Question

THESE QUESTIONS ARE UNDER ECONOMIC GROWTH AND DEVELOPMENT(A GOOD SUMMARY SHOULD BE GIVEN)

Q1. Suppose you are a Development Economist working at the United Nations Development Program and you are provided with the following information:

The Human Development Report shows that the HDI of South Africa was 0.653 (and its rank was 121) and that of the Peru was 0.767 (and its rank was 82). South Africa’s per capita income (in PPP dollars) was 11,192 and that of Peru was 5,678.

Comment and explain how you will analyze these countries economic development strategies?

Q2. Briefly explain what makes the Lewis model a “development” model rather than an “economic growth” model?

   Q3. During the past decade, India has invested about 22% of its GDP while China’s investment rate has been double that of India’s. India’s annual growth rate has been about 6% while that of China has been about 9%. What conclusions can you draw in terms of economic growth and development theories and models?

Answer 1

a) The human development index is an economic statistic that ranks countries in relation to one another in life expectancy, education and income levels. It gives countries a value between 0 and 1, with higher numbers reflecting higher levels of economic, political and social development.

The HDI statistics indicate Peru is a more developed country than is South Africa. However, the per capita income in South Africa is almost double the per capita income in Peru. This means that South Africa may be more economically developed than Peru, but Peru is more developed as an overall country than is South Africa. In other words, HDI shows a country's total development, whereas per capita income only shows a country's economic development.

HDI is made up of education and life expectancy, in addition to income, so it is safe to say the level of education and life expectancy and Peru will surpass the levels found in South Africa. This must be the case, else otherwise Peru would not have a higher HDI score.

b) Arthur Lewis put forward a development model of a dualistic economy, consisting of rural agricultural and urban manufacturing sectors

Initially, the majority of labour is employed upon the land, which is a fixed resource. Labour is a variable resource and, as more labour is put to work on the land, diminishing marginal returns eventually set in: there may be insufficient tasks for the marginal worker to undertake, resulting in reduced marginal product (output produced by an additional worker) and underemployment.

Urban workers, engaged in manufacturing, tend to produce a higher value of output than their agricultural counterparts. The resultant higher urban wages (Lewis stated that a 30% premium was required) might therefore tempt surplus agricultural workers to migrate to cities and engage in manufacturing activity. High urban profits would encourage firms to expand and hence result in further rural-urban migration.

The Lewis model is a model of STRUCTURAL CHANGE since it outlines the development from a traditional economy to an industrialized one

c)

1. China provides a good example: official Chinese statistics place the number of internal migrants over the past 20 years at over 10% of the 1.3bn population. 45% were aged 16-25 and two-thirds were male. Urban incomes are around 3.5 times those of rural workers.
2. A Marxist criticism states that profits will be retained by the capitalist entrepreneur, at the expense of workers. In addition, urban expansion might be driven by increases in capital rather than labour.
3. Evidence suggests that surplus labour is as likely in the urban sector as in the agricultural sector. Migrating workers may possess insufficient information about job vacancies, pay and working conditions. This results in high unemployment levels in towns and cities.
4. Towns and cities may also be fixed in size and unable to accommodate large numbers of immigrants. This gives rise to slums and shanty towns, which are often illegal, built on flood planes or areas vulnerable to landslides and without sanitation or clean water. Cape Town provides a good example. Globally 1bn people live in slums.