Topic 1: Economic Development--An Overview

I. Economic historians make the distinction between economic growth and economic development:

Economic growth: the sustained increase in the output of goods and services of a society.

Economic development: economic growth accompanied by changes in the technical and institutional arrangements by which output is produced.

A. What are examples of changes in technical and institutional arrangements by which output is produced?

Change to settled agriculture – Neolithic transition  technical/institutional
Breakdown of manorial system  institutional change
Invention of flying shuttle by John Kay in 1733

1. Can we have economic growth without economic development?

2. What comes first in spurring on economic development – the economic growth or the structural change?

3. The link between economic growth and economic development today

B. Economic development as a (relative) state of being.

II. How do we measure economic development?

We want to have measures for tracking economic development. Such measures allow us to make comparisons across time and space in economic development. There are many measures/characteristics that we could use to study economic development.

A. Measures of economic development in the current period

The World Bank lists over 1000 “World Development Indicators” in an on-line resource available through OSU Libraries.

“Basic Indicators” of development include the following measures:

GDP per capita, both level and average annual growth

Average annual rate of inflation

Life expectancy at birth

Adult literacy, both female and total

Gross Domestic Product (GDP) = value (dollar) of the output of an economy=C+I+G+(X-M)

We usually use GDP per capita as summary measure of standard of living and economic growth.

Problems with GDP per capita as a measure of welfare (and hence, why its growth does not always translate as improvement of welfare):

1. Does not capture all economically important activities

2. Dollar value of a good does not always equal “social” value (e.g., no accounting for pollution costs)

3. Welfare depends not only on size of national income but on its distribution. Honduras and Sri Lanka had same GNP per capita in 2009 – around $2,000, but different income distributions:

Percentage share of income consumption by quintile:

1
2
3
4
5
Honduras
2
6
11
21
60
Sri Lanka
7
10
14
21
48
U.S.
4
9
15
23
49

4. Does not account for differences in “cost of living” across time and space

Even if GDP per capita were a good measure of average income, comparisons across space and time would be hindered by the fact that the “cost of living” – that is, the cost of a certain bundle of goods or a certain lifestyle – is not the same in different societies (prices – housing prices in particular, taxes, etc.)

Despite these caveats, GDP still most oft-referenced measure of countries’ welfare for two main reasons:

B. Data Sources in historical periods, used to construct measure of Economic Development. Common data sources for historical periods are:
1. censuses, surveys (population, demographic information, occupational distributions)
2. tax records (production information, shipping information, exports and imports, wealth)
3. church records (births, deaths, life expectancy)
4. heights and skeletal remains (Professor Steckel’s research)

III. Modern Economic Growth A. As we will see throughout the quarter, this growth has been both extensive and intensive.
1. Extensive growth: increase in output due to increase in inputs (labor force grows; land stock increases)
2. Intensive growth: increase in output per unit of input – productivity increases (technological change)

B. U.S. had achieved levels of GNP per capita now observed in developing countries by relatively early dates--even colonial America had higher GNP per capita than