Chap.

30-Economic and
Human Development
Done by: Khadeja, Sophia and Sama
 Learning Objectives:

 Comparison of economic growth across time and

countries.
 The characteristics of countries at different levels of
development in terms of demographic factors, income
distribution and economic structure.
 Economic Growth

 Having seen the gap in living standards between countries, an important

question to be addressed is whether that gap is being eroded over time. In
other words, are LDCs beginning to catch up with the higher-income
countries? The catch-up hypothesis argues that this convergence should be
possible, as late-developing countries should be able to take lessons from the
experience of countries that went through economic growth earlier. However,
there may be many reasons why such learning is more difficult than it sounds.

 Explanation: It explores whether less developed countries (LDCs) are catching

up with higher-income nations regarding living standards. The catch-up
hypothesis suggests that LDCs can reduce this gap by learning from the
economic growth experiences of wealthier countries. However, the process
might be more challenging than anticipated due to various factors.
 Figure 30.9 Textbook Page 472-473
 HICs have shown relatively weak average growth rates.
This means that these countries have experienced
slower economic growth over a certain period.
 South Korea (exception within the group of HICs) with
an average growth rate of more than 3% per annum.
This implies that South Korea has experienced strong
economic growth, outperforming other high-income
nations.
 China is shown as a dominant force in economic
growth, with an average growth rate exceeding 8%
over the specified period. This rapid growth has
contributed significantly to China's emergence as a
major economic player on the global stage.
 Middle-income countries are noted to have fared well
during the period in question, suggesting that they
might be starting to narrow the economic gap with
higher-income countries. This could imply that these
countries are experiencing relatively faster economic
growth rates.
 LICs with the exception of South Korea, outperformed
the HICs in terms of growth rates. However, it is
acknowledged that this may have been influenced by
the financial crisis, which might have
disproportionately affected the higher-income nations.
Summary with Real-life Application:
The Covid-19 pandemic threatens to interrupt economic growth and
human development across the globe. Many LDCs are seen to have
relatively weak healthcare systems, and infrastructure that makes
controlling the pandemic challenging. It remains to be seen how this will
affect countries in the future.
To conclude: It might be expected that countries would tend to converge
in average incomes over time, but this is a very slow process, so the gap
in living standards is persistent over time.
^
This statement suggests that while it's natural to anticipate countries
gradually reaching similar average incomes, this convergence happens at
a sluggish pace. Consequently, the disparity in living standards persists
over extended periods despite the expectation of eventual convergence.
 30.2 Country Characteristics
 Different countries are at different stages of
development, as measured either by GNI per capita
or by the Human Development Index (HDI). It seems
clear that some countries have been much more
successful than others in pursuing economic and
human development. Some countries in East Asia
have achieved rapid economic growth and have been
able to close the gap in living standards. There are
others, especially in sub-Saharan Africa, which seem
to have stagnated, making little or no progress in
growth terms since the 1960s, although some
progress has been made in the last 20 years or so. So
what characteristics have made economic progress
so difficult for some countries? It is important to try
to explain why different combinations of these
characteristics may have joined with cultural,
political, and social influences to result in different
experiences of growth and development.
EXPLANATION: Countries vary in their
development stages, gauged by indicators
like GNI per capita or the Human
Development Index (HDI). Certain East Asian
nations have achieved rapid economic
growth, narrowing the living standards gap.
Conversely, some sub-Saharan African
countries have experienced stagnation since
the 1960s, although slight progress has been
observed in recent decades. Understanding
the factors hindering economic progress in
different countries requires analyzing a
blend of economic, cultural, political, and
social influences.
 Continuation:
 The Human Development Index (HDI) encompasses indicators like
income, education, and health, reflecting the quality of life and
human development in a country. Low and medium human
development nations often exhibit low income levels, limited
education, and poor health outcomes. Education and health are not
only vital for enhancing quality of life but also contribute to human
capital formation. Education serves as an investment, providing skills
essential for future income generation, while health influences
productivity. The low levels of human capital in many Less Developed
Countries (LDCs) not only impact productivity but also hinder the
adoption of new technologies requiring skilled workers.
 Demographic Factors:
 Summary:
Demographic factors play a significant role in shaping the development
landscape of Less Developed Countries (LDCs). Rapid population growth is a
prominent concern in countries like Ethiopia and Uganda, where it's
believed to outpace the expansion of education and healthcare services.
Early development thinkers, such as Thomas Malthus, held pessimistic views
about development, arguing that real wages would remain at subsistence
levels due to diminishing returns to labor. Malthus believed that as
populations grew, average wages would decline, as a larger labor force
would be less productive. He also suggested that higher wages would lead to
increased birth rates and decreased death rates, exacerbating the
population pressure on resources.`
 For these reasons, Malthus believed that it was not possible for a society to
experience sustained increases in real wages, basically because the
population was capable of exponential growth, while the food supply was
capable of only arithmetic growth because of diminishing returns. Although he
was proved wrong (he had not anticipated the improvements in agricultural
productivity that were to come), the question of whether population growth
constitutes an obstacle to growth and development remains. At the heart of
this is the debate about whether people should be regarded as key
contributors to development, in their role as a factor of production, or as a
drain on resources, consuming food, shelter, education and so on. Ultimately,
the answer depends on the quantity of resources available relative to the
population size.
 Demographic factors play a significant role in shaping the
development landscape of Less Developed Countries (LDCs). Rapid
population growth is a prominent concern in countries like Ethiopia
and Uganda, where it's believed to outpace the expansion of
education and healthcare services. Early development thinkers, such
as Thomas Malthus, held pessimistic views about development,
arguing that real wages would remain at subsistence levels due to
diminishing returns to labor. Malthus believed that as populations
grew, average wages would decline, and a larger labor force would be
less productive. He also suggested that higher wages would lead to
increased birth rates and decreased death rates, exacerbating the
population pressure on resources.
 Rapid Population Growth

