Economic development

Indicators of economic development

 Development is the improvement in the quality of life.

 Quality of life is a wide-ranging concept including wealth, but it also includes other aspects of
our lives as summarised in the diagram below.

Indicators of development

1. Measures of national income

 measures of national income, we said include

 GDP_ gross domestic product
 GNP_ gross national product
 GNI_ gross national income
 It is reasonable to consider in this study that the three are broadly similar and we fovus on GNP.
 The GNP is found by considering the following steps
1. Find the total value of goods and services produced by a country in a year.
2. Plus income earned by the country's residents from foreign investment
 3. Subtract income earned within domestic economy by overseas residents
 this is too broad as it is not relating to the number of people in a country. We need to take into
account different populations in different countries.
 We may be misled by figure if we compare the GNP of Nigeria which has a population over 200
million to a Zimbabwean GNP with a population of just 15 million. Therefore, we have to
consider the share of each individual in the country from this GNP.
 Therefore, we calculate the GNP per capita, where the total income of a country is divided by
the total population. This gives us a better comparison, e.g the GNP of China is higher than that
of tbe UK but the GNP per capita is much higher in the UK.
 GNP per capita data does not consider the cost of living in different countries e.g a dollar may
buy 2 loaves of bread in USA while just 1 loaf in Zimbabwe. Therefore, concluding that GNP per
capita in Zimbabwe is higher than in USA without considering the purchasing power in these
different countries maybe wrong.
 We now calculate GNP per capita at purchasing power parity (PPP).
 The gap between the countries with highest GNP per capita at purchasing power parity and
those with a lower GNP per capita at purchasing power parity is the Development gap

2. Literacy

 Education is a key factor in socio-economoc development. It can be defined as the process of

acquiring knowledge, understanding and skills.
 It has always been regarded as a very important individual ineicator of development.
 Adult literacy is the ability of adult population to read and write.
 Adult literacy rate is the proprtion of adult population that can read or write expressed as a
percentage.
 A low adult literacy rate is a great onstacle in development, therefore countries with higher
adult literacy rate have a greater opportunity to develop.

3. Life expectancy

 A higher life expectancy means higher development as evidenced by good quality of life.
 The main influences on life expectancy are:
1. The incudence of disease e.g. malaria.
2. Physical environmental conditions e.g. very low rainfall
3. Human environmental conditions e.g pollution
4. Personal lifestyle e.g smoking
 Countries that are better in terms of the above factors have a higher life expectancy showing a
betterquality of life

4. Mortality

 The lower the quality of life, the higher the mortality, especially infant mortality

Human Development index

  In 1990, HDI was devised as a measure of disparities between countries.
 It is a composite index consisting of 3 main components,
1. a demographic indicator- life expectancy at birth
2. A social aspect- (i)mean yearsof schooling foe adults aged 25 years
(Ii) exoected years of schooling for children of school entering age
3. An economic indicator- GNI per capita (PPP$)
 The actual measures are coverted into an index, which has a maximum value of 1.0 in each case.
 The index values are then combined and averaged to give an overall HDI value, which also has a
value of 1.0.

Explaining inequalities between countries

Stages of development

 The first aspect to look at are the stages of development. Each country goes through stages of
development
 There are least developed countries, developing countriea, newly industrialized countries and
developed countries
  So we expect the GNP per capita to increase as we move from least developed to developed
countries.
 The Least developed countries (LDCs) are the poorest of all. They have many problems. These
are often made worse by geographical handicaps e.g. low rainfall and natural and man made
disasters
 48 countries are considered LDCs in the world and of these, 34 are in Africa, 13 in Asia and the
Pacific, and one in Latin America
 Newly industrialised countries (NICs) are nations that have undergone rapid and successful
industrialisation since the 1960s. They have moved up the development ladderz having
previously been considered developing countries. The first countries to fall under this category
are South Korea, Singapore, Taiwan and Hong Kong. These werereferred to as the '4 Asian tigers'
as their economy grew very rapidly
 The reasons for the success of these countries are:
1. A good initial level of infrastructure
2. A skilled but relatively low-cost workforce
3. Cultural traditions that revere education and achievement
4. Governments that welcomed foreign direct investment (FDI) from transnationals

Explaining the Development gap

 Variations between countries are a result of:

1. physical geography:
 Landlocked countries like Zim have generally developed more slowly than coastal ones. Small
island countries face considerable disadvantages in development
 Tropical countries have grown more slowly than those in temperate regions, reflecting the cost
of poor health and unproductive farming. Howecer, richer, non agriculturaltropical countries
such as Singapore do not suffer a geographical deficit of this kind.
 A generous allocation of natural resources has spurred growth in a number of countries
2. Economic policies
 Open economies that welcomed and encouraged foreign investment have developed faster
than closed economies
 Fast-growing countries tend to have high rates of saving and low spending relative to GDP
 Institutional quality in terms of good governance, law and order and lack of corruption
generally result in a high rate of growth.
3. Demography
 Progress through the DTM is a major factor as those countries with fallen birthrates are
experiencing high growth.

