Rhitik Raja Paterson 13 - AGS Economics - Mr Grant

What is Development?

1) What is ‘development’? How is it different to ‘economic growth’?

Economic growth means an increase in real national income / national output.

Economic development means an improvement in the quality of life and living
standards, e.g. measures of literacy, life-expectancy and health care.
Ceteris paribus, we would expect economic growth to enable more economic
development. Higher real GDP enables more to be spent on health care and education.
However, the link is not guaranteed. The proceeds of economic growth could be
wasted or retained by a small wealthy elite.

2) What were the UN’s ‘Millennium Development Goals’? What progress has been
made towards them?

The Millennium Development Goals (MDGs) were the eight international development
goals for the year 2015 that had been established following the Millennium Summit of
the United Nations in 2000, following the adoption of the United Nations Millennium
Declaration. All 191 United Nations member states at that time, and at least 22
international organizations, committed to help achieve the following Millennium
Development Goals by 2015:

1. To eradicate extreme poverty and hunger.

2. To achieve universal primary education.
3. To promote gender equality and empower women.
4. To reduce child mortality.
5. To improve maternal health.
6. To combat HIV/AIDS, malaria, and other diseases.
7. To ensure environmental sustainability.
8. To develop a global partnership for development.

The Millennium Development Goals, (MDGs), are the most successful global anti-
poverty push in history. Governments, international organizations, and civil society
groups around the world have helped to cut in half the world’s extreme poverty rate.
More girls are in school. Fewer children are dying. The world continues to fight killer
diseases, such as malaria, tuberculosis and AIDS. There are about 500 days to
accelerate action on issues such as hunger, access to education, improved sanitation,
maternal health and gender equality.

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Rhitik Raja Paterson 13 - AGS Economics - Mr Grant

3) Why did the UN adopt the Sustainable Development Goals?

The Sustainable Development Goals (SDGs), otherwise known as the Global Goals, are
a universal call to action to end poverty, protect the planet and ensure that all people
enjoy peace and prosperity.

The Sustainable Development Goals (SDGs) are a collection of 17 global goals set by
the United Nations. The broad goals are interrelated though each has its own targets
to achieve. The total number of targets is 169. The SDGs cover a broad range of social
and economic development issues. These include poverty, hunger, health, education,
climate change, gender equality, water, sanitation, energy, environment and social
justice.[1] The SDGs are also known as "Transforming our World: the 2030 Agenda for
Sustainable Development" or Agenda 2030 in short.[2] The goals were developed to
replace the Millennium Development Goals (MDGs) which ended in 2015. Unlike the
MDGs, the SDG framework does not distinguish between "developed" and
"developing" nations. Instead, the goals apply to all countries.

4) What are the main characteristics of a developing country?

Developing nations are those with low, lower middle or upper middle incomes.
Common characteristics of developing countries are low levels of living characterized
by low income, inequality, poor health and inadequate education.

Low levels of living are not only in relation to their counterparts in rich nations, but
also in relation to the small elite class within their own countries. These low levels of
living are manifested quantitatively and qualitatively in the following forms:
- a general sense of malaise and hopelessness.
- a low gdp (gross domestic product)

Many people in developing nations fight a constant battle against malnutrition, disease
and ill health. In least developed countries life expectancy in 1998 averaged only 48
years, 68 years among developing countries and 75 in developed countries.

In the 1990's in Asia and Africa, over 60% of the population barely met minimum
caloric requirements needed to maintain adequate health. Malnutrition, waterborne
disease, and aids also afflict these countries while low literacy levels require significant
school development.

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5) What are the advantages and disadvantages of GNI (i.e. GDP) as an indicator of
development?

Using GDP as a measure of a nation's economy makes sense because it's essentially a
measure of how much buying power a nation has over a given time period. GDP is also
used as an indicator of a nation's overall standard of living because, generally, a
nation's standard of living increases as GDP increases.

But there are a number of shortcomings to using GDP. Here are just a few:

- GDP doesn't count unpaid volunteer work: GDP doesn't take into account work
that people do for free, from an afternoon spent picking up litter on the roadside
to the millions of man-hours spent on free and open source software (such as
Linux). In fact, volunteer work can actually lower GDP when volunteers do work
that might otherwise have gone to a paid employee or contractor.
- Disasters can raise GDP: Wars require soldiers, oil spills require cleanup, and
natural disasters require health workers, builders, and all manner of helping hands.
Rebuilding after a disaster or war can greatly increase economic activity and boost
GDP.
- GDP doesn't account for quality of goods: Consumers may buy cheap, low-quality,
short-lived products repeatedly instead of buying more expensive, longer-lasting
goods. Over time, consumers could spend more replacing cheap goods than they
would have if they had bought higher-quality goods in the first place, and GDP
would grow as a result of waste and inefficiency.

6) What is ‘sustainability’? Why is it important in development economics?

The term 'sustainable' means 'enduring' and 'lasting' and 'to keep in being'.

According to the World Bank, sustainable development is about people - better lives
now and a healthy planet for future generations

According to the late David Pearce, sustainable development means that each
generation should pass on at least as much "capital" as it inherits, the Pearce approach
defines capital in broad terms, to include physical capital (machinery and
infrastructure); intellectual capital (knowledge and technology) and environmental
capital (which includes quality and the stock of natural resources).