 The paragraph (from tbook) highlights the global trend of rapid

population growth, emphasizing that the world's population surpassed
7 billion in 2013, compared to just 1 billion in 1800. Despite this
growth, the distribution is uneven, with a majority residing in low-
and lower-middle-income countries. Notably, while some countries
like Germany and Japan are expected to experience declining
populations, sub-Saharan Africa continues to grow at a rate of 2.5%
annually. Such rapid growth poses significant challenges, particularly
in providing essential services like education and healthcare,
especially considering that a population growing at 2.5% annually will
double in just 28 years. Moreover, the high proportion of young people
in sub-Saharan Africa adds to the pressure on resources to meet their
needs.
 The Demographic Transition
Definition of Demographic
Transition:
The process through which many
countries have been observed to
pass whereby improved health
lowers the death rate, and the
birth rate subsequently also falls,
leading to a low and stable
population growth
It has been observed that
developed countries seem to
have gone through a common
pattern of population growth
as their development
progressed. This pattern has
become known as the
demographic transition and is
illustrated in Figure 30.12
 Figure 30.12 Textbook page 476
 Demographic transition is illustrated in
Figure 30.12 for England and Wales
between 1750 and 2000. This shows the
birth rate and death rate for various years
over this period. Remember that the
natural rate of increase in population is
given by the difference between these:
the birth rate minus the death rate. (This
ignores net migration.)
 Between 1750 and 1820, the death rate
fell faster than the birth rate,
accelerating population growth during
Britain's Industrial Revolution. After 1870,
both birth and death rates declined, with
the birth rate decreasing more sharply. By
2000, natural population growth reached
zero, signifying a balance between births
and deaths.
 Summarising Figure 30.13:
In Sri Lanka, the transition from high to low birth
rates occurred more slowly compared to England
and Wales. This delay resulted in a period of
rapid population growth before stabilization
occurred. Similarly, in many sub-Saharan African
countries like Uganda, while death rates have
declined, birth rates remain high. This
combination leads to a high natural rate of
population growth. For instance, in Uganda,
despite a significant drop in death rates from
1990 to 2017, birth rates also decreased but
remained relatively high, resulting in a natural
population growth rate of 3.2% annually by the
end of the period.
 Figure 30.15 Textbook Page 478
 Figure 30.15 illustrates fertility rates across
countries, ranked by Gross National Income (GNI)
per capita measured in PPP$. The fertility rate
reflects the average number of births per woman,
with Uganda, for instance, recording 5.1 births
per woman. However, this figure doesn't
necessarily equate to the average number of
children per family due to infant mortality. High
fertility rates contribute to a youthful population
structure, with over 40% of Uganda's population
under 14 years old in 2018. This demographic
pattern strains resources as the country must
provide education and healthcare for numerous
children, posing a developmental challenge.
While some argue that people themselves are a
resource, there's a delicate balance between
population growth and resource availability.
 Optimum Population :
 An advanced hypothesis suggests that every country
Definition of Optimum
Population:
 The ideal size of population for
a country given the standard of
living that can be achieved
with the resources available.
has an optimal population size to attain a good
standard of living within available resources. Sub-
Saharan African countries are perceived to have
populations exceeding this optimum, partly due to a
youthful population structure requiring support from
the working population and investment in education,
nutrition, and healthcare. Conversely, some countries
face the challenge of an aging population due to
extremely low fertility rates, resulting in pressure on
health services and pension systems. This perspective
highlights the importance of balancing population size
with available resources to sustain a desirable
standard of living.
Income distribution; Lorenz curve:
 The inequality in the distribution of income
is a common characteristic of many less
developed countries. The Lorenz curve
depicts the distribution of income within a
country in a graphical way, it is related to the
Gini coefficient, which quantifies the degree
of inequality in a society.
 In this diagram, the curves for Pakistan, USA, and China are based on the
data in the table.

