jan svejnar university of michigan november 2006 economic development: overview

Jan SvejnarUniversity of Michigan

November 2006

Economic Development:Overview

Introduction Development = a post WWII phenomenon World Bank (WB), IMF, GATT, UN = key institutions IMF – surveillance, macro-lending and tech. assistance WB – sectoral, project and program financing,

technical assistance WB and IMF established at Bretton Woods in 1944

Original goal – postwar reconstruction => economic development

Considerable resources Emphasis on “professionalism” Approach to development (make-up of staff) varies over time Official capital flows (complement bilateral and private flows) Critiques

What do we mean by development?

“By the problem of economic development I mean simply the problem of accounting for the observed pattern, across countries and across time, in levels and rates of growth of per capita income. This may seem too narrow a definition, and perhaps it is, but thinking about income patterns will necessarily involve us in thinking about many other aspects of societies too, so I would suggest that we withhold judgment on the scope of this definition until we have a clear idea of where it leads us.”

Robert E. Lucas (1988)“[W]e should never lose sight of the ultimate purpose of the exercise, to treat men and women as ends, to improve the human condition, to enlarge people’s choices… A unity of interest would exist if there were rigid links between economic production (as measured by income per head) and human development (reflected by human indictors such as life expectancy or literacy or achievements such as self-respect, no easily measured). But these two sets of indicators are not very closely related.

Paul P. Streeton [1994]

Social Indicators as Measures of Development:

Physical Quality of Life Index (PQLI)Developed by M. D. Morris. Based on an unweighted average of each of the following indices going from 1 to 100 (with 100 being “best”):

Life Expectancy at Age 1 Index =1 for lowest value (35 in Guinea-Bissau) Index = 100 for highest value (79 in Sweden)

Infant mortality Scaled to: 1 - 100; upper limit of 9/1000 achieved in

Sweden Literacy (Actual percent)

Social Indicators as Alternative Measures of Development:

Human Development Index (HDI)Undertaken by the UNDP and found in the Human Development Report (annual series, begun in 1990). Ranks countries on a scale of 0 (worst) to 1 (highest level of human development) based on 3 goals: Longevity (life expectancy at birth) Knowledge (weighted average of adult literacy

(66%) and mean years of schooling (33%)) Standard of Living (real per capita income in PPP)

Life Expectancy at Birth (years)

65.4

74.3

65.3

59.1

54.5

48.3

67.5 68.5

76.3

68.5

64.6

59.5

50

69.6

78.3

70.968.5

63.5

45.6

68.2 68.5

0

10

20

30

40

50

60

70

80

90

East Asia &Pacific

Europe &Central Asia

High income Latin America &Caribbean

Middle East &North Africa

South Asia Sub-SaharanAfrica

1982

1992

2003

Infant Mortality Rate (per 1,000 live births)

43.6

38.6

9.3

42.6

59.7

88.5

109.8

32.229.2

5.4

27.7

45.1

66

101

0

20

40

60

80

100

120

East Asia &Pacific


High income Latin America& Caribbean



1990

2003

Number of people living on less than $1 per day

Source: World Bank, Global Economic Prospects 2002

7 2.4 6 2.5Middle East & North Africa

77 15.2 74 16.9Latin America & Caribbean

260 14.2 452 27.6East Asia & Pacific

490 36.9 495 44.1South Asia

300 46.7 242 47.6Sub-Saharan Africa

17 3.6 7 1.5C. & E. Europe & C. Asia

1999Millions % of pop

1990

Millions % of pop

What other measures might we have of poverty?

