Caloocan Campus

FECOMATH Department

Subject: ECONOMIC DEVELOMENT(BBE4303) Prof. Annie Lee G. DeBelen, MBA

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Continued Lecture..........

MEASURING ECONOMIC SUCCESS

GNP shows us the economy’s performance, whether it is growing or shrinking, healthy or sick. When GNP
increases, the economy is EXPANDING. When GNP decreases, the economy is CONTRACTING. GNP can be used also to
compare one country’s economy with the economy of another and with itself over time.

TYPES of ECONOMIC DEVELOPMENT:

a. Infrastructure – foundational services that improve the efficiency of an

economy such as the internet backbone.
b. Education –institutions, systems, tools and facilities that support the acquisition
of knowledge and skills.
c. Health & Wellness –health care like HOSPITALS and wellness programs such
as After-School Sports Program.
d. Justice –an open and fair system of law provided by law enforcement, administrative bodies,
courts and other systems such as HUMAN RIGHTS TRIBUNAL. Fairness is a Key, a justice system
that isn’t perceived as FAIR can hinder ECONOMIC DEVELOPMENT.
e. Safety –the system that make feel they live in a safe and stable environment including areas
such as CRIME PREVENTION, DISASTER PREPARENESS and INFORMATION SECURITY.
f. Human Rights – principles and frameworks that guarantee human rights such that PEOPLE ARE
FREE TO PURSUE HAPPINESS. For example, a CONSTITUTION that upheld by the
branches of the government.
g. Consumer Protection –regulating the quality, commercial terms and safety of the products/services.
For example, a SYSTEM that ensures that food products are safe and healthy.
h. Fair Competition –bodies that ensure free competition to prevent ANTI-COMPETITIVE practices that
inhibit the efficiency of market.
i. Markets – markets for securities, assets, goods/services that are fair, efficient and liquid.
j. Finance – stable, reputable and efficient financial institutions and systems. For example, a NATION where
it is easy to get a loan when you are reasonably likely to pay it back.
k. Political Stability-a fair system of politics such that a population has trust in its leaders and administrators
and feel the things are always getting better.
l. Culture-preservation of the things that people value like art, performance art, literature, festivals, rituals
and pastimes. Support creative pursuits and cultural industries.
m. Transportation- accessibility and efficient in terms of both time and money.
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 n. Energy- a system of energy production and distribution that provides ample energy w/o polluting
the environment.
o. Water- infrastructure that provides a region with water security such as infrastructure for
groundwater recharge.
p. Food- about food security, a region that grows much of its food including a diversity of crops.
q. Information Technology- technology companies, IT infrastructure and a significant pool of people
who are knowledgeable about technology.
(i.e- Software Developers, Computer Engineers and Architects)
r. Research- research and related things such as Science Facilities, Universities and Space Program.
s. Service Economy – developed economies are undergoing a shift whereby services are increasingly large
component of economic output. As such, the transition from an industrial economy
to economic development.
t. Knowledge Economy- a shift to jobs that require and produce significant knowledge such as MEDICAL
RESEARCH or SOFTWARE DEVELOPMENT
u. Experience Economy- products and services that compete at the level of customer experience such as
VIDEO GAME or RESORT HOTEL.
v. Sustainability & Resilience – a nation that has a systems and practices designed to endure TIME & STRESSES.
For example, Industries that don’t create harmful waste or consume excessive resources.

Other EXAMPLE of ECONOMIC DEVELOPMENT:

a. Tax Incentives For New Businesses

b. When a country begins to produce more products and increase its overall wealth.
(measured by an increased in GDP or other measure of AGGRERATE INCOME)
c. Political concerns
i.e.- US and China Trade war/ OPEC Oil Embargo/ Economic sanctions with Iran/ Countries that violate Human
Rights/Engage in Nuclear Weapon Proliferation etc. Etc.
d. Concerns that protect the public
i.e.- Zoning Laws/ Building Codes/ Bayanihan Heal As Once Act during covid19 pandemic/Mandatory use of facial
mask/Hard Lockdown/ ECQ

A developed country is A NATION THAT OFFERS ECONOMIC SECURITY and a HIGH QUALITY OF LIFE TO ITS
POPULATION. The following are the BASIC CHARACTERISTICS of a DEVELOPED COUNTRY.

