8
CHAPTER OUTLINE
I. Development economics ultimately is about explaining the underpinnings of
mass poverty and suggesting sensible strategies for achieving rapid and equi-
table growth. This chapter addresses the mea sure ment of economic growth
and development across economies and over time.
II. Because this chapter deals with aggregate growth initially, the rst step is to
explain the concept and mea sure ment of gross national product (GNP) and
gross domestic product (GDP). A brief discussion is provided concerning the
basic index– number problems involved in calculating GDP. More in- depth
discussions on exchange rate and PPP conversions are presented, including
aspeci c example on PPP calculation (Table 2– 1).
III. A brief overview is provided of the historical record on interregional differ–
ences in initial income levels and divergent growth rates in the past two cen-
turies. It is based primarily on the work of the well- known historian Angus
Maddison. This overview provides some of the stylized facts of growth that
will have to be explained by theory.
IV. The text then addresses the indicators of economic development. It begins
with the most pop u lar of the indices, the Human Development Index (HDI).
It then addresses the information provided and controversies caused by this
index. Varying thoughts on the meaning and merits of development are pre-
sented, as expressed by Alexander Gerschenkron, Amartya Sen, and Richard
Easterlin.
V. The chapter concludes with a discussion of the Millennium Development
Goals (MDGs), their impact on economic growth, and their progress to date
Mea sur ing Economic Growth
and Development
CHAPTER 2
Mea sur ing Economic Growth and Development | 9
in anticipation of the year 2015. For most regions, growth would be suf cient
to meet most of the goals, sub- Saharan Africa being the notable exception.
The chapter concludes with the philosophical question of whether economic
growth is desirable.
Boxed Examples
Box 2–1: Jared Diamond: Guns, Germs and Steel
Box 2– 2: Human Development De ned
Box 2– 3: Why Use Logarithms?
Box 2–4: Targets of the Millennium Development Goals
There are four boxed examples. The rst examines the determinants of long– run
economic growth and is unveiled in Guns, Germs and Steel. The second de nes
the concept of human development in more depth. The third addresses the ques-
tion “Why use logarithms?” The fourth lists the targets of the Millennium Devel-
opment Goals.
In the New Edition
Compared to the sixth edition, this chapter provides up- to– date gures and data
related to the subjects covered. The revised material consists of updates by various
organizations and scholars, including the 2005 International Comparison Pro–
gram (ICP) estimates of purchasing power parity; Angus Maddison’s latest and
last estimates of world economic growth; and the 2010 revisions of the United
Nations Development Programme’s (UNDP) HDI. This is followed by a discus-
sion of development indicators and the MDGs. Finally, two new boxes have been
added: one on the determinants of long– run economic growth devised by Dia-
mond’s Guns, Germs and Steel; and the second illustrating the use of logarithms,
which are critical to the understanding of the HDI and other development
mea sures.
Class Notes
This chapter is one of the easiest to get students to read. They will be fascinated
by the overview of economic growth in the world. Furthermore, as we approach
the year 2015, the discussion of the MDGs should be of keen interest to students
Finally, the new discussion and elaboration of the famous work Guns, Germs and
Steel within the context of development should certainly engage the students
It is useful to cover the PPP conversion issue slowly, especially the example in
the text. The student website provides further practice problems on the use of the
PPP. Students who have traveled to developing countries can provide good exam-
ples of nontraded goods and their prices. A useful in- class exercise is to have stu-
dents calculate the HDI using raw data. Finally, the section on economic growth
10 | Chapter 2
and happiness provides good material for class discussion. The discussion can be
tied in nicely with Sen’s capabilities concept.
QUESTION BANK
Concept Map
Mea sur ing Economic Growth
Mea sur ing GDP
Exchange- Rate Conversion Problems
Economic Growth Around the World
Economic Growth: 1970– 2010
What Do We Mean by “Economic Development”?
Millennium Development Goals
Is Economic Growth Desirable?
Multiple- Choice Questions
1. GNP or GDP divided by total population provides a mea sure of:
a. the wellness index.
b. the gap between the rich and poor.
c. per capita income.
d. the poverty index.
MSC:Factual
2. More than three- quarters of Angola’s national income is derived from:
a. cotton.
b. oil.
c. rubber trees.
d. tourism.