Consequences of development gap

  Development gap causes poverty in the disadvantaged countries. These have economic, social,
environmental and political consequences
1. Economic
 Poor people fail to pay for food and education and the poverty persists.the richer countries
continue to benefit. In 2015, 10% of the World's population lived on less than $2 a day.
2. Social:
 Lead to illiteracy as 780 million in poor countries cannot read or write. These people do
not have access to clean, safe water and 2.4 billion lack basic sanitation. There is high
child mortality as 5 children die each year from conditions that could be prevented
3. Environmental:
 Poor countries have increased vulnerability to natural disasters. If a natural disaster
occur, the lack resources to reduce the impact and it will have a greater impact on the
environment e.g they lack capacity to adapt to drought.
 Resources are often exploited with little economic benefit to poor countries and little
concern for the environment
4. Political
 Poor countries that are low on development scale often have nondemocratic
governments or they are democracies that function poorly.

Explaining inequalities within countries

 Disparities both among countries and within countries can be well understood by the
Gini coefficient. It is used to show the extent of income inequality. It allows :
1. Analysis of changes in income inequality over time in individual countries
2. Comparison between countries
 The Gini coefficient is expressed as a ratio, with values between 0 and 1.0. A low value indicates
a more equal distribution while a higher value shows more unequal distribution.
 A Gini coefficient of 0 would mean that everyone in a country had exactly the same income
(perfect equality).
 At the other extreme, a Gini coefficient of one would mean that one person had all the income
in a country (perfect inequality).
 In general, more affluent countries have a lowe Gini coefficient than lower income countries.
 Southern Africa and South America show up clearly as regions of very high income inequality.
Europe has the world's lowest income inequality.
 In explaining these regional disparities or inequalities in income distribution, A theory of
regional disparities can be used. Under this theory, we look at the Concept of cumulative
causation which helps to explain regional disparities.

A theory of regional disparities

 The theory states that there are three stages of regional disparities:
1. The pre-industrial stage, when regional differences are minimal
2. A period of rapid economic growth characterised by incresing regional economic divergence
 3. A stage of regional economic convergence when the significant wealth generated in the most
affluent regions spreads to other parts of the country.
 The diagram below shows how the regional economic divergence of the earlier stages of
economic development can eventually change to regional economic convergence as a regional
differences narrow.

 The diagram shows the regional disparities as explained by cumulative causation.

 In fig 3.13, the wealth gap widens and regional inequalities increase (regional economic
divergence)
 The whole theory can be shown in the diagram below:
 In the model, economic growth begins with new manufaturing industry in the region with a
combination of advantages greater than elsewhere.
 Once growth has been initiated in this core region, flows of labourz capital and raw materials
develop to support the industry and it undergoes further development by the cumulative
causation process.
 A detrimental nagative effect (backwash effect) is transmitted to the less developed regions (the
periphery) as skilled labour and locally generated capital is attracted away.
 Manufactured goods and services produced and operating under the economies of scale of the
core region flood the market of the relatively underdeveloped periphery, undercutting smaller
scale enterprise in such areas.
 However, increasing demand for raw materials from resource rch parts of the periphery may
stimulate growth in other sectors of the economies of such regions. If the impact is strong
enough to overcome local negative effects, a process of cumulative causation may begin. This
may lead to the development of new centres of self sustained economic growth (spread effects).
If this is strong enough, the inequality between core and periphery may beigin to narrow. This is
the second stage in figure 3.13_regional economic convergence.
 Many developing countries are in the first stage of figure 3.13 where tha wealth gap is widening.
Thus they have high Gini coefficient. Movement from stage 1 to stage 2 is usually attained by a
combination of:
 1. Market forces_ the cost of doing business in the core region of a country may become so high
that investment in the periphery becomes increasingly popular
2. Government regional development policies_government investment to kmprove conditions in
peripheral regions, such as improvements in infrastructure, can help attract business
investment.
Factors affecting inequalities within countries
1. Residence
 The first aspect is to look at where people are born and where they live. This can have a
significant effect on their quality of life. This includes:
1. Regional differences within countries_the wealth gap between core and periphery which
was explained under the regional disparity theory.
2. Urban/rural disparities, with urban areas generally attracting much greater investments,
this results in higher per capita incomes in urban areas in urban areas
3. Intra-urban contrasts_low, middle and high income areas often exist close together in the
same city
 People who live in slum settlements in developing countries may find it difficult to break out of
these conditions of poverty. The UN has recognised that the focus of global poverty is moving
from rural to urban areas, a process known as the urbanisation of poverty

2.Ethnicity and employment

 Some ethnic groups in a popukation have lower income than the dominant group. This is usually
a result of discrimination which in turn limit the economic, social and political opportunities to
the disadvantaged groups.
 We can also talk of employment both in formal sectors and in informal sector. Jobs in the
foemal sector are usually high paying with a lot of benefits (allowances), e.g health and
education, governmwnt workers, people working in established companies etc. In contrast
*Informal sector* is that part operating outside official recognition. Employment is generally low
paid and often temporary without benefits. People employed in informal sector have low
income than those in formal sector

3. Education

 is also a factor in causing disparities within countries.

