Chapter 2

Comparative
Economic
Development

Copyright © 2009 Pearson Addison-Wesley. All rights reserved.

Country Classifications

World Bank ranks countries on GNI per capita

• Low Income Countries (LIC)

• Low Middle Income Countries (LMC)
• Upper Middle Income Countries (UMC)
• High Income Countries (HIC)
• Organization for Economic Cooperation and
Development (OECD)
Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 2-2
Classification of Economies by Region
and Income in 2007

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 2-3

Classification of Economies by Region and
Income, 2007
(Latin America and the Caribbean) (Sub-Saharan Africa)

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 2-4

Classification of Economies by Region and
Income, 2007

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 2-5

Nations of the World, Classified by
GNI Per Capita

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 2-6

 Measuring Development

• Gross National Income (GNI)

• Gross Domestic Product (GDP)

• Purchasing Power Parity (PPI): method

instead of exchange rates as conversion
factors

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 2-7

Income Per Capita in Selected
Countries

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 2-8

Comparison of Per Capita GNI, 2005

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 2-9

Basic Indicators of Development

• Health Conditions

• Life Expectancy

• Education Achievements

• Human Development Index (HDI): a composite

measure of living standards

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 2-10

Commonality and Diversity:
Some Basic Indicators

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 2-11

Human Development Disparities

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 2-12

Human Development Disparities

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 2-13

Human Development Index:
23 Countries, 2004

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 2-14

Human Development Index:
23 Countries, 2004

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 2-15

Human Development Index Variations:
Similar Incomes, 2004

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 2-16

Common Characteristics of LDCs:

1. Lower levels of living and productivity

2. Lower levels of human capital investment

(health-care, education, skills)

3. Higher levels of income inequality and

poverty

4. Higher population growth rates

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 2-17
Shares of Global Income, 2005

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 2-18

Most and Least Populated Countries
and Their Per Capita Income, 2005

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 2-19

Child Mortality Rates, 1990 and 2005

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 2-20

Primary School Enrollment and
Pupil-Teacher Ratio

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 2-21

Correlation between Child Mortality
and Mother’s Education

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 2-22

People Living in Poverty, 1981-2002

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 2-23

Common Characteristics of LDCs:

5. Greater social fractionalization

6. Larger rural population, but

rapid rural-urban migration

7. Lower levels of industrialization and

manufactured exports

8. Adverse geography and resource endowment

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 2-24

Urban Population in LDCs

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 2-25

Share of Population Employed in Industry
2000-2005 (%)

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 2-26

Common Characteristics of LDCs:

9. Underdeveloped financial and other markets

– Imperfect markets
– Incomplete information

10. Colonial legacy and external dependence

– Institutions
– Private property
– Personal taxation
– Taxes in cash rather than in kind

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 2-27

LDCs Today vs. MDCs Then

1. Physical and human resource endowments

2. Per capita incomes and levels of GDP

3. Climate

4. Population size, distribution, and growth

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 2-28

LDCs Today vs. MDCs Then

5. Historic role of international migration

6. International trade benefits

7. Scientific innovation & technological advancement

8. Effectiveness of domestic institutions

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 2-29

Convergence?

• The closing economic and technological

gaps between LDCs and MDCs?

• Evidence of unconditional convergence is

hard to find

• Per capita income convergence?

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 2-30

Convergence in OECD
Divergence in the World

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 2-31

Per Capita GDP Growth in LDCs,
1995-2005

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 2-32

Growth Convergence and
Income Convergence

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 2-33