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Ecomomics evelopment 10th y p todaro and smith chapter 01

Chapter 1
Economics,
Institutions, and
Development:
A Global
Perspective

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Economic Development


Development = Growth plus Change



Growth: sustained improvement in the level of per capita income




Change: sustained improvement in institutions and organizations that support growth

Copyright © 2009 Pearson AddisonWesley. All rights reserved.

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Growth
• Gross Domestic Product (GDP): Market value of all
final goods and services an economy produces in
one year
• Real GDP: GDP in constant prices
• GDP Per Capita = (Real GDP / Population) or income
per person
• Economic Growth = percentage change in Real GDP
per capita
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1-3


Institutions
• Family: respect the authority & share
resources

• Culture: propensity to save & invest
• Religion: ability to bring about change
• Law: protect property rights and civil
liberties and enforce contracts

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1-4


Organizations
• Government: produce public goods and
regulate economic activities

• Education: increase productivity and expand


the range of economic and social opportunities

• Health: enable proactive participation in economic
and social activities

• Business: provide incentive for profit making,
resulting in growth and expansion

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1-5


Happiness and Development


There is not a perfect correlation between happiness and per capita income: people could be
poor, but happy; rich, but and unhappy



Once per capita income increases above $10,000 to $20,000, the percentage of people who
say they are happy tends to increase

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1-6


Happiness and Development
Factors affecting happiness:
• Family relationships
• Financial conditions
• Work satisfaction
• Community and friends
• Health and health-care services
• Personal freedom
• Personal
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Wesley. All rights reserved.

1-7


Income and Happiness Across Countries

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1-8


Three Core Values of Development
• Sustenance: The ability to meet basic
human needs including shelter, food,
health, education, safety
• Self-Esteem: To be a person with a sense of
self-respect and self-worth. To live with
dignity, respect, and honor
• Freedom from Servitude: To be able to
choose the path to prosperity and have the
opportunity to improve
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Objectives of Development


To increase the availability and distribution of basic human necessities



To improve the standard of living for the majority of the people



To expand the range of economic and social choices and opportunities

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Millennium Development:
Goals and Targets for 2015

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1-11


Millennium Development
Goals and Targets for 2015

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Economic Development


Inclusion of non-economic variables in designing development strategies



Achieving the Millennium Development Goals



“…One future-or none at all”

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