GROSS NATIONAL PER CAPITA

A high per capita INCOME calculated as the ECONOMIC OUTPUT OF A NATION divided by its POPULATION.
It should be noted that in some countries this number is heavily influenced by a small number of individuals who hold
significant wealth.

HEALTH
Access to modern healthcare. Often measured with AVERAGE LIFE EXPECTANCY and UNDER-FIVE MORATLITY
RATES.

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EDUCATION
Access to education. Often measured as the PERCENTAGE OF THE POPULATION who complete a minimum
number of years of school.

INDUSTRIALIZATION
An industrialized nation is a country with a large manufacturing sector. Historically, developed and
industrialization where virtually synonymous.

SERVICE ECONOMY
The service economy is a NATION’S OUTPUT OF SERVICES. For example, TRAVEL, RESTAURANTS, SOFTWARE &
BUSINESS SERVICES. Developed nations are experiencing a shift whereby services are increasing important to
ECONOMIC OUTPUT.

KNOWLEDGE ECONOMY
The knowledge economy is the development of VALUABLE KNOWLEDGE such as PROCESSES, PROCEDURE,
METHODS, DESIGNS, FORMULATIONS & SOFTWARE. This includes creative OUTPUTS such as an ADVERTISING
CAMPAIGN that generates feelings for a BRAND. It is possible that highly developed nations of the future will mostly
shift into a SERVICES and KNOWLEDGE ECONOMY and INDUSTRIAL PRODUCTION will be viewed as a smaller part of
the WORLD’S ECONOMIC OUTPUT.

INFRASTRUCTURE
SOFT INFRASTRUCTURE such as public institutions and HARD INFRASTRUCTURE such as bridge.
INFASTRUCTURE makes a nation more productive, efficient, stable and attractive to the LABOR and CAPITAL. As
such, it is one of the PRIMARY ADVANTAGES that highly developed nations have over developing countries.
STABILITY
Another condition for economic prosperity is POLITICAL , ECONOMIC and SOCIAL STABILITY. This includes
physical and information security such that people feel they live in a SAFE PLACE.
Economic security such as public health care and pension system shelters people and gives them room to
pursue knowledge and experimentation required to innovate.

QUALITY OF LIFE
As the world becomes economically prosperous, competition between nations is shifting towards the happiness
of people. All else being equal, a nation with CLEAN AIR is considered more developed than a nation with polluted air.
This is usually captured as a MEASUREMENT known as a QUALITY OF LIFE that is based on asking a population if they
are HAPPY.
Quality of life is an ECONOMIC ADVANTAGE in a knowledge economy where global competition for talent can
be intense. In many cases, TALENTED INDIVIDUALS WILL AVOID WORK IN A POLLUTED, DANGEROUS, UNSIGHTLY or
UNINTERESTING CITY.

Example of HIGHLY Developed Countries:

1. Norway 5. Singapore 9. Ireland 13. Italy
2. Australia 6. Hongkong 10. USA 14. Belguim
3. Switzerland 7. Canada 11. Japan 15. South Korea
4. Germany 8. Denmark 12. France 16. United Kingdom

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OVERVIEW: Developed Country
Type Economic Development
Definition A nation that offers ECONOMIC SECURITY and a
HIGH QUALITY OF LIFE to its population.
Related Concepts Economic Development
Economic Security
Quality of Life
Tyranny of Averages
Education
Industrialization

A major goal of poor countries is economic development or economic growth. The two terms are not identical.
Growth may be necessary but not sufficient for development. ECONOMIC GROWTH refers to increases in a country’s
production or income per capita. PRODUCTION is usually measured by Gross National Product (GNP) or Gross National
Income (GNI), used interchangeably, an economy’s total output of goods and services.(see Box below)

What is GNI?

- It is the total domestic and foreign output claimed by residents of a country, consisting of gross
domestic product (GDP) plus factor incomes earned by foreign residents, minus income earned in the
domestic economy by non-residents.