The Brundtland Commission on Environment and Development defined sustainable

development as: "development that meets the needs of the present without
compromising the ability of future generations to meet their own needs".

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The UK Government supports the concept of sustainable development and focuses on

four main objectives set out below:

1. Social progress which recognizes the needs of everyone: Everyone should share in
the benefits of increased prosperity and a clean and safe environment. Needs must
not be met by treating others, including future generations and people elsewhere
unfairly.
2. Effective protection of the environment: We must limit global environmental
threats, such as climate change to protect human health and safety from hazards
such as poor air quality and toxic chemicals and to protect things that people need
or value, such as wildlife and landscape
3. Prudent use of natural resources: We need to ensure that non-renewable
resources are used efficiently and that alternatives are developed to replace them.
Renewable resources, such as water, should be used in ways that do not endanger
the resource or cause serious damage or pollution.
4. Maintenance of high and stable levels of economic growth and employment, so
that everyone can share in high living standards and greater job opportunities.

7) Distinguish between renewable and non-renewable resources. Why is the distinction

important? Explain, using a diagram, the environmental Kuznets curve. What is the
relevance of ‘The Tragedy of the Commons’?

Non-renewable energy resources, like coal, nuclear, oil, and natural gas, are available
in limited supplies. This is usually due to the long time it takes for them to be
replenished. Renewable resources are replenished naturally and over relatively short
periods of time. The five major renewable energy resources are solar, wind, water
(hydro), biomass, and geothermal.

The environmental Kuznets curve

suggests that economic development
initially leads to a deterioration in
the environment, but after a certain
level of economic growth, a society
begins to improve its relationship
with the environment and levels of
environmental degradation reduces.

From a very simplistic viewpoint, it

can suggest that economic growth is
good for the environment.

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However, critics argue there is no guarantee that economic growth will lead to an
improved environment – in fact, the opposite is often the case. At the least, it requires
a very targeted policy and attitudes to make sure that economic growth is compatible
with an improving environment.

The tragedy of the commons is a situation where there is overconsumption of a

particular product/service because rational individual decisions lead to an outcome
that is damaging to the overall social welfare. The tragedy of the commons theory
assumes that when making decisions, people take the course of action that maximises
their own utility. However, if many people seek to do this, the net effect may be to
deplete a resource making everyone worse off in the long run.

The tragedy of the commons was first mentioned by the Victorian economist William
Forster Lloyd, in 1833. He used a hypothetical area of common grazing land, in which
villagers all took their cows to this common grazing land, but this led to overgrazing
and a loss of the resource. In theory, individuals could limit their use so that they don’t
deplete the common resource. However, there is a free-rider problem. Where people
rely on others to cut back their production. If everyone free-rides and maximises their
use, then we get a situation of over-consumption.

Over-fishing and Tragedy of the Commons

Individual fisherman have an incentive to catch as many fish as possible. However, if
many fishermen have this same motive, then it can lead to fish stocks being depleted
as fish are caught at a faster rate than they are replenished.

Unchecked, this can lead to a collapse in fish stocks due to over-fishing. If one
individual fisherman holds back on his catch to try and preserve overall fish stocks, it
may prove futile because many other fishermen continue to catch as much as possible.
The net result is that fisherman don’t have any incentive to hold back, so they might as
well try and catch as much as possible.

8) What is the HDI? Why is it useful? What are its limitations?

The Human Development Index (HDI) is a measure of economic development and

economic welfare. The Human Development Index examines three important criteria
of economic development (life expectancy, education and income levels) and uses this
to create an overall score between 0 and 1.

- 1 indicates a high level of economic development,

- 0 a very low level.

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The HDI combines:

1. Life Expectancy Index - average life expectancy compared to a global expected life
expectancy.
2. Education Index:
- mean years of schooling
- expected years of schooling
3. Income Index (GNI at PPP)

The HDI give an overall index of economic development. It has some limitations and
excludes several factors that might have been included, but it does give a rough ability
to make comparisons on issues of economic welfare – much more than just using GDP
statistics show.

Limitations of Human Development Index:

- Wide divergence within countries. For example, countries like China and Kenya
have widely different HDI scores depending on the region in question. (e.g. north
China poorer than south-east)
- HDI reflect long-term changes (e.g. life expectancy) and may not respond to recent
short-term changes.
- Higher national wealth does not indicate welfare. GNI may not necessarily increase
economic welfare; it depends on how it is spent. For example, if a country spends
more on military spending – this is reflected in higher GNI, but welfare could
actually be lower.
- Also, higher GNI per capita may hide widespread inequality within a country. Some
countries with higher real GNI per capita have high levels of inequality (e.g. Russia,
Saudi Arabia)
- However, HDI can highlight countries with similar GNI per capita but different
levels of economic development.
- Economic welfare depends on several other
factors, such as – threat of war, levels of
pollution, access to clean drinking water e.t.c.

9) Explain the concept of a ‘development diamond’.

Another way of putting a country into perspective is

to construct a development diamond. On each axis,
the value of the variable achieved by a certain
country is expressed as a proportion of the value
for a different country.

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