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Lecture 2

EC207 Lecture 2: Ch 2 note

Course Code
Shadab Qaiser

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Two econ EXAM!
1. HDI: broader mayor
2. Income per capita: more income, spent more, necessities but not efficient. E.g. Canada high
Website: hdr.undp/org
2-15 Traditional Human Development Index
- Always try to improve in HDI
- Health is not a perfect substitute for education, major argument why giving an equal weight for
each factor
- A lot of normative judgment is involved in HDI, that’s why prof M. initially against it.
- HDI better than GDP
- Geometric average
- Modify HDI for women empowerment
HDI criteria:
o Low human development <.51 EXAM
o Medium .51 - .79
o High >= .8
o New one is <.55 closer to threshold, in exam around <.44
The new HDI
1. Calculating with a geometric mean
o Mean: build up overall education index from its two components
o Remetences: foreign exchange, money send back to the home country
2. The UN classification system
o Per capita GDP and UN membership
o 3 major groups: least developed, developing countries, OPEC
3. OECD Criterion
Characteristics of developing country
- Developing country already exploded, ground still open
- Forest and frontier
- Interesting question: developing faster to get s.o.l in developed country, lots of room to achieve
what the developed countries achieved
Types of Gap: Gap between developing and developed coun tries
- Development gap
o Different health indicator, education, infrastructure
- Idea gap
o From Romer
o Entrepreneur are important factor of production. They are people who combine land,
labour and capital. Engine of econ growth. Important factor of production, pursue of
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profit. Romer was inspired by Paul C. People want more idea, idea develop, more econ
growth take place
o Access to tech. Major develop in developed. Learning by doing: finding the medicine for
virus, etc. Developing supply of tech is supervision. They don’t have access to clean
Common characteristics of developing countries
- Start low, health is not good, don’t have access to food, effect edu, work, etc, and end up low
Y = F (K,L,H,N)
K Capital
L labour
H human capital, investing in human being, access to edu, training, managerial skill, financial
skill, estimated to have 14% more return than capital investment
N- important but not prerequisite
- In developing country, under develop financial market. High risk because of agriculture
- Problem of collateral. They are poor, don’t have market double asset. I want to borrow, need to
show stable job or asset but they are poor. High risk. Low saving rate
- Colonial legacies e.g. Africa, malaria, bad weather, colonize, they steal, not investing there, no
long term interest
- Different religion, conflict, racial differences, colour or minority more frationalized, more
conflict. If minority is the prime of econ then we unrest
- Rapid transfer of urban to city but city only has limited pop
- Mainly the export of developed product are cotton, oil, not manufactured good. Import are
expensive. Balance of sheet or trade problem because machinery is expensive and raw material
is cheap
- Adverse geo land lord countries, not allowing to cross the trade route, bad neighbour
- Underdevelop financial market, imperfect markets, different type of risk. Agriculture involve
boom and bust and we will imperfect data.
- Colonial legacy. E.g. Pakistan 70% agriculture in GDP but tax free. E.g. England only invest in
fertilize land in India.
Diversity among developing countries
- Different in size
- Size and income level
Video: global economic: econ dev a challenge
Website: …
Sep 28, 2016
Just remember the traditional HDI
Note on the board: remittances, GNI
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