DEVELOPMENT ECONOMICS

ASSOC. PROF. NGUYEN VAN CONG, PHD

Faculty of Economics, NEU
Cell Phone: 0913520546
Email: congvn@[Link]
 OBJECTIVES
 Bythe end of this course, students should be
able to
 Understand and explain what determines
income per capita and its growth rates in
developing countries.
 Understand and analyze other aspects of
development such as poverty, income
distribution, population growth, migration
and trade in developing countries.
 Understand and apply theories to analyze the
role played by governments and institutions 2
in shaping these economies.
 REFERENCE
 Perkins, D.H, S. Radelet, D.L. Lindauer, and S. A.
Block (2013), Economics of Development, 7th
Edition, New York: W.W Norton & Company, Inc.
 Michael Todaro and Stephen Smith (2020), Economic
Development, 13th Ed., Pearson
 Selected empirical works
 STATISTICAL DATA SOURCES

 The World Bank [Link]

 Human Development Index rankings
[Link]
 General Statistics Office of Vietnam [Link]

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 CONTENTS
Unit 1: Introduction
Unit 2: Patterns of Economic Growth
Unit 3: Theories of Economic Growth
Unit 4: Poverty, Inequality and Development
Unit 5: Population and Development
Unit 6: International Trade and Development
Unit 7: Financial System and Monetary Policy
Unit 8: Balance of Payments and Exchange rates

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 COURSE ASSESSMENT
Assessment methods Assessment indicators Percentage (%)

slide 6
Attendance, behavior &
Class Participation 10%
contribution in class.

30 multiple choice
1 Midterm Test 20%
questions

Content; Slide design;

Group presentation 20%
Presentation

Calculation exercises and

Final Exam 50%
short answer questions
 UNIT 1

INTRODUCTION
 CONTENTS

 What’sDevelopment Economics?
 What Do We Mean by Development?

 Measuring Economic Development

 Characteristics of Developing countries

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 READINGS

 Michael Todaro and Stephen Smith (2020),

Economic Development, 13th Ed., Pearson, Ch 1, 2
 Perkins, D.H, S. Radelet, D.L. Lindauer, and S. A.
Block (2013), Economics of Development, 7th
Edition, New York: W.W Norton & Company, Inc.,
Ch 1, 2

9
 DEVELOPMENT ECONOMICS
 The development economics bears a lot in common with the
economics you may have studied in other courses.
 It relies on the economic theories to investigate and
analyze development issues and policies in developing
countries.
 But it is also different.
 A focus mainly on long-term rather than short-term
issues of the economy.
 Addressing development issues (economic growth,
poverty, inequality, population growth, structural and
institutional change, migration).
 Context matters. It is based primarily on the real-world
experiences of developing countries
 Geographic scope: most of Asia; sub-Saharan Africa, the
Middle East and North Africa; Latin America and the
Caribbean; and the transition economies of East and
Southeast Europe
 What Do We Mean by Economic Development?
 Development is a normative and multidimensional
concept.
 The main goal of economic development is to improve
the living standards of most people in countries.
 Amartya Sen: The goal of development is to expand the
capabilities of people to live the lives they choose.
 Being well-nourished
 Being well-clothed
 Being healthy
 Being able to live long
 Being literate
 Being able to take part in the life of the community 11
 To be happy
Four Pillars of Economic Development

Economic
growth

Poverty Economic Shifts in

and Developm economic
inequality ent structure

Health and 12
education
 MEASURING ECONOMIC GROWTH

 Economic growth refers to increases in

real national income over time.
 Two basic measures of national income:
Real Gross Domestic Product (GDP)
Real Gross National Income (GNI)

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 EXCHANGE-RATE CONVERSION
 To compare nations at different income levels requires
converting income per capita into a common currency
 Market exchange rates tend to underestimate the income
levels of poorer nations.
 Tradables are importable and exportable goods and
services. Their prices are determined by supply and
demand on world markets.
 Nontradables are goods and services, that are not
easily or not conventionally bought or sold outside the
country. Prices of nontradables are determined by
market forces within the economy and much lower in
poor nations.
 The PPP estimates obtained from the UN International
Comparison Program correct this problem by expressing14
every nation’s income per capita in terms of a common set
of international prices.
COMPARING GNI PER CAPITA USING MARKET EXCHANGE RATES AND
PPP IN 2023 (US$)
MARKET GDP AT RATIO OF PPP TO MARKET
COUNTRY
EXCHANGE RATES PPP EXCHANGE RATE
United States 80450 82340 1.02
Norway 102910 109260 1.06
United Kingdom 47700 58140 1.22
Germany 54800 73180 1.34
Japan 39350 53080 1.35
Korea, Rep. 35490 55040 1.55
China 13390 24360 1.82
Brazil 9280 20470 2.21
Hungary 19670 44300 2.25
Botswana 8340 20960 2.51
Ethiopia 1110 3050 2.75
Bolivia 3620 10620 2.93
Thailand 7200 22940 3.19
Viet Nam 4110 14190 3.45
Gambia, The 870 3210 3.69
India 2540 10020 3.94 15

Source: World Bank, “World Development Indicators,” [Link]

 MEASURING ECONOMIC DEVELOPMENT

 Economic development is a normative and

multidimensional concept.
 Two prominent measure:

 The human development index (HDI): a

composite measure reflecting the goals of leading
a long life, acquiring knowledge, and achieving
material well-being
 Sustainable Development Goals (SDGs) rely
on a multiplicity of goals and targets for
advancing human well-being within the decade.