3. In 2009, Bangladesh’s GNP was 9 percent higher than its GDP; this occurred
due to the fact that:
a. large numbers of Bangladeshi men and women work abroad.
b. Bangladesh is rich in ore and mineral deposits.
c. Bangladesh is subject to frequent and unpredictable changes in weather
patterns.
d. foreign investment has been robust in the country.
4. A country’s nominal GNP for a given year is de ned as the total market
value of:
a. labor plus capital plus technical change.
b. all nal goods and ser vices produced.
c. all nal plus intermediate goods and ser vices produced.
d. all nal goods and ser vices consumed.
5. One of the problems in mea sur ing GDP is that family farm production of food
for personal consumption is not included; this is illustrated by the problem of
calculating Cambodia’s GDP where unpaid family workers represent:
a. 75 percent of the labor force.
b. 57 percent of the labor force.
c. 33 percent of the labor force.
d. 9 percent of the labor force.
6. In some nations, illegal activities may even be included when calculating
GDP; this is most notable in Af ghan i stan where the GDP includes:
a. military expenses.
b. child traf cking.
c. money laundering.
d. poppy production.
7. A criticism of using GDP to mea sure growth is that it does not include “social
bads”; these include all of the following EXCEPT:
a. crime.
b. pollution.
c. in ation.
d. congestion.
8. In order to effectively compare levels of GDP per capita across countries, it
isnecessary to convert GDP per capita into a:
a. common currency.
b. series of stocks and bonds.
c. time– line series illustrating business cycles.
d. GNP per capita.
9. Most economists agree that an effective way of comparing income levels
between countries around the world is through the use of:
a. employment statistics.
b. GDP divided by GNP.
c. foreign investment.
d. purchasing power parity.
10. The human development index is a composite of three basic mea sures of
human welfare. Which of the following is NOT a component of the human
development index?
a. life expectancy
b. dollars of income
c. infant mortality rate
d. years of schooling
11. When world GDP (2009) is calculated by converting each nation’s GDP into
a common currency using market exchange rates, world output by low– and
middle- income economies account for:
a. 17 percent.
b. 29 percent.
c. 58 percent.
d. 67 percent.
12. For which of the following countries is the divergence between GNP per capita
mea sured at of cial exchange rates and at purchasing power parity (PPP)
likely to be largest?
a. Japan
b. United States
c. Brazil
d. Ethiopia
1.3 percent, average income doubles in:
a. 21 years.
b. 30 years.
c. 55 years.
d. 90 years.
14. According to Maddison, rapid economic growth in the world’s per capita
income as we know it began around the year:
a. 1000.
b. 1492.
c. 1820.
d. 1914.
15. The 1980s are often referred to as “the lost de cade” in:
a. Asia.
b. the Middle East.
c. Scandinavia.
d. Latin America.
16. Since the year 2000, economic per for mance in sub- Saharan Africa has
improved; this can be attributed to all of the following reasons EXCEPT for:
a. improved economic policies and management.
b. more demo cratic and accountable governments.
c. a return to state– directed economic policies.
d. new technologies.
17. According to economists, the objective of economic growth is to:
a. increase happiness.
b. provide more choices.
c. increase development.
d. decrease corruption.
14 | Chapter 2
18. The total number of Millennium Development Goals established in the year
2000 were:
a. 5.
b. 8.
c. 10.
d. 18.
19. All of the regions will meet Target 1 (to halve the number of poor) EXCEPT:
a. Eu rope and Central Asia.
b. the Middle East and North Africa.
c. sub- Saharan Africa and South Asia.
d. South America.
20. The Easterlin paradox concerns itself with the study of:
a. wealth.
b. happiness.
c. environmental damage caused by development.
d. the demise of the developed nations at the expense of the rapidly
developing ones.
IDs and Paired- Concept Questions
These terms can be used individually as short- answer identi cation questions, or
they can be used in pairs. In the latter case, ask students to explain (1) the meaning
and signi cance of each of the two terms and (2) the relationship between them.
1. Gross national product (GNP), gross domestic product (GDP)
3. GNP, net economic welfare
5. HDI, GNP per capita
7. Happiness, economic growth