Robert Lucas on economic 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 judgement on the scope of this definition until
we have a clearer idea of where it leads us.

Paul Streeten on economic development:

[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 peoples choices. [A] unity of interests would
exist if there were rigid links between economic production (as
measured by income per head) and human development (reflected
by human indicators such as life expectancy or literacy, or achievements such as self-respect, not easily measured). But these two
sets of indicators are not very closely related.

World Income Distribution

2009, World $59.2t, population 6.8b. Average $8700.
Definitions (World Bank)
Low income countries: under $995. Many African countries
fall under this category, as do countries such as Bangladesh, Haiti,
Myanmar and Nepal.
846m people, total income 0.4t, average $509.
Low middle-income countries $996$3945; members include
China, India, Nicaragua, Nigeria, and Thailand.
3.8b people, total income 8.8t, average $3397.

Upper middle-income countries $3946$12195. Richer Latin

American economies, such as Argentina and Brazil, countries such
as Lebanon, South Africa and Turkey.
1b people, total income 7.5t, average $7500.
High income countries, above $12195. US, Western and Northern Europe, Japan, Singapore, some Middle East countries.
1.1b people, total income 42.4t, average $40,400.

70% world pop (low + low middle) have 16% of world income.
Norway ($85,000) 500 times as rich as Democratic Republic of
Congo, 150 times as rich as Bangladesh.

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Population and per capita GDP (exchange rate method), 2009.

Corrections
Underreporting of income (tax evasion, subsistence production)
Distorted pricing may not reflect preferences or relative scarcities (monopolies, oligopolistic competition, public sector companies).
Externalities: pollution, environmental damage, resource depletion, human displacement.
Purchasing power parity and the International Comparison Program

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PPP versus exchange-rate GDP per capita, 2009.

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Historical Experience
Richest and poorest 10% of nations relative to world average:
GNI per capita PPP

top 10%/World av
bottom 10%/World av

1982

1988

1994

2000

2006

2009

4.05
0.10

3.99
0.09

4.06
0.07

4.20
0.06

4.15
0.06

3.96
0.06

1982

1988

1994

2000

2006

2009

4.12
0.10

3.95
0.09

4.04
0.07

4.11
0.07

4.05
0.07

3.84
0.07

GDP per-capita PPP

top 10%/World av
bottom 10%/World av

In 2010, the richest state in the United States (not counting DC)
was Alaska and the poorest was Mississippi, and the ratio of per
capita incomes worked out to slightly over 2!

Lots of Movement Within the Distribution

World GDP per capita grew at 1.5% per year over 19702010.
East Asia danced to a tune all its own.
19601990: Japan 5.3%, Korea 6.1%, Hong Kong 6.6%, Indonesia 3.8%, Malaysia 4.2%, Singapore 6.4%, Thailand 5.1%
19902010: slower: Japan < 1% (less than world average), rest
stayed in the 3s and 4s.
China! 19801990, 7.6%. 19902010: 9.5%.
India, another fast-moving newcomer: 2.6% over 19601990,
3.6% over 19902000, 6.2% over 20002010.

Latin America not too hot (from an economic point of view).

19601980: around 2.9% annually.
19801990, the lost decade for Latin America, decline of over
0.7% year over year, overall decline of around 10%. Argentina 2.9%, Brazil -0.5%, Mexico -0.3%, Peru -3.0%, Uruguay -0.7%.
Only Chile (2.1%) and Colombia (1.4%) had higher per capita
income in 1990 than they did in 1980.
19902010, still slow, around world average (exceptions Chile,
4.7%, and Argentina, 3.6%).
20002010, much better. Average well in excess of 2%. Argentina 3.3%, Brazil 2.4%, Chile 2.6%, Peru 4.3%, Uruguay 3.0%.
Mexico not so well at 0.8%.

Sub-Saharan Africa more stagnation.

19801990 decline at 1% annual.
19902000 decline at 0.4% annual.
20002010 better, with growth at 2.2%.
Examples.
Nigeria (-1.6%) and Tanzania (-2.0%) in the 1980s, stagnation 1990s, robust recovery over 20002010 (3.9% Nigeria, 4.0%
Tanzania).
Kenya barely grew in the 1980s, declined in the 1990s, some
recovery 20002010; overall 0.2% over 30 years.

