COUNTRY DEVELOPMENT &

GDP

• Countries are unequally endowed with natural capital

• Natural capital: the extension of the economic notion of capital to goods and services relating to the natural environment

• Some countries benefit from fertile agricultural soils, while others have to put a lot of effort into artificial soil amelioration (improvement).

• Some countries have discovered rich oil and gas deposits in their land, while others have to import most fossil fuels.

• In the past, a lack of wealth of natural capital made a big difference in countries’ development.

• However, today, this is not the most important determinant of development success.

WHAT DOES DEVELOPMENT MEAN TO YOU?

UNITED NATIONS PERSPECTIVE ON DEVELOPMENT“The basic purpose of development is to enlarge people's choices. In principle, these choices can be infinite and can change over time. People often value achievements that do not show up at all, or not immediately, in income or growth figures: greater access to knowledge, better nutrition and health services, more secure livelihoods, security against crime and physical violence, satisfying leisure hours, political and cultural freedoms and sense of participation in community activities. The objective of development is to create an enabling environment for people to enjoy long, healthy and creative lives.”

Mahbub ul Haq (1934-1998)

Founder of the United Nations Human Development Report

From: http://hdr.undp.org/en/humandev/

MEASURING DEVELOPMENT

• There is not one single way to calculate the level of development of a country

• Studying development is about measuring how developed one country is compared to other countries.

• Geographers use a series of development indicators to compare the development of one country to another.

• What might some of these indicators be?

SIMPLE INDICATORS OF DEVELOPMENT• Levels of poverty• Literacy• Life expectancy• Gross Domestic Product (GDP)• Gender equality• Rate of deforestation• Per cent of waste recycled• Murder rate

• Balance of trade• Greenhouse gas emissions• Renewable energy production• Gap between richest and

poorest

Put these 12 possible indicators into three categories.

• Levels of poverty• Literacy• Life expectancy• Gross Domestic Product (GDP)• Gender equality• Rate of deforestation• Per cent of waste recycled• Murder rate• Balance of trade• Greenhouse gas emissions• Renewable energy production• Gap between richest and poorest

• Economic• Social• Environmental

BASIC INDICATOR CATEGORIES• Health – does the population have access to medical care?

• Industry – what type of industry dominates?

• Education – does the population have access to education? Is it free? What level of education is available (ie. Primary, secondary, tertiary, etc)?

• Gross Domestic Product – the total value of goods and services produced by a country

• Birth rate – the number of babies born per 1000 (higher number = less developed)

• Life expectancy – the average age to which a person lives (UK ~79, Kenya ~48)

• Literacy rate – the percentage of adults who can read and write (UK ~99%, Kenya ~85%, India ~60%)

• Doctors per 100,000 – tells us how rich a country is

• Below are a lot of indicators from the World Development Indicators (WDI) covering 214 countries from 1960 to 2011

• http://data.worldbank.org/indicator

• The productivity with which countries use their productive resources (physical capital, human capital and natural capital) is widely recognised as the main indicator of their level of economic development.

MORE ACCURATE MEASUREMENTS

• To get a more holistic perspective on a country’s level of development we use composite indices that combine data on a range of developmental indicators.

• The most widely used and respected is the Human Development Indix (HDI), developed by the United Nations.

HUMAN DEVELOPMENT INDEX• A combined score is given to countries based on equal

weighting of:• Health • Wealth• Education

• The highest potential score is 1.0.• http://hdr.undp.org/en/data • In 2013, Norway was the highest with 0.944. Australia is

second with 0.923. Niger is last, with 0.337.• FYI: Tonga is #100, Samoa is #104, South Korea is #16, Romania is #55, USA is #5,

China is #93, Afghanistan is #169

IS HDI THE PERFECT MEASURE OF DEVELOPMENT?• Some countries take individual perspectives on how to

best develop. The King of Bhutan strives to increase the country’s Gross National Happiness, rather than their GDP.

• http://www.grossnationalhappiness.com/ • Some people criticise the HDI for having no environmental

component.• The UN has developed a new composite indices to

examine the role of women, those in extreme poverty and levels of technology.

• Does this mean no composite index can be truly holistic and practical to use?

• Economists comparing the development of different countries should calculate how productively they are using their capital.

• Economists use gross national product (GNP) and gross domestic product (GDP) per capita for the same purpose.

• GNP: An economic statistic that includes GDP, plus any income earned by residents from overseas investments, minus income earned within the domestic economy by overseas residents.

