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Development Concept
WHAT IS DEVELOPMENT?
From an economic standpoint, the primary goal
of international economic development is the
improvement of human well-being.
In this part it is need to consider three broad
views of development:
(1)Development as growth,
(2)Development as human development, and
(3)Development as structural change.
Development as
GROWTH
Development as growth views development as
the sustained increase in either output per
capita or income per capita. It is related to the
conception of poverty as a deprivation of
income.
This concept begins with the circular flow
diagram. In this diagram, gross domestic
product (GDP) is the same as gross national
income (GNI).
In the circular flow diagram, GDP or Y is divided
by the total population to calculate GDP per
capita or y GDP per capita is an important
measure of the level of economic development,
and the growth rate of GDP per capita is an
important measure of the pace of economic
development over time
Why is growth considered to be such a central
indicator of development?
Rodrik (2007) echoed much of the field
when he stated that
“Economic growth is the most powerful
instrument for reducing poverty.... Nothing has
worked better than economic growth in
enabling societies to improve the life chances
of their members, including those at the very
bottom”
However, as Easterly (2001) commented,
“We experts don’t care about rising gross
domestic product for its own sake. We care
because it betters the lot of the poor and
reduces the proportion of people who are poor.
We care because richer people can eat more
and buy more medicines for their babies”.
So it is not increases in GDP per capita per se
that matter for development, but what can be
done with them. This is an important point that
we return to when we discuss human
development
GROSS DOMESTIC PRODUCT
AND GROSS NATIONAL INCOME
There is an important distinction between gross
domestic product (GDP) and gross national
income (GNI).
GDP is defined as the value of goods and
services produced within a country’s borders.
We will call this country Home and call its
The distinction between GDP and GNI begins
with the Home country’s factor payments. This
is the income from property in Home owned by
foreign citizens
and wages paid to
foreign laborers
working in Home.
We will call the Home country’s factor
payments
But the opposite flow
is given by factor
income. This is
income from property in foreign countries
owned by Home citizens and wages from Home
workers in foreign countries. We will call the
Home country’s factor income
THE LORENZ CURVE AND GINI COEFFICIENT
The standard means of measuring income inequality based on the personal or household distribution
of income is using the Lorenz curve and the associated Gini coefficient.
It relates cumulative percentage of income received (measured on the vertical axis) to the cumulative
percentage of population (measured on the horizontal axis).
The diagonal line in the figure is therefore the line of perfect equality, where each person receives
the same income.
Actual Lorenz curves, however, lie below the diagonal line, and the farther they are to the southeast
corner of the box, the greater the level of inequality. The Gini coefficient is measured using the area
between the diagonal and the actual Lorenz curve, area A, and the area under the diagonal, area A + B.
It is measured as:
Development as
HUMAN DEVELOPMENT
Development as human development views development as an increase in what individuals can
achieve in the broadest sense of that word. It is related to another conception of poverty as
deprivations of achievements of various kinds, namely education and health.
We noted above that income per capita is not always valued for its own sake but for what it can
achieve. This distinction between means (income) and ends (achievements) is one made most
strongly in a conception of international development in terms of human development.
Sen’s work inspired the United Nations Development Program (UNDP) to take up the human
development perspective in the form of an annual Human Development Report (HDR) that has been
published since 1990. The first such report began with the following statement:
“People are the real wealth of a nation. The basic objective of development is to create an enabling
environment for people to enjoy long, healthy and creative lives”
The most fundamental contribution of the HDR was the introduction of the human development
index (HDI). A brief description of its originator, Pakistani economist Mahbubul Haq, is presented in
the accompanying box. The HDI measures development as reflecting three important components:
1.per capita income,
2.health, and
3.education.
Development as
