Definition of Development
Development is a broad idea linked to improving the quality of people's lives. One aspect involves money and wealth (economic). Other aspects consider social factors such as good healthcare or political factors such as freedom of speech.
GDP vs. GNI
The Gross Domestic Product (GDP) is the monetary value of all finished goods and services produced in a country over a certain time (1 year) - based on territory
The Gross National Income (GNI) is the total value of goods and services owned by a country's citizens no matter where they live - based on nationality.
They are the most important indicators for the economic performance of a region, and both express the market value of goods and services over a certain period.
PPP definition
The Purchasing Power Parity (PPP) relates average earnings in a country to local prices and commonly bought products through a "basket of goods" approach. It represents the spending power in country and the local costs of living.
Advantages and Disadvantages of GDP
Pros: Most common indicator (unified global database)
- Easy comparability between different regions
- Mostly congruent with our intuitions about economic development (like the north-south divide)
Cons: Only economic aspect of development
Crude average: hides disparities in income distribution
- The GDP doesn't include activities in the informal sector and subsistence agriculture
- Indifferent with respect to economic sustainability (short-term vs long-term wealth).
HDI definition
The Human Development Index (HDI) is a summary measure of average achievement in key dimensions of human development:
- Health: assessed by life expectancy at birth;
- Education: measured by years of schooling for adults aged 25 and expected years of schooling for children;
- Standard of living: based on GNI per capita
Rostow's modernisation theory
Rostow's Modernisation Theory Model (1960) suggests that countries go through a predefined set of five stages of economic growth before becoming fully developed. According to the theory, countries further behind the development path can move through the stages faster than countries before them if they trade with them.
Frank's Dependency theory
In the late 60's, economist Frank used a simple model to explain how the "economic core" (developed countries) exploited the "economic periphery" (developing countries). It begins with small towns in the periphery (satellites) dveloping at the expense of surrounding rural areas. The core (metropolis) then develops at the expense of small towns. The core imports raw material from the periphery, and export goods and services back.
Factors affecting development
- Physical factors: access to the sea, arable land, primary resources (mineral deposits), climate...
- Economic: GDP per capita, PPP, unemployment rate
- Political: Democracy index, GPI, Corruption index...
- Social: HDI, life expectancy at birth, gender equality index, expected years of schooling...