• GDP: The monetary value of all the finished goods and services produced within a country's borders in a specific time period, though GDP is usually calculated on an annual basis.

• The World Bank uses GNP per capita to classify countries as follows:• Low-income ($765 or less GNP per capita in 1995)• Middle-income ($766-$9,385 GNP) or

• Includes lowe-middle-income ($766-$3,035 GNP) and upper-middle-income ($3,036-$9,385 GNP)

• High-income ($9,386 or more GNP)

• All $ amounts are US$.

IN 1995

• 16% of the world lived in high-income countries• 28% in middle-income countries, and• 56% in low-income countries.• In other words, more than half of the world lives

below the $765 GNP mark.

GDP & GNP• GDP – gross domestic product• is the market value of all officially recognised final

goods and services produced within a country in a given period.

• GNP – gross national product• is the market value of all products and services

produced in one year by labour and property supplied by the residents of a country.

• Unlike GDP, which defines production based on the geographical location of production, GNP allocates production based on ownership.

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HOW GDP & GNP ARE CALCULATED• GDP – is calculated as the value of the total final output of

all goods and services produced in a single year within a country’s boundaries.

• GNP – is GDP plus incomes received by residents from abroad minus incomes claimed by non-residents.

• There are two ways of calculating GDP and GNP:

1. By adding together all the incomes in the economy – wages, interest, profits, and rents.

2. By adding together all the expenditures in the economy – consumption, investment, government purchases of goods and services and net exports (which is exports minus imports).

•In theory, the results should be the same – one person’s expenditure is always another person’s income.•When the calculations include only incomes received or expenditures made by a country’s citizens, the result is GNP.•When the calculations made up of all incomes (or expenditures) that originated within the country’s boundaries, including those of foreign citizens, the result is GDP.

GDP AND GNP PER CAPITA

• GDP and GNP can serve as indicators of the scale of a country’s economy.

• But to judge a country’s level of economic development, these indicators have to be divided by the country’s population.

• GDP per capita and GNP per capita show the approximate amount of goods and services that each person in a country would be able to buy in a year if incomes were divided equally.

Per capita means ‘by or for each individual person’.

PER CAPITA LIMITATIONS• Although they reflect the country’s average incomes, GNP and

GDP per capita have numerous limitations when it comes to measuring people’s actual well-being.

• They do not show how equitably a country’s income is distributed.

• They do not account for pollution, environmental degradation, and resource depletion.

• They do not register unpaid work done with the family and community, or work done in the shadow economy.

• They attach equal importance to “goods” (such as medicines) and “bads” (such as cigarettes and chemical weapons) while ignoring the value of leisure and human freedom.

Shadow economy, black market or underground economy is a market in goods or services which operates outside the formal one(s) supported by established state power.

• To judge the relative quality of life in different countries, one should also take into account other indicators showing, for example, the distribution of income and incidence of poverty, people’s health and longevity, access to education, the quality of the environment, and more.

ECONOMIC STABILITYEconomic stability refers to an absence of excessive fluctuations in the macro economy.

An economy with fairly constant output growth and low and stable inflation would be considered economically stable.

An economy with frequent large recessions, a pronounced business cycle, very high or variable inflation, or frequent financial crises would be considered economically unstable.

WHY IS GLOBAL ECONOMIC STABILITY IMPORTANT?• Promoting economic stability is partly a matter of avoiding economic and financial

crisis. It also means avoiding large swings in economic activity, high inflation, and excessive volatility in exchange rates and financial markets. Instability can increase uncertainty and discourage investment, impede economic growth, and hurt living standards. A dynamic market economy necessarily involves some degree of instability, as well as gradual structural change. The challenge for policymakers is to minimize the instability without reducing the economy’s ability to raise living standards through higher productivity, efficiency, and employment.

• Economic and financial stability is both a national and a multilateral concern. As recent experiences in world financial markets have shown, countries have become more interconnected. Problems in one apparently isolated sector can result in problems in other sectors and spillovers across borders. No country is an “island” when it comes to economic and financial stability.

From: http://www.imf.org/External/np/exr/facts/globstab.htm

FOR YOUR ASSIGNMENT• You need to address the economic issues including

level of development, GDP and economic stability.

• To help with this have a look at https://www.cia.gov/library/publications/the-world-factbook/index.html (CIA World Fact Book).

• This site offers economic information for individual countries which will help you to make decisions on a country’s economic stability.