Firstly, convert the numbers in the table into cumulative percentages – in

this case, the data shows that the poorest 20% receive 8.9% of total
household income, the poorest 40% receive 8.9% + 12.2% = 21.1%, the
poorest 60% receive 21.1% + 15.6% = 36.7%, and so on. It is these
cumulative percentages that are plotted to produce the Lorenz curve,
which also plots the lowest and highest deciles.

What if income were perfectly and equally distributed between

households? Where the poorest 10% of households received exactly 10% of
income, the poorest 20% received 20% and so on. Then the Lorenz curve
would be a straight line going diagonally across the graph.

Interpretation of the country curves:

Figure 30.16 Lorenz curves - The closer a country; 's Lorenz curve is to the diagonal equality line, the
more equal the distribution is. In this case, Pakistan is closest to the
equality line, bearing out the earlier conclusion that income is more
equally distributed in that country.
- On the other hand, the USA and China curves are closer together, but
there is slightly more inequality in the USA, as its Lorenz curve is
further away from the equality line.
- Brazil’s Lorenz curve serves as an example of a society with substantial
The Gini coefficient and Lorenz curve:
The Gini coefficient is an indicator that quantifies the degree of
inequality in a society. In terms of the Lorenz curve, the Gini
coefficient does this by calculating the ratio of the area between
the equality line and the country’s Lorenz curve (Area A) to the
whole area under the equality line (Area A + B).

In terms of published data, the Gini coefficient is shown as a

percentage. The closer the Gini coefficient is to 100, the further the
Lorenz curve is from equality, and thus the more unequal the
income distribution.

This table shows that South Africa is the closest country to a 100%
Gini coefficient and thus its Lorenz curve is farthest from equality
compared to Belarus; with a 25.4% Gini coefficient and has the
most inequality in its income distribution.
The Kuznets curve; the relationship between the Gini coefficient and the
level of development:
The Kuznets Curve is an economic theory developed by economist Simon Kuznets in the
1950s. It suggests that as a country undergoes economic development and
industrialization, income inequality initially increases and then decreases over time hence
there is a relationship between the degree of inequality in the income distribution and
the level of development that a country has achieved.

The curve illustrates an inverted U-shape, implying that in the early stages of economic
development, income is fairly equally distributed with everyone living at a low-income
level. However, as development begins to take off there will be some individuals at the
head of enterprise and development, and their incomes will rise rapidly.

In the middle phase, as a country undergoes industrialization and economic development,

certain factors contribute to worsening income distribution. Rapid industrialization often
leads to the concentration of wealth among a few elite individuals or corporations. The
demand for skilled labor may also result in higher wages for those with advanced skills,
further worsening income inequality. Additionally, the lack of comprehensive social
policies during this phase can contribute to the widening gap between the rich and poor.

At a later stage of development, society will be able to afford to redistribute income to

protect the poor, and all will begin to share the benefits of development.
Economic structure:
To evaluate the characteristics of LDCs, the structure of economic activity needs to be
considered.

One way is to consider the separation between primary, secondary, and tertiary production
activities.

- The primary sector involves the extraction of minerals and oil, forestry, fishing, and so on.
- The secondary sector is where these raw materials or crops are processed/transformed
into goods. It includes multiple forms of manufacturing activity, ranging from the
processing of food to the manufacture of motor vehicles or computer equipment.
- The tertiary sector involves the provision of services, it includes transport and
communication, hairdressing, financial services, and so on.
Economic structure in terms of employment
in agriculture:
Many LDCs have an economic structure that is
strongly biased toward agriculture.