As suggested by Sen, Easterly and Meier? Freedom

Economic: Debt bondage Political: ability to make public decisions Social: Violence against ethnic minorities;

women(example of Kader Mia a Muslim daily laborer)

-4.38

2.32

0.80

0.11

3.30

6.31

4.02

1.751.30

2.27

4.04

1.38

-0.89

7.33

-6.00

-4.00

-2.00

0.00

2.00

4.00

6.00

8.00

East Asia &Pacific





1986-1995 1996-2005

Note: For Europe & Central Asia the average is from 1990 – 1995

Source: World Bank World Development Indicators

Average GDP per Capita Growth (annual %)

0

50

100

150

200

250

300

350

400

450

Official flows

Private flows

Source: World Bank – Global Development Finance 2006

Net Resource Flows to Developing Countries(Billion USD)

3.1 2.1 1.7 2.5 1.9

33.9

23.521.4 20.6 24.1 23.2

18.0

0.8 0.60.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

East Asia &Pacific





Gross FDI (% of GDP) Gross capital formation (% of GDP)


Average Annual Investment 1990 – 2004

(% of GDP)

FDI inflows and Investment as % of GDP

Source: EIU

FDI inflows and total gross investmentAverage 1998 - 2006

0

5

10

15

20

25

30

Poland Ireland Portugal Hungary Spain Czech Republic SlovakRepublic

% o

f G

DP

FDI Total investment

Energy Use (kg of oil equivalent per capita)

727

3390

4934

10691187

408

674904

2697

5395

1156

1504

468667

0

1000

2000

3000

4000

5000

6000

East Asia &Pacific





1992

2002

GDP per unit of energy use (constant 2000 USD per kg of oil equivalent)

0.740.57

4.61

3.23

1.21

0.83 0.80

1.10

0.80

5.05

3.25

1.11 1.010.85

0.00

1.00

2.00

3.00

4.00

5.00

6.00

East Asia &Pacific


High income Latin America& Caribbean



1992

2002

Internet Users (per 1,000 people)

0.5 3.6

24.8

2.1 0.2 0.1 0.4

68.2

161.0

366.5

106.1

46.1

10.519.7

0

50

100

150

200

250

300

350

400

East Asia &Pacific





1995

2003

Personal Computers (per 1,000 people)

7.528.1

255.8

29.416.1

2.1 7.626.3

73.4

459

67.4

31.1

6.8 11.9

0

50

100

150

200

250

300

350

400

450

500

East Asia &Pacific





1997

2002

Telephone Mainlines (per 1,000 people)

4

79

360

4521

3 715

149

485

76

46

161

228

550

170

133

39

11810

0

100

200

300

400

500

600

East Asia &Pacific





1983

1993

2003

Source: World Bank. World Development Indicators.

(per 1,000 people)

2003 Technological Coverage

178

105

201

428

106 111

535

190

255

86

256

488

219

68

223 230

179

251

170 169147

66

113

646

82

23

75

119

49

197

5467

82

4361

659

0

100

200

300

400

500

600

700

LatinAmerica &Caribbean

Argentina Bolivia Brazil Chile Colombia Costa Rica Jamaica Mexico Peru Venezuela UnitedStates

Mobile phones Telephone mainlines Personal computers

Source: World Bank – Global Development Finance 2003; and William Davidson Institute calculations

Illiteracy Rate(% of people ages 15 and above)

4.6

15.6

21.7

47

51.2

2.7

10.8

13.2

35.5

37.7

44.753.8

0 10 20 30 40 50 60

C. & E. Europe & C.Asia

Latin America &Carribbean

East Asia & Pacific

Middle East & NorthAfrica

Sub-Saharan Africa

South Asia

2001

1989

Tertiary School Enrollment (% gross)

5.2

34.3

47.2

15.713.2

5.62.5

19.4

49.8

68.8

27.5

22.7

10.4

5.6

0

10

20

30

40

50

60

70

80

East Asia &Pacific


High Income Latin America &Caribbean



1990 2004 *

* Latin America & Caribbean and Sub-Saharan Africa data from 2003


Concluding observations Development = a long term process Various measures and degrees of success Globalization increases wealth but uneven

distribution Many countries, groups and individuals left behind Role of institutions – IMF and World Bank Question of how best to organize and focus

institutions

jan svejnar university of michigan november 2006 economic development: overview

Documents