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Measures of Development and Theories - Coggle Diagram
Measures of Development and Theories
Income based measures of development
GDP
Gross domestic product divided by total population. Creates a value that indicates the average proportion of income per person. When GDP has risen, it assumes that the income of each person has risen as well. It assumes that the distribution of income is equal and proportionate throughout the entire economy. Though it can be an indicator of economic growth, it can also mask unequal wealth gaps among the economy.
Gini-coefficient
Gini-coefficient indicates the level of equal wealth distribution in a population from a scale of 0 to 1. The closer the value is to 1, the more unequal income distribution is. Here, economic growth may be seen in the reduction of the gini-coefficient value. Suggests improvement of income distribution in the population
Theories and models of development
Modernisation Theory
Oldest theory of development, and is based on the study of western industrialised nations.
It argues that the only path to development and modernisation for undeveloped nations is through copying these western industrialised nations.
WALT WHITMAN ROSTOW theorised the 5 steps toward development:
Traditional societies: societies that are based on subsistence agriculture, and have pre-scientific values, and low levels of technology.
Pre-conditions for take off: societies that have started to introduce currency and banks into the economy, a new class of entrepreneurs with scientific values
Take-off: societies in which values that encourage economic growth are widespread, and the growth of certain sectors of the economy are common.
Drive to maturity: societies with an economy that is diversifying and producing an increasing large varieties of products and