Edward Conder

Development Data Questions

Examine three measures of economic and social development that are associated with a rise in a developing countries GNP per capita. (10) Firstly income distribution is associated with a rise in GNP. As a country develops it would be desirable for the income distribution gap to narrow, and generally this is the case when comparing countries such as the US and UK to Africa and India. However, it is debated if this is a cause of development or even a result of development. Secondly increased GNP should indicate increased spending on education and training by the government and or healthcare. This should also indicate development as the workforce becomes healthier, vital rates improve and it results in an increase in human capital. Thirdly a fall in poverty should occur with an increase in GDP as GDP per capita would also increase, however the extract shows that this is not the case in China, and this is not as a result of inflation. Examine two limitations of GDP figures as a measure of economic development. (10) Firstly, the poorer the country, the greater the proportion of economic output which is not traded in the market economy, for instance produce from subsistence farming is not included in the figures. Building houses and providing entertainment is also not included and this may result in lower GDP figures than what would be comparable to other countries. Secondly, GDP may not be accurate for a number of separate subtle reasons. For example, inflation may cause a rise in GDP as prices on the economy rise, however this occurs and it would not necessarily indicate economic development. Secondly, GDP figures are converted into US dollars to compare this does not give an accurate representation of how living costs in the country affect the amount of disposable income that the population has and this can only be corrected if the GDP figures are adjusted for purchasing power parity. Distinguish between absolute and relative poverty and apply these concepts to China, or any other developing country. Evaluate the usefulness of each concept. (10) Absolute poverty is defined as a person with income below the poverty line. The poverty line is an income of less than the equivalent of $1.25 a day. Absolute poverty occurs when human beings are not able to consume sufficient necessities to maintain life. Human beings who are homeless or malnourished suffer from absolute poverty. The largest concentrations of those in absolute poverty are in the third world countries as it is possible to eradicate absolute poverty from society. On the other hand, relative poverty is always present in society, the poor in this sense are those at the bottom of the income scale. There is no exact measure of relative poverty like the bottom 10%, but it was defined by Adam Smith as necessities were whatever the custom of the country renders it indecent for creditable people, even of the lower order, to live without. When applying these concepts to China it is hard to give an overall picture, this is as a result of large regional disparities between those who work and live in the agricultural East and those in the urbanized West. For example, those in the West who may be considered to be in relative poverty would not be in poverty with the same income if they lived in the East. China also has set its poverty level for relative poverty very low, $83 a year, which is significantly below the UN poverty line. This results in a drastically un-accounted for population that will keep Chinas poverty statistics low. Relative poverty is useful as it adjusts

2 Edward Conder for the standards of living that people are used to in each country and effectively their purchasing power. It is not, however, as useful as absolute poverty for comparing between countries. It is also possible to use both indicators to asses the level of poverty in the country as it may be suggested that a large gap between absolute poverty and relative poverty suggests a high level of development and vice versa. Evaluate the costs of rapid economic growth for China, or any other developing country. (15) Economic growth does not come risk-free. Although our material progress can be measured in part by the growth of national output, income and spending, if the economy grows too quickly, it can bring about short and long-term problems. There is the danger of demand-pull and cost-push inflation if demand grows faster than long run productive potential High and rising inflation can be destabilising for an economy because it puts pressure on interest rates to rise and can cause a loss of competitiveness for domestic businesses in international markets Economic growth cannot be separated from its environmental impact. Fast growth of production and consumption can create negative externalities such as increased noise and air pollution and road congestion. Environmental damage can have a negative effect on our quality of life and limits our sustainable rate of growth. For example, road transport is responsible for 25% of UK CO2 emissions once emissions from fuel processing and vehicle manufacturing are taken into account. Not all of the benefits of growth are evenly distributed. We can see a rise in real GDP but also growing income and wealth inequality in society that is reflected in an increase in relative poverty. The Gini coefficient is one way to measure the inequalities in the distribution of income and wealth in different countries. Countries such as Japan, Denmark and Sweden typically have very low values for the Gini coefficients; whereas African and South American countries have an enormous gap between the incomes of the richest and the poorest elements of the population. Although average living standards may be rising, the gap between rich and poor can widen leading to an increase in relative poverty and a widening of the gap between different regions. These are particularly relevant to China as they are seeing rapid economic growth and this is exacerbating the problems outlined above.