
BRICS
POVERTY IN LESS DEVELOPING
COUNTRIES
Scarcity of some production’s factors :
Capital
Skilled labor
Main problems:
poltical instability
insecure property rights
misguided economic policies
Direct results of poverty
• No investments in capital and
skills
• Reducing economic efficiency
• No possibility to use
economies of scale
• Low level of per-capita income
Wealthy countries do not
wholly consist of ‘haves’ , and
even the poorest countries
have their fair share of wealthy
people.
National income distribution
Sierra Leone
Niger
Thailand
Australia
Poorest 10%
Richest
Norw ay
0
10
20
30
% national incom e
40
The LEDC countries have the
worst income distribution, with
10% of their country’s people
surviving on 1-2% of income,
whilst a wealthy elite 10% get
around 40% of national income.
The picture is more balanced in
the MEDCs, but still unequal.
• In many countries the
development gap is an urban –
v- rural gap.
• This is especially true in LEDCs
where urban areas tend to have
better services and more
opportunities.
• The development shouldn’t just be
thought of in financial terms, although
this is a crucial part of it.
• If we take the ‘best’ and the ‘worst’
countries in terms of the Human
Development Index and compare them
directly, some other contrasts are
evident:
NORWAY HDI SIERRA LEONE
= 0.94
HDI = 0.17
Income per capita
Democracy
yes
no
Conflict / War
no
yes
% GDP agriculture
3
42
% literacy M/F
100/100
45/18
% people < 1$ a day
<1
57
Gov spending on
health / education
7.1% / 7.7%
0.9% / 1%
To summarise, the ‘haves’ usually have
money, a meaningful vote, freedom of
speech, human rights, plus the right to
an education, healthcare and long life.
The ‘have nots’ lack some, or all,
of these.
What is the development gap?
• The development gap is the
divide between rich and poor,
or ‘haves’ and ‘have nots’ .
• This exists at several levels.
The ‘haves’, at a global scale
represent the richest 20% of
people, who consume around
80% of all resources.
The global ‘have nots’ are the
poorest 20% of people who
earn only 1.1% of global
income.
The gap that separates rich & poor
nations is real and has divided the
world in two.
Shrinking this gap is no simple task,
but doing so will save lives and
generate innumerable benefits
for all.
Causes of development gap