• High-Income Countries: High-income countries have a relatively high level of national income per capita.
  • They generally have well-developed infrastructure, strong institutions, and high living standards.
  • Examples include countries like Switzerland, Norway, Luxembourg, and the United States.
• Middle-Income Countries: Middle-income countries can be further divided into subcategories:
  • a. Upper-Middle-Income Countries: These countries have a relatively higher national income per capita compared to lower-middle-income countries.
    • Examples include countries like Brazil, Russia, Mexico, and Turkey.
  • b. Lower-Middle-Income Countries: These countries have a lower national income per capita compared to upper-middle-income countries but higher than low-income countries.
    • Examples include countries like India, Indonesia, Nigeria, and Egypt.
• Low-Income Countries: Low-income countries have a relatively low level of national income per capita.
  • They often face significant challenges related to poverty, limited infrastructure, and basic service provision. Examples include countries like Haiti, Ethiopia, Afghanistan, and Myanmar.

• Poverty cycles refer to the self-reinforcing mechanisms that perpetuate poverty over time. They are often characterized by a combination of economic, social, and institutional factors that create a vicious circle of poverty. Poverty cycles can occur at both individual and societal levels.

• Development traps refer to situations where economies or societies become stuck at a certain level of development, unable to progress to higher levels of prosperity and well-being. These traps can manifest in different forms and are often the result of complex interactions among economic, social, and institutional factors.

Indicators of living standards and economic development encompass both monetary and non-monetary measures that provide insights into the well-being and progress of individuals and societies.

Monetary Indicators

• Real Per Capita National Income Statistics: These indicators measure the average income per person in a country, adjusted for inflation.
  • They include Gross Domestic Product (GDP), Gross National Income (GNI), and Net National Income (NNI). GDP represents the total value of goods and services produced within a country's borders, while GNI includes income earned by domestic residents abroad and income received by foreign residents within the country. NNI subtracts depreciation and indirect taxes to provide a more accurate measure of a country's income available for consumption or investment.
• Purchasing Power Parity (PPP): PPP is a measure that accounts for the different costs of living across countries. It adjusts the exchange rates between currencies to reflect the actual purchasing power of income.
  • By comparing the prices of similar goods and services in different countries, PPP allows for a more accurate comparison of living standards and economic development.

Issues of Comparison Using Monetary Indicators:

• Exchange Rate Fluctuations: Exchange rates between currencies can vary over time, affecting the conversion of income and GDP figures from one currency to another. This can distort the comparison of living standards.
• Differences in Price Levels: Prices for goods and services can differ significantly between countries, making direct comparisons based on monetary indicators misleading. PPP adjustments aim to address this issue.
• Non-Income Factors: Monetary indicators may not capture important aspects of living standards, such as access to education, healthcare, social services, and quality of life. Non-monetary indicators help complement the assessment of well-being.

Non-Monetary Indicators

Non-monetary indicators provide additional insights into living standards and economic development. These include:

• Education and Literacy Rates: Indicators such as literacy rates, school enrollment ratios, and educational attainment levels reflect access to education and human capital development.
• Health Indicators: Metrics such as life expectancy, infant mortality rate, and access to healthcare services indicate the overall health and well-being of a population.
• Income Inequality: Measures like the Gini coefficient assess income distribution within a country, highlighting disparities and social inclusiveness.

Sources of inaccuracy when measuring GNI

• informal sector, hidden/underground economies - especially large in less developed countries
  • self-produced goods and services for own consumption, e.g. food, homecare for babies and the elderly
  • trade of illegal products
  • tax evasion
• low literacy
• Nature & Quality of Economic Growth
  • Nature of goods & services produced, e.g. weapons, availability of essential necessities, sanitization, capital goods (benefit future generation), consumption goods (benefit current generation)
  • Quality of health, education
  • pollution, depletion of natural resources
  • work pressure, long hours of working
• Social issues: cultural differences, political freedom

Composite indicators: HDI, MEW, MPI

• The Human Development Index (HDI) is a widely used composite indicator that measures the overall development of countries based on three dimensions: health, education, and income.
  • It takes into account indicators such as life expectancy at birth, education attainment (years of schooling and expected years of schooling), and Gross National Income (GNI) per capita.
  • The HDI provides a more holistic view of development by considering non-income factors along with economic measures.
• The Measure of Economic Welfare (MEW) is an alternative measure of economic well-being that takes into account factors beyond traditional economic indicators such as GDP. It considers various components such as household consumption, income distribution, environmental factors, and leisure time.
  • MEW aims to provide a more comprehensive assessment of economic welfare by considering the broader impacts of economic activity on society.
• The Multidimensional Poverty Index (MPI) is a composite indicator that measures poverty by considering multiple dimensions of deprivation.
  • It assesses poverty based on indicators such as health, education, and living standards.
  • The MPI goes beyond a simple income-based approach to capture the complexity and interconnectedness of poverty, considering factors such as nutrition, child mortality, school attendance, access to clean water, and sanitation.
  • It provides a more nuanced understanding of poverty by considering a range of deprivation indicators simultaneously.

the Kuznets curve

The Kuznets curve illustrates the relationship between economic development and income inequality over time.

• The curve suggests that as a country develops economically, income inequality initially increases and then decreases, forming an inverted U-shaped curve.
• According to the Kuznets curve, in the early stages of economic development, as a country undergoes industrialization and urbanization, income inequality tends to rise.
  • This is attributed to factors such as the concentration of wealth and capital in the hands of a few, disparities in access to education and skills, and the prevalence of low-skilled and low-paying jobs.

     

• However, as the economy progresses and reaches a certain level of development, income inequality is expected to decline.
  • This decline is driven by factors such as the spread of education and skills, technological advancements that create more opportunities, and the development of social safety nets and redistributive policies.
  • As a result, the benefits of economic growth become more widespread, leading to a more equitable distribution of income.

Over Time

• When comparing economic growth rates and living standards over time within a country, it helps assess the progress in improving the overall well-being of its citizens.
• Economic growth rate measures the percentage change in a country's GDP (Gross Domestic Product) over a specific period, reflecting the expansion of its economic activities. However, economic growth alone does not necessarily indicate improvements in living standards.
• To evaluate living standards over time, various indicators can be used, such as real per capita income, access to basic services (education, healthcare, clean water), and measures of poverty and inequality.
• By examining changes in these indicators alongside economic growth rates, it becomes possible to determine if economic growth is translating into tangible improvements in the quality of life for the population.

Between Countries

• Comparing economic growth rates and living standards between countries allows for understanding the relative levels of development and disparities across nations.
• Economic growth rates can be compared using annual GDP growth rates or GDP per capita growth rates. These indicators provide a measure of the pace of economic expansion in different countries.
• When comparing living standards between countries, it is essential to consider various indicators of well-being and development, including GDP per capita, Human Development Index (HDI), poverty rates, education levels, healthcare access, and infrastructure development.
• These indicators offer a more comprehensive understanding of the overall living conditions and quality of life in different countries.