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Chapter 2. Measuring Economic Growth and Development. GNP versus GDP. GNP Produced by nationals GDP Produced by residents Easier to track GDP, GDP per capita Real GDP, Real GDP per capita. Value Added. Agriculture. Johnson Farms sells wheat for $0.50.
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Chapter 2 Measuring Economic Growth and Development
GNP versus GDP • GNP • Produced by nationals • GDP • Produced by residents • Easier to track • GDP, GDP per capita • Real GDP, Real GDP per capita
Value Added Agriculture • Johnson Farms sells wheat for $0.50. • Milling Co. sells flour for $1.20. • Bakery makes bread, packages it, and sells it for $2.00. • Publix puts packaged bread on its shelves and sells it for $2.50 • Contribution to GDP = $2.50 $0.50 Manufacturing $0.70 + $0.80 = $1.50 Services $0.50 $2.50
The Three Faces of GDP Production Expenditure Income Consumption Market value of final goods and services Labor Income = = Investment Government purchases Capital Income Net exports
What is left out of the calculation? • Unpaid family workers (child care, farm work) • Reported increases in GDP might just reflect more people working for money, not more work or more production. • Pollution, crime, congestion, etc. • But these lacunae are hard to pin down.
Exchange-rate conversion problems • A dollar goes further in a developing country. • Distorted exchange rate systems • Non-traded goods and services
2007 PPP of the dollar: if burgers cost the same everywhere (after exchanging the currency), Should be the exchange rate.
Purchasing Power Parity official exchange rate = Rs 45/US$1
Purchasing Power Parity • Steel • US$ 200/tn • or US$ 200/tn = (Rs 9000/tn) / (Rs 45/US$1) • Internationally traded: law of one price • Retail Sales Personnel • US$ 5,000/person/yr • or US$ 1,333/person/yr =(Rs 60,000/person/yr) / (Rs 45/US$1) • Non-traded: different prices
Traded / Non-Traded Steel Retail Sales Personnel
Penn World Tables • http://pwt.econ.upenn.edu/ Population Exchange Rate Purchasing Power Parity over GDP Real Gross Domestic Product per Capita Consumption Share of CGPD Government Share of CGDP Investment Share of CGDP Price Level of Gross Domestic Product Price Level of Consumption Price Level of Government Price Level of Investment Openness in Current Prices Ratio of GNP to GDP CGDP Relative to the United States Real GDP per capita (Constant Prices: Laspeyres) Real GDP per capita (Constant Prices: Chain series) Real GDP Chain per equivalent adult Real GDP Chain per worker Real Gross Domestic Income (RGDPL adjusted for Terms of Trade changes) Openness in Constant Prices Consumption Share of RGDPL Government Share of RGDPL Investment Share of RGDPL growth rate of Real GDP per capita (Constant Prices: Chain series) in PWT, "real" means "PPP converted“ instead of "in constant price".
What is Economic Development? • Economic growth (more GDP) • Necessary but not sufficient • GDP can be misspent; invested and not consumed; distributed unequally
What is Economic Development? • Income is one of the factors that expands people’s capabilities, depending on • Personal heterogeneities (age, illness, disabilities) • Environment (climate, natural disasters) • Social climate (crime, civil unrest) • Relative deprivation • ability to take part in life of community
The World Economy: A Millennial Perspective http://www.theworldeconomy.org/publications/worldeconomy/#2
The World Economy: A Millennial Perspective http://www.theworldeconomy.org/publications/worldeconomy/#2
Human Development Index • Focus on people’s capabilities and choices: • Income and resources • Education • Health and life http://hdr.undp.org/en/statistics/
The Human Development Index • Income Index (for HDI) • Diminishing marginal utility of income: log. • PPP income of $100 a year is the least income imaginable a generation back. • PPP income of $40,000 a year is the most income imaginable a generation ahead.
The Human Development Index • Life Expectancy Index (for HDI) • Life expectancy of 25 is the least imaginable a generation back. • Life expectancy of 85 is the most imaginable a generation ahead.
The Human Development Index • Adult Literacy Index (for HDI) • At least 0, at most 100. • Gross Enrolment Index (for HDI) • At least 0, at most 100. % of school-age people in school
The Human Development Index • Education Index (for HDI) • Two-thirds literacy, one-third enrolment. • Human Development Index
The Human Development Index 2006 HDI
The Human Development Index • Is the HDI a good measure of development? • “Being able to live the life that you have reasons to value.” • What is excluded? • Are these good measures of a good life? • Life Expectancy • Adult Literacy • Gross Enrollment • GDP per capita
Millennium Development Goals • Eradicate extreme poverty and hunger • Halve, between 1990 and 2015, the proportion of people whose income is less than one dollar a day • Achieve full and productive employment and decent work for all, including women and young people • Halve, between 1990 and 2015, the proportion of people who suffer from hunger • Achieve universal primary education • Ensure that, by 2015, children everywhere, boys and girls alike, will be able to complete a full course of primary schooling. http://mdgs.un.org/unsd/mdg/Default.aspx
Millennium Development Goals • Promote gender equality and empower women • Eliminate gender disparity in primary and secondary education preferably by 2005, and at all levels by 2015. • Reduce child mortality • Reduce by two-thirds, between 1990 and 2015, the under-five mortality rate. • Improve maternal health • Reduce by three quarters, between 1990 and 2015, the maternal mortality ratio. • Achieve, by 2015, universal access to reproductive health http://mdgs.un.org/unsd/mdg/Default.aspx
Millennium Development Goals • Combat HIV/AIDS, malaria, and other diseases • Have halted by 2015 and begun to reverse the spread of HIV/AIDS. • Achieve, by 2010, universal access to treatment for HIV/AIDS for all those who need it. • Have halted by 2015 and begun to reverse the incidence of malaria and other major diseases. http://mdgs.un.org/unsd/mdg/Default.aspx
Millennium Development Goals • Ensure environmental sustainability • Integrate the principles of sustainable development into country policies and programs; reverse loss of environmental resources. • Reduce biodiversity loss, achieving, by 2010, a significant reduction in the rate of loss • Halve, by 2015, the proportion of people without sustainable access to safe drinking water and basic sanitation (for more information see the entry on water supply). • By 2020, to have achieved a significant improvement in the lives of at least 100 million slum-dwellers http://mdgs.un.org/unsd/mdg/Default.aspx
Millennium Development Goals • Develop a global partnership for development • Develop further an open trading and financial system that is rule-based, predictable and non-discriminatory. Includes a commitment to good governance, development and poverty reduction—nationally and internationally. • Address the special needs of the least developed countries. This includes tariff and quota free access for their exports; enhanced program of debt relief for heavily indebted poor countries; and cancellation of official bilateral debt; and more generous official development assistance for countries committed to poverty reduction. http://mdgs.un.org/unsd/mdg/Default.aspx
Millennium Development Goals • Develop a global partnership for development (cont.) • Address the special needs of landlocked and small island developing States. • Deal comprehensively with the debt problems of developing countries through national and international measures in order to make debt sustainable in the long term. • In cooperation with pharmaceutical companies, provide access to affordable essential drugs in developing countries. • In cooperation with the private sector, make available the benefits of new technologies, especially information and communications http://mdgs.un.org/unsd/mdg/Default.aspx