Economics

• The study of economic development is one of the newest, most exciting, and

  most challenging branches of the broader disciplines of economics and political economy.
• Adam Smith was the first “development

  economist” and that his Wealth of Nations, published in 1776, was the first

  treatise on economic development
• Traditional economics is concerned primarily with the efficient, least-cost allocation of scarce productive resources and with the optimal growth of these resources over time so as to produce an ever-expanding range of goods and services.
• Traditional neoclassical economics deals with an advanced capitalist world of perfect markets; consumer sovereignty; automatic price adjustments; decisions made on the basis of marginal, private-profit, and utility calculations; and equilibrium outcomes in all product and resource markets.
• Political economy goes beyond traditional economics to study, among other things, the social and institutional processes through which certain groups of economic and political elites influence the allocation of scarce productive resources now and in the future, either for their own benefit exclusively or for that of the larger population as well.
• Political economy is therefore concerned with the relationship between politics and economics, with a special emphasis on the role of power in economic decision making.
• Development economics has an even greater scope. In addition to being concerned with the efficient allocation of existing scarce (or idle) productive resources and with their sustained growth over time
• In many cases, economic calculations are heavily influenced by political and social priorities such as unifying the nation, replacing foreign advisers with local decision makers, resolving tribal or

  ethnic conflicts, or preserving religious and cultural traditions
• Economics is a social science
• Economics is concerned with human beings and the social systems by which they organize their activities to satisfy basic material needs (e.g., food, shelter, clothing) and nonmaterial wants (e.g., education, knowledge, spiritual fulfillment).
• The very concepts of economic development and modernization represent implicit as well as explicit value premises about desirable goals for achieving what Mahatma Gandhi once called the “realization of the human potential.”
• In strictly economic terms, development has traditionally meant achieving sustained rates of growth of income per capita to enable a nation to expand its output at a rate faster than the growth rate of its population.
• GNI = monetary growth of GNI per capita minus the rate of inflation
• Gross National Income or GNI
• GNI are used then to measure the overall economic well-being of a population
• GNI - The total amount of money earned by a nation's people and businesses, both inside and outside the country's or region's borders
• GNI calculates the total income earned by a nation's people and businesses, including investment income, regardless of where it was earned. It also covers money received from abroad such as foreign investment and economic development aid.
• Residence, rather than citizenship, is the criterion for determining nationality in GNI calculations, as long as the residents spend their income within the country.
• To calculate GNI, compensation paid to resident employees by foreign firms and income from overseas property owned by residents is added to GDP, while compensation paid by resident firms to overseas employees and income generated by foreign owners of domestic property is subtracted. Product and import taxes that are not already accounted for in GDP are also added to GNI, while subsidies are subtracted.
• To convert a nation’s GDP to GNI, three terms need to be added to the former:

  1. Foreign income paid to resident employees
  2. Foreign income paid to residential property owners and investors
  3. Net taxes minus subsidies receivable on production and imports
• GNP is least used as compared to GNI and GDP because it might be deceptive
• In fact, GNI may now be the most accurate reflection of national wealth given today's mobile population and global commerce.
• • GNI is the total income received by the country from its residents and businesses regardless of whether they are located in the country or abroad.
  • GNP includes the income of all of a country's residents and businesses whether it flows back to the country or is spent abroad. It also adds subsidies and taxes from foreign sources.
  • GDP is the total market value of all finished goods and services produced within a country in a set time period.
• Gross National Product is an estimate of total value of all the final products and services turned out in a given period by the means of production owned by a country's residents
• Gross Domestic Product is the total market value of all finished goods and services produced within a country in a set time period
• Consumption (C)


  The value of all goods and services acquired and consumed by the country's households
• Investment (I)


  Any domestic capital spending by a country's citizen-run businesses
• Government spending (G)


  All consumption and investments made by the government, excluding transfer payments
• Net exports (X)


  The country's exports MINUS the country's imports
• Net foreign factor income (NFFI)


  Income that the country's citizens earn abroad MINUS the income that foreign residents earn in the country and send out of the country
• The formula for calculating GNI is often represented as: GNI = C + I + G + X + NFFI
• Why Calculate a Country’s Gross National Income?

  • Governments need to be well-informed about their own economies in order to implement effective fiscal policies. By tracking and analyzing countries’ incomes, economists are able to recommend fiscal policies that will actually be effective in creating economic growth—fiscal policies like government stimulus packages, public works projects, and tax hikes or cuts.
• Two specific ways to look at GNI data are GNI per country and GNI per capita.
• Calculating GNI per country can provide reliable ways to look at a country’s income in two ways:

  • Entire income all at once.
  • Income from year to year
• However, calculating GNI per country is not an effective way to compare the economies of different countries. This is because GNI per country does not take into consideration the population of each country, so the numbers can be misleading when looking at countries with vastly different populations. For comparing economies of different countries, GNI per capita is much more effective
• GNI per capita is a way to look at the country’s income divided by its population, and it is the clearest way to compare income per person in a country
• Higher GNI per capita numbers are correlated with things like:

  • Higher literacy rates
  • Lower infant mortality
  • Better access to safe water
• United Nations Development Programme’s (UNDP) Country Classification System
• The UNDP’s country classification system is calculated from the Human Development Index (HDI)
• HDI is a composite index of three indices measuring countries achievement in longevity, education and income. It also recognizes other aspects of development such as political freedom and personal security