Assume that in 2003, GNI for India is Rs. (rupees) 25,000 billion and its population 1067 million, so that GNI per
capita is Rs. 23,430. The GNI in 2004, Rs. 31,533 billion, must be divided by the GNI price deflator, 110 (corresponding to
an annual inflation rate of 10 percent) to give a GNI of Rs. 26,866 billion at constant (2003) prices. This figure, divided by
the population in 2004, 1085.5 million, nets a GNI per capita of Rs. 24,750. Real economic growth (growth in GNI per
capita) from 2003 to 2004 is (if expressed in 2003 constant prices).

(24,750 − 23,430/23,430) × 100 = 5.6 percent

This growth rate is used by such organizations as the World Bank for average annual growth rate, 2003–04. At a
2004 exchange rate of Rs. 50 = $1, India’s GNI per capita of Rs. 29,049 is US$580 (at 2004 prices), used by the World
Bank as GNI per capita. We need to adjust nominal GNI per capita by using the PPP exchange rate, that rate at which the
goods and services comprising the GNI cost the same in both India and the United States. Using P = 6.13, the price level
of GNI or purchasing power adjusted GNI, gives PPP$3,555 per capita, a more accurate indication of the average Indian’s
purchasing power expressed in U.S. dollar terms.

What has been happening to poverty? What has been happening to unemployment? What has been happening
to inequality? If all three of these have become less severe, then beyond doubt this has been a period of development
for the country concerned. If one or two of these central problems have been growing worse, especially if all three have,
it would be strange to call the result “development,” even if per capita income has soared. (Seers 1969:3–4)

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 At the U.N. Millennium Summit in September 2000, world leaders adopted the Millennium Development Goals
(MDGs), setting “targets for reducing poverty, hunger, disease, illiteracy, environmental degradation, and discrimination
against women” (U.N. Development Program 2000). The project is directed by Columbia University’s Jeffrey Sachs, with
advice from senior representatives from U.N. agencies and an International Advisory Panel, with independent experts in
relevant fields, supported by the research of thematically-orientated task forces. The MDGs, using 1990 as a benchmark,
set targets for 2015. The targets include:

1. Reducing the people suffering from hunger and living on less than a dollar a day from one of six billion (17%) to half
that proportion
2. ensuring that all boys and girls complete primary school (at present, 113M children do not attend school)
3. promoting gender equality and empowering women by eliminating gender disparities in primary and secondary
education by 2005, and at all levels by 2015 (at present, two-thirds of illiterates are women)
4. reducing by two-thirds mortality among children under five years (presently 11M children die before their fifth
birthday, mainly from preventable illnesses)
5. reducing the percentage of women dying in childbirth by three-fourths (now one in 48 die in childbirth, despite the
fact that virtually all countries have safe programs for mothers)
6. halting and reversing the spread of HIV/AIDS, malaria, tuberculosis, and other diseases (at present, 40 million people
live with HIV, including five million newly infected in 2001, despite the fact that Brazil, Senegal, Thailand, and Uganda
show that the spread of HIV can be stemmed)
7. ensuring environmental sustainability, by reversing the loss of environmental resources, reducing by half the
proportion of people without access to safe drinking water by 2015, and achieving significant improvement in the lives
of at least 100M slum dwellers (now “more than one billion people lack access to safe drinking water and more than two
billion lack sanitation”)
8. developing a global partnership for development, including an open trading and financial system, a commitment to
good governance, reducing the debt burden of developing countries, reducing the poverty of least developed countries,
providing productive employment for youth, providing access to affordable essential drugs in developing countries, and
making available the benefits of new technologies, especially in telecommunications (U.N. Development Program
2002b).