The figure shows the percentage of employment in

the agricultural sector in our selected countries, and
this shows the importance of agriculture in many
LDCs, which will be further reinforced by the
importance of unrecorded agricultural production in
the subsistence sector. In other words, if farmers
produce food for their consumption, this will not be
included in GDP.
Economic structure in terms of percentages
of the population in urban areas:

The passage talks about how in many low income countries, most people work in the countryside, not
in cities. There's a big difference between city and countryside life, like how much money people
make and the access to education and healthcare. Some countries have both traditional countryside
jobs and newer city jobs. This inequality between regions can make people move from the
countryside to cities, hoping for better pay and living conditions. Families might also send some
members to work in the city while others stay in the countryside to spread the risk. These differences
can affect the overall development of the country.
Trade patterns:
Trade patterns refer to the distribution and flow of goods and services between countries or regions.
Several factors influence trade patterns, and they can vary based on economic development, resources,
technological capabilities, and geopolitical considerations

An example from the textbook estates that less developed countries (LDCs), particularly in sub-Saharan
Africa, heavily depend on agriculture for jobs and income. The low productivity in agriculture can result
in low rural incomes. Improving agricultural productivity is challenging, making it difficult for these
countries to actively engage in international trade. Despite this, some LDCs heavily rely on exporting
primary goods, and even small enterprises, like local farmers in remote areas such as Uganda, participate
in exporting activities. However, these small farmers face challenges, as they depend on traders who
travel around rural areas to buy and sell their produce. The lack of easy access to information about city
prices, limited storage, and market facilities hinder their ability to scale up production. The passage
highlights that the increasing use of mobile phones is helping address these challenges, allowing farmers
to stay connected, access market information, negotiate better prices, and make informed decisions
about their crops.
Volatility of commodity prices:
Reliance on primary exports can create vulnerability.

In the short run, many primary product prices tend to be volatile/unstable, thus creating
uncertainty – this volatility may arise on the supply side due to changes in the weather, or on the
demand side if demand varies on the business cycle.

In the long run, there may be a tendency for the terms of trade (TOT) to move against primary
producers in favor of manufactured goods.

The Prebisch-Singer hypothesis is an observation that the terms of trade for primary products
relative to manufactures will tend to deteriorate in the long run – it argues that such tendency
would result partly because of the low-income elasticity of demand for primary products
(especially food) compared with manufactured goods.

Additionally, the production of primary goods faces diminishing returns to scale (occurs when
increasing the inputs in the production process leads to proportionately smaller increases in
output), whereas manufacturing activity enjoys economies of scale such as R&D or bulk
purchasing. This suggests that the technology of production can influence prices, although this
may be outweighed by the occurrence of imperfect competition in manufacturing.
Contrasting patterns of development:
1. The East Asian experience
The East Asian tiger economies, characterized by rapid growth, sparked hope for other less developed countries to improve living standards. The term 'East
Asian miracle' was coined to describe these economies' rapid development. The success was attributed to four countries: Hong Kong, Singapore, South Korea,
and Taiwan, with Malaysia and Thailand following closely behind.

The Tigers' economy expanded by being open to international trade and focusing on export markets, allowing them to sell to a larger market and improve
efficiency through economies of scale. This led to a period of export-led growth, as they expanded by selling their exports and building a reputation for high-
quality merchandise. This was helped by their choice to move into areas of economic activity that were being vacated by the more developed nations, which
were moving on to new sorts of products.

Export-led growth is a situation in which economic growth is achieved through the exploitation of economies of scale, made possible by focusing on exports
and so reaching a wider market than would be available within the domestic economy.

The success of tiger economies can be attributed to various factors, including nurturing human capital and attracting foreign investment. Their governments
intervened to influence economic direction, encouraged market efficiency, which promotes macroeconomic and political stability, and developed robust
infrastructure. These economies also experienced growth during a time of expanding world trade.

2. Sub-Saharan Africa
The success of tiger economies in sub-Saharan Africa is in stark contrast to the experiences of countries in the region. The GNI per capita in 2000 was lower
than in 1975 or earlier, indicating a concerning trend in the region.
The reason Sub-Saharan Africa has not grown is that the region lacks the favorable conditions necessary for tiger economies to succeed. For nations where
demand is weak, export-led growth creates a challenge; moreover, low levels of human and physical capital, a lack of skills, and widespread poverty make it
difficult to establish new specializations.

3. Latin America
Latin American countries such as Argentina, Brazil, and Mexico, experienced rapid economic growth, qualifying as 'newly industrialized economies'. However,
such growth was hindered by high inflation rates, particularly during the 1980s. Many countries experienced hyperinflation, inhibiting economic growth.
This was partly due to fiscal indiscipline, with governments spending heavily and financing it through printing money. Many countries were relatively closed
to international trade, leading to unsustainable international debt.