Uganda stagnated over the 1980s (-0.1%) before picking up

pace and making substantial progress over 19902010, growing at
over 3.5% annually.
Rwanda, crippled by negative growth in the 1980s (-1.2%)
and 1990s (-0.7%) before a remarkable recovery over 20002010
(4.8%).
Yet Burundis negative growth rate of 3.2% in the 1990s barely
compensated for by near-stagnation over 20002010 (0.4%).
The Democratic Republic of the Congo in freefall over 1980
1990 (-2.2%) and 19902000 (-8.5%!) before 1.8% 20002010.
Zimbabwe stagnated in the 1980s (0.7%) and 1990s (-0.3%)
before entering a freefall of its own (-4.8%) over 20002010.

OECD: 20 original members, fourteen additions. All the developed countries, a few middle-income countries also members.
19701990, OECD growth a bit over 2.4%
19902000 1.8%, a bit higher than world average
20002010 Under world average at 0.8%
The United States mirrors OECD reasonably well:
2.2% over 19701990
a bit under 2.2% in 19902000
0.7% in 20002010

Doubling Times
[1 + (r/100)]T = 2.
So T lne [1 + (r/100)] = lne 2.
But lne 2 ' 0.7, and for small x, lne (1 + x) ' x.
A good approximation: 70 divided by the annual % rate of
growth.

Some Examples
UK doubled in 58 years (from 1780, Industrial revolution)
The United States took 47 years (from 1839)
Japan took 34 years (from 1885)
Brazil doubled in 18 years (from 1961)
Korea doubled in 11 years (from 1966)
China is doubling every 79 years (from 1980)

-./012"+3"4+.5*2617"

Movement relative to the United States, 19822009. US ratio

to world average remarkably constant.
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Mobility matrix, 19822009

Cat 1: income < 1/4 world av; Cat 2: between 1/4 and 1/2 world
av; Cat 3: between 1/2 world av and world av; Cat 4: between
world av and twice world av; Cat 5: income > twice world av.

Obs Cat

32
21

26

20

29

84
43
0
0
0

13
43
27
0
0

3
14
50
20
0

0
0
23
70
3

0
0
0
10
97

Summary So Far
Over 19802010, the relative distribution of world income more
or less stable.
Richest 10% of nations 4 times the world average
Poorest 10% had 610% of the same average.
But lots of movement within the distribution.
Rise of Asia: Japan, then China and now India
Languishing of sub-Saharan Africa
Relatively slow growth in many parts of Latin America

Summary, contd.
No ultimate traps to development:
60 out of 128 countries went up or down by 1% or more per
year over 19822009, relative to United States.
But stickiness at the ends: mobility matrix.
That history matters this way deserves an explanation:
Convergence vs divergence

Looking Within Countries

Inter-country inequality compounded within countries:
04,000 PPP (2000):
Country
Malawi
Uganda
Tanzania
Bangladesh
Senegal
Pakistan
Nicaragua
Sri Lanka
Bolivia
Guatemala

GDP pc (c. 2000)

Share bot. 40%

Share top 20%

546
765
866
893
1,492
1,898
2,157
3,106
3,402
3,350

13
16
19
22
17
21
12
17
7
11

56
50
42
40
48
42
55
48
63
59

Looking Within Countries

Inter-country inequality compounded within countries:
4,00013,000 PPP (2000):
Country
El Salvador
Peru
Costa Rica
Thailand
Panama
Colombia
Brazil
Costa Rica
Venezuela
Mexico

GDP pc (c. 2000)

Share bot. 40%

Share top 20%

5,183
5,444
5,520
5,568
5,840
6,617
7,911
8,113
9,924
12,095

10
11
13
11
8
9
7
13
12
12

55
57
50
59
60
61
65
51
52
56

Looking Within Countries

Inter-country inequality compounded within countries:
13,000+ PPP (2000):
Country
Korea
Spain
UK
Sweden
Switzerland
USA
Norway

GDP pc (c. 2000)

Share bot. 40%

Share top 20%

16.015
25,129
28,575
29,126
34,713
39,578
43,642

21
19
18
23
20
16
24

37
42
44
37
41
46
37

!"#$"%&'(")*%$+,")-.'#"/)

Inequality and per-capita income: the whole range

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Inequality and per-capita income: up to $8000, an inverted-U?

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Uneven and Compensating Changes

Uneven growth, perhaps from a few sectors
Then other sectors catch up, or people migrate
Tends to generate an inverted-U, but no inevitability to it.
Note: our diagram was on the cross-section.
In fact, we can argue that we have rising inequality in many
countries.