During the first decade of the 21st century, world leaders discussed how to finance projects embodying these
goals (a U.N. conference in Monterrey, Mexico, March 2002), interim progress reports, and final recommendations.
The United Nations points out development goals achieved in the past: eradicating smallpox (1977), reducing
diarrhoeal deaths by half (during the 1990s), and cutting infant mortality rates (the annual number of deaths of infants
under one year of age per 1,000 live births) to less than 120 (in all but 12 LDCs by 2000) (U.N. Development Program
2003:31). Thus, although most MDG goals appear daunting, we can expect some progress.
Timothy Besley and Robin Burgess (2003:3–22) estimate that in LDCs, the elasticity of poverty with respect to
income per capita (percentage change in poverty/percentage change in income per capita) is −0.73, meaning that a
doubling in average income will reduce poverty rates by 73%. The annual growth rate in per capita income needed to
halve world poverty by 2015 is 3.9%. If you assume that world regions continue their 1960–90 growth, only the growths
of East Asia and the Middle East will exceed the rates needed to halve regional poverty by 2015.

In Nigeria, Ethiopia, and Zambia, neither growth nor development took place in the last quarter of the 20th
century. In Kenya and Malawi, growth took place without much development. In most of Asia and parts of Latin
America, both growth and development took place (inside front cover table).
Economic development can refer not only to the rate of change in economic wellbeing but also to its level.
Between 1870 and 1998, Japan had a rapid rate of economic development. Its real (inflation-adjusted) growth rate in
GNP per capita was about 2.6 percent yearly, and there was substantial technical innovation, improved income
distribution, and a decline in the share of the labor force in agriculture. In addition, Japan has a high level of economic
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development – its 2003 nominal per capita GNI, $34,510, placed it among the four richest countries in the
world (inside front cover table). Other measures indicate most Japanese are well fed and housed, in good health, and
well educated. Only a relative few are poor. This discussion will use both meanings of economic development.

BASIC INDICATORS OF DEVELOPMENT: Real Income, Health and Education

In this section, we examine basic indicators of THREE FACETS of DEVELOPMENT: real income per capita adjusted
for purchasing power; health as measured by life expectancy, undernourishment, and child mortality; and educational
attainments as measured by literacy and schooling.

PURCHASING POWER PARITY (PPP)

What is PPP?
Calculation of GNI using a common set of international prices for all goods and services, to provide more
accurate comparisons of living standards.

In accordance with the World Bank’s income-based country classification scheme, gross national income (GNI)
per capita, the most common measure of the overall level of economic activity, is often used as a summary index of the
relative economic well-being of people in different nations.

It is calculated as the total domestic and foreign value added claimed by a country’s residents without making
deductions for depreciation (or wearing out) of the domestic capital stock. Gross domestic product (GDP) measures
the total value for final use of output produced by an economy, by both residents and non-residents. Thus, GNI
comprises GDP plus the difference between the income residents receive from abroad for factor services (labour and
capital) less payments made to non-residents who contribute to the domestic economy. Where there is a large
non-resident population playing a major role in the domestic economy (such as foreign corporations), these differences
can be significant.
In 2011, the total national income of all the nations of the world was valued at more than U.S. $66 trillion, of
which about $47 trillion originated in the economically developed high-income regions and about $19 trillion was
generated in the less developed nations, despite their representing about five-sixths of the world’s population. In 2011,
Norway had 240 times the per capita income of Ethiopia and 63 times that of India.

Per capita GNI comparisons between developed and less developed countries like those shown in Figure 2.2
are, however, exaggerated by the use of official foreign-exchange rates to convert national currency figures into U.S.
dollars. This conversion does not measure the relative domestic purchasing power of different currencies. In an attempt
to rectify this problem, researchers have tried to compare relative GNIs and GDPs by using purchasing power
parity (PPP) instead of exchange rates as conversion factors.

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 PPP is calculated using a common set of international prices for all goods and services. In a simple version,
purchasing power parity is defined as the number of units of a foreign country’s currency required to purchase the
identical quantity of goods and services in the local developing country market as $1 would buy in the
United States. In practice, adjustments are made for differing relative prices across countries so that living standards
may be measured more accurately.

Generally, prices of nontraded services are much lower in developing countries because wages are so much
lower. Clearly, if domestic prices are lower, PPP measures of GNI per capita will be higher than estimates using
foreignexchange rates as the conversion factor. For example, China’s 2011 GNI per capita was only 10% of that of the
United States using the exchange-rate conversion but rises to 17% when estimated by the PPP method of conversion.
Income gaps between developed and developing nations thus tend to be less when PPP is used.