 Those with higher levels of education are paid higher than those with lower levels of education.
 This can also affect yhe family size. Those with higher levels of education have smaller families
as compared to those with low levels of income.
 This means that the whole family will be looking forward to receiving income from the
breadwinner

4. Land ownership is also a factor.

 Those ownership of land tend to enjoy and obtain more income than those without
Production

Classifying production into different economic sectors.

 Production is the action of making or manufacturing from components or raw materials, or the
process of being so manufactured.
 Production can be classified into 4 categories.

1. Primary sector

 This involves the extraction of raw materials from land, water and air. Farming, fishing, forestry,
mining and quarrying make up most of the jobs in thus sector. Some primary products are sold
directly to consumers but most of the go to the secondary sector.

2. Secondary sector

 Manufactures primary products into finished products. It includes tje production of processed
food, furniture and motor vehicles. Secondary products are classed as either consumer
goods(products for sale to the public) or capital goods (produced for sale to other industries)

3. Tertiary industry

 This provides services to the businesses and to people. Retail employees, drivers, architects,
teachers and nurses are all examples of tertiary occupations

4. Quaternary sector

 Uses high technology to provide information and expertise. Research and development is an
important part of this sector. Jobs in this sector include aerospace engineers, research scientists,
computer scientists and biotechnology workers

 The *product chain can be used to illustrate the 4 sectors of employment. It is the full sequence
of activities needed to turn raw materials into a finished product
Employment structure

 As economy develops, the proportion of people employed in each sector changesas shown in
the diagram below.
 Countries like USA, Japan, Germany and the UK are post industrial societies where the majority
of people are employed in the tertiary sector. Yet in 1900, 40% of employment in the USA was in
the Primary sector.
 Countries like Zimbabwe have majority of their population employed in the primary sector,
specifically mining and farming.
 However, mechanisation of farming, mining, forestry and fishing drastically reduced the demand
for labour in these industries. As these jobs disappeared, people moved ro urban areas where
secondary and tertiary employment was extending. Only 2% of employment in the USA is now in
the Primary sector
 Human labour has been steadily replaced in manufacturing too vecause of technology
 The most advanced forms of manufacturing are in the developed world. The tertiary sector is
also changing.
 In banking, insurance and many other types of business, computer networks have reduced the
number of people required
 In developed countries employment in quaternary sector has vecome more important. It is a
significant measure of how advanced the economy is.
 People in poorest countries of the world are dependent on primary sector for employment.
Such countries are often primary product dependent because they rely on one or small number
of primary priducts for all their export earnings
  In newly industrialised countries employment in manufacturing has rapidly increased in recent
decades.
 There is a clear link between employment structure and indicators of economic development.
 A graphical method used ro compare employment structure for a number of countries is a
triangular graph shown below

GLOBALISATION

 Is the increasing interconnectedness and interdependence of the world, economically, culturally

and politically. Most political borders are not the obstacles they once were and as a result
goods, capital, labour and ideas flow more freely across them than ever before.

Transnational corporations

 A transnational corporation is a firm that owns or controls production operations in more than
one country through foreign direct investment (FDI). TNCs can exploit raw materials, produce
goods such as cars and oil, and provide services such as banking. The table below shows the 10
largest TNCs in the world according to the business Journal *Fortune*.(2016)
  TNCs and countries are two main elements of global economy. The governments set the rules
for the global economy, but the bulk investment is through TNCs, which are the main drivers of
global shift.
 Under this process manufacturing industry at first, and more recently services, have relocated
in significant numbers from developed countries to selected developing countries as TNCs have
taken advantage of lower labour costs and other ways to reduce costs.
 It is this process that has led to the increase in number of Newly industrialised countries since
the 1960s.
 TNCs have a huge impact on the global economy in general and in the countries in which they
choose to locate in particular.
 They play a major role in world trade terms of what and where they buy and sell. The spread of
global consumer culture has been important to the success of TNCs. The mass media have been
used effectively to encourage consumers to 'want' more than they 'need'.

The role of technology

 Major advances in transportation and telecommunications systems have significantly reduced

the geographical barriers separating countries and peoples.
 Transport systems are the means by which materials, products and people are transferred from
place to place.
  Communication systems are the ways in which information is transmitted from place to place in
the foem of idea, instructions and images.
 As time has progressed, the diffusion of new ideas gas speeded up so that a technical
breakthrough in one part of the world has had an impact on other parts of the world much more
quickly than ever before.
 Internet has been essential to the development and speed of globalisation. It is the fastest
growing mode of communication ever. It has been estimated that the number of internet users
has increased around the world from 361 million in 2000 to 3.4 billion by 2016.
 The emergence of robotics technology is still at a relatively early stage. Examples of this
technology include driverless cars and drones.

The diagram below shows other factors responsible for economic globalisation