Human Development
Excessive reliance on GNP per capita can be dangerous.

Country

1993 income

Share bot. 40%

Share top 20%

2,990
3,350

22
8

39
63

Sri Lanka
Guatemala
Country

Life exp

IMR

% Safe water

% Adult literacy

72
65

18
48

60
62

89
54

Sri Lanka
Guatemala

Distribution clearly matters, but isnt everything: e.g., Pakistan:

Share bot. 40%

Life exp

IMR

% Adult literacy

21

62

91

36

Human Development Index

From the Human Development Report, since 1990.
Three components to the index:
Life expectancy at birth.
Education, combine mean/expected years of schooling.
logarithm of GNI per capita.
Create dimension indices for each:
x minimum
Idim =
maximum minimum
e.g., max life expectancy is 83.2 and minimum is 20.

Human Development Index, contd.

HDI a geometric mean of the three:
1/3 1/3 1/3
HDI = ILife
IEduc IIncome .

Variations allowing for measured inequality in each dimension.

No getting away from an implicit weighting scheme.
One way (of many) to combine development indicators.
2010: Sri Lanka rank differential +10 (HDI vs GNI).
2010: Pakistan -4, Guatemala -13.

!"#$

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Looking Within Countries

Inter-country inequality compounded within countries:
04,000 PPP (2000):
Country
Malawi
Uganda
Tanzania
Bangladesh
Senegal
Pakistan
Nicaragua
Sri Lanka
Bolivia
Guatemala

GDP pc (c. 2000)

Share bot. 40%

Share top 20%

546
765
866
893
1,492
1,898
2,157
3,106
3,402
3,350

13
16
19
22
17
21
12
17
7
11

56
50
42
40
48
42
55
48
63
59

Looking Within Countries

Inter-country inequality compounded within countries:
4,00013,000 PPP (2000):
Country
El Salvador
Peru
Costa Rica
Thailand
Panama
Colombia
Brazil
Costa Rica
Venezuela
Mexico

GDP pc (c. 2000)

Share bot. 40%

Share top 20%

5,183
5,444
5,520
5,568
5,840
6,617
7,911
8,113
9,924
12,095

10
11
13
11
8
9
7
13
12
12

55
57
50
59
60
61
65
51
52
56

Looking Within Countries

Inter-country inequality compounded within countries:
13,000+ PPP (2000):
Country
Korea
Spain
UK
Sweden
Switzerland
USA
Norway

GDP pc (c. 2000)

Share bot. 40%

Share top 20%

16.015
25,129
28,575
29,126
34,713
39,578
43,642

21
19
18
23
20
16
24

37
42
44
37
41
46
37

!"#$"%&'(")*%$+,")-.'#"/)

Inequality and per-capita income: the whole range

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Inequality and per-capita income: up to $8000, an inverted-U?

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Uneven and Compensating Changes

Uneven growth, perhaps from a few sectors
Then other sectors catch up, or people migrate
Tends to generate an inverted-U, but no inevitability to it.
Note: our diagram was on the cross-section.
In fact, we can argue that we have rising inequality in many
countries.

Human Development
Excessive reliance on GNP per capita can be dangerous.

Country

1993 income

Share bot. 40%

Share top 20%

2,990
3,350

22
8

39
63

Sri Lanka
Guatemala
Country

Life exp

IMR

% Safe water

% Adult literacy

72
65

18
48

60
62

89
54

Sri Lanka
Guatemala

Distribution clearly matters, but isnt everything: e.g., Pakistan:

Share bot. 40%

Life exp

IMR

% Adult literacy

21

62

91

36

Human Development Index

From the Human Development Report, since 1990.
Three components to the index:
Life expectancy at birth.
Education, combine mean/expected years of schooling.
logarithm of GNI per capita.
Create dimension indices for each:
x minimum
Idim =
maximum minimum
e.g., max life expectancy is 83.2 and minimum is 20.

Human Development Index, contd.

HDI a geometric mean of the three:
1/3 1/3 1/3
HDI = ILife
IEduc IIncome .

Variations allowing for measured inequality in each dimension.

No getting away from an implicit weighting scheme.
One way (of many) to combine development indicators.
2010: Sri Lanka rank differential +10 (HDI vs GNI).
2010: Pakistan -4, Guatemala -13.

!"#$

Still, a high correlation between HDI and GNI per capita:

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