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 HDI – A HOLISTIC MEASURE OF LIVING LEVELS
AND CAPABILITIES
 The Human Development Index (HDI) was initiated in 1990
 New HDI was introduced by UNDP in 2010
 The index is now computed with a geometric mean, instead of
an arithmetic mean
 The traditional HDI calculation assumed one component
traded off against another as perfect substitutes
 The reformulation now allows for imperfect substitutability.
 Gross national income per capita replaces gross domestic
product per capita
 Revised education components: now using the average actual
educational attainment of the whole population, and the
expected attainment of today’s children
 The maximum values in each dimension have been increased
to the observed maximum rather than given a predefined
cutoff.
 The minimum value for income has been reduced due to new
evidence on lower possible income levels
COMPUTING HDI

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 A STANDARD OF LIVING

 Gross National Income (GNI)

GNI = GDP + Net factor income from
abroad
 PPP method instead of exchange rates as
conversion factors
 HDI

Life Per Capita GNI

Education
Expectancy (2017 PPP $)

expected years
average years
of schooling for
Min: 20 years Max: 85 years of schooling for Min: $100 Max: $75,000
school-age
adults
children

Min: 0 Max: 15 Min: 0 Max: 18

Actual value - Minimum Value

Dimension index =
Maximum value - Minimum Value
HDI = H1/3E1/3I1/3 20

H, E, and I are health, education, and income indexes

COMPUTING VIETNAM’S HDI IN 2022

HDI

Per Capita
Life GNI
Education
Expectancy
(2017 PPP $)

Expected
Mean years of number of
74.6 years 10814
schooling years of
schooling

8.5 13.1 21
 COMPUTING VIETNAM’S HDI IN 2022

H = (74.6- 20)/(85- 20) = 0.84

Mean years of schooling index = (8.5-0)/(15 -0) = 0.567
Expected years of schooling index = (13.1-0) / (18-0) = 0,728
Combined education index (E) = [0.567 + 0.728]/2 = 0.647
I = ln(10,814) - ln(100)]/[ln(75,000) - ln(100)] = 0.707
HDI = H1/3E1/3I1/3 = (0,84 * 0,647 * 0,707)1/3 = 0,726

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HUMAN DEVELOPMENT CLASSIFICATION OF
COUNTRIES
Number of
HDI Ranking Value countries in
2022
Very high human
0.800 – 1 69
development
High human
0.7 – 0.799 49
development
Medium human
0.550 – 0.699 41
development
Low human
0 – 0.549 34
development
Source: HDR 2023/24 23
 HDI VERSUS GNI PER CAPITA BY COUNTRY, 2022
HDI Value
1.200

y = 0.1245x - 0.4394
1.000
R2 = 0.929

Qatar
0.800 Cuba
Kyrgyzstan Guyana
Equatorial Guinea
0.600 Timor-Leste

0.400

0.200

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0.000
5.000 6.000 7.000 8.000 9.000 10.000 11.000 12.000
GNI per capita (PPP US$, log scale)
17 SUSTAINABLE DEVELOPMENT GOALS

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 CLASSIFICATION OF WORLD ECONOMIES
FOR THE CURRENT 2025 FISCAL YEAR

GNI per Population of GNI of World

Countries
Country classification capita World Total Total Examples
(No)
(US$) (%) (%)

Afghanistan, Ethiopia,
1 Low income 1,145 26 9.14 0.52 Niger, Somalia, Yemen

Cambodia,
Lower middle 1,146 -
2 51 38.20 7.28 Ghana, India, Morocco,
income 4,515 Philippines, Vietnam,

4,516 - Algeria, Brazil, China,

Upper middle
3 54 34.94 28.01 Indonesia, Malaysia,
income 14,005 Serbia, South Africa

Australia, France, Japan,

4 High income >14,005 85 17.37 63.85 Norway, Saudi Arabia,
UK, US

216 100 100

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• Vietnam’s GNI per capita in 2023: $4,110; GDP per capita: $4,347
Source: WDI
 CHARACTERISTICS OF DEVELOPING
COUNTRIES
1. Lower levels of living and productivity
2. Lower levels of human capital (health,
education, skills)
3. Higher Levels of Inequality and Absolute
Poverty
4. Higher Population Growth Rates
 INCOME COMPARISIONS FOR
SELECTED COUNTRIES, 2022
90000
Unit: GNI per capita (current US$)
80000

70000

60000

50000

40000

30000

20000

10000

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 PRODUCTIVITY COMPARISIONS FOR
SELECTED COUNTRIES, 2022
140000 Unit: GDP per person employed
(constant 2017 PPP $)
120000

100000

80000

60000

40000

20000

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31
32
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 Selected Income Distribution Estimates
Country Name Gini index Year
Bangladesh 31.8 2022
Brazil 52.9 2021
China 37.1 2020
Colombia 51.5 2021
Costa Rica 48.7 2022
Honduras 48.2 2019
The GINI coefficient: Guatemala 48.3 2014
India 34.2 2021
+ below 40: relatively equal Namibia 59.1 2015
+ 40 to 50: relatively unequal Pakistan 29.6 2018
+ above 50: highly unequal South Africa 63 2014
Peru 40.2 2021
Philippines 40.7 2021
Tanzania 40.5 2018
Zambia 55.9 2015
Viet Nam 36.8 2020
United States 39.8 2021
Japan 32.9 2013
 CHARACTERISTICS OF DEVELOPING
COUNTRIES

5. Larger Rural Populations but Rapid

Rural-to-Urban Migration
6. Greater Social Fractionalization
7. Lower Levels of Industrialization
and Manufactured Exports
8. Adverse Geography
CHARACTERISTICS OF THE DEVELOPING
WORLD
9. Underdeveloped Financial and Other markets
 Imperfect markets
 Incomplete information

10. Weak Institutions

 Lack of property rights

 Low enforcement of contracts

 Corruption