Measuring Development

Question 1

define ‘real GDP per capita’

Answer 1

per head value of goods and services produced by people of a country over a given year

Question 2

Lucas (1988)

Answer 2

income growth has to be key instrument to achieve higher well-being, otherwise need to reach poor through taxation and redistribution which is politically more difficult

Question 3

what is the exchange rate method

Answer 3

exchanging local currencies for a benchmark currency to allow for comparisons

Question 4

problems with exchange rate method

Answer 4

1) market exchange rates determined by demand and supply of currencies in financial exchange markets
- affected by range of factors such as macroeconomic fundamentals, inflation, interest rate differentials and trade

2) prices for goods may not be appropriately reflected in exchange rates
- non-traded goods (services) don’t affect exchange rate as exchange rate depends only on commodities that cross international borders
- in poor countries, non-traded goods likely to be cheaper
- large proportion of earnings generate for self-consumption so missed in GPD figures

Question 5

purchasing power parity (PPP) exchange rate between two currencies is…

Answer 5

rate at which both currencies buy same quantity of goods and services in each country

Question 6

advantages of PPP

Answer 6

• more stable as not affected by volatile market rates
• takes account of non-traded goods

Question 7

disadvantages of PPP

Answer 7

• hard to measure
• limited data available or lack of resources to send data
• infrequent price comparisons as they’re only every 5 years
• not all countries included

Question 8

what does HDI measure

Answer 8

health
- life expectancy at birth

education
- mean number of years in education adults over 25 have received AND number of expected years of education children attending school can expect

standard of living
- GNI per capita

Question 9

what is GNP

Answer 9

GDP + net factor income from abroad

Question 10

what is GNI

Answer 10

GNP - (depreciation + indirect business tax)

Question 11

characteristics of countries with high human development

Answer 11

• scores > 0.788
• GNI $40,000 per capita or more
• 13 years education
• 80+ life expectancy

Question 12

characteristics of countries with low human development

Answer 12

• scores < 0.48
• GNI of $1000 per capita or less
• 10 years or less of education
• life expectancy in 60s

Question 13

advantages of HDI

Answer 13

• simple
• understood by public press so has political power
• general correlation between economic and social development but one doesn’t mean the other
• concerned with human welfare

Question 14

disadvantages of HDI

Answer 14

• health, education and living standard all in one index
• still only provides limited indication of social development
• only health and education covered
• other ways to measure health and education
• poor data
• limited data from certain countries
• measurement errors in variables included
• adds little to GDP figures
• HDI can disguise lack of social development

Question 15

Streeten (1994) HDI advantage

Answer 15

stronger impact on the mind and draw public attention

Question 16

Rodriguez ran two regressions to explain…

Answer 16

changes in time in per capita income and changes in HDI

Question 17

what set of independent variables did Rodriguez use?

Answer 17

• initial values of income, schooling and life expectancy
• current values of trade openness, inflation and rule of law

Question 18

define ‘trade openness’

Answer 18

ratio of exports plus imports over GDP

Question 19

Rodriguez’s findings

Answer 19

• inflation negatively and significantly related to changes in HDI but not related to GDP growth
• trade openness and rule of law positively and significantly related to GDP growth but not HDI
• implications of cross-country regressions for development policy depend crucially on whether you’re interested in raising GDP growth or HDI

Question 20

when and why were millennium development goals made?

Answer 20

• 2000
• 189 nations made pledge to free people from extreme poverty and multiple deprivations

Question 21

8 millennium goals

Answer 21

1) end poverty and hunger
2) achieve universal education
3) promote gender equality
4) reduce child mortality
5) improve maternal health
6) combat HIV/AIDS
7) ensure environmental sustainability
8) develop global partnership

Question 22

impact of COVID-19 on development

Answer 22

• poverty rose due to COVID disruption combines with effects of conflict and climate change
• global poverty resumed pre-pandemic downward trajectory
• 75-95m additional people could be in extreme poverty in 2022 compared to pre-covid
• food inflation has devastating impact on poor families
• typical person in low income country spends 2/3 resources on food compared to 1/4 in high income country

Question 23

5 key data sets

Answer 23

1) world bank’s Living Standard Measurement’s Surveys (LSMS)
- first collected data in peru and ivory coast 1985 but not available for many countries
- repeated every 5-10 years

2) household income and expenditure surveys
- collected by bureau of statistics
- national sample survey organisation in india 1940 was one of first large scale scientific surveys

3) population census’
- collected by bureau of statistics
- either have income information or information that correlates with income

4) demographic and health surveys
- implemented by ICF, funded by USAID

5) employment and wage surveys
- collected by ministry of labour

Question 24

household budget surveys collect information on…

Answer 24

1) characteristics of individual households
- assets, activities, location, access to public services, access to markets

2) who buys what goods/services and how much they spend on them

3) collect data on outcomes we’re interested in and that are affected by policy variables
- e.g. nutrition levels, expenditure patterns, educational attainments, earnings, and health

4) provide information at level of individual households about variables that are either set or influenced by policy
- e.g. prices, transfers, or provision of schools and clinics

Question 25

problems of measuring welfare

Answer 25

1) data quality 2) definitions of households often problematic and can distort consumption 3) reporting periods notorious for generating measurement error - longer period is more measurement error - shorter period is less representative 4) possibility of boundary bias 5) measurement consumption and income also problematic

Question 26

advantage of measuring income over consumption

Answer 26

most intuitive

Question 27

advantages of measure consumption over income

Answer 27

- closer to wellbeing as creates utility - easier to measure - less likely to misreport

Question 28

disadvantages of measuring consumption

Answer 28

1) available at household rather than individual level 2) large measuring errors - private consumption of alcohol/tobacco/gambling etc - measuring durables 3) ideally nee asset price, lifespan, depreciation rate, opportunity cost of capital 4) ability to smooth consumption 5) dependent on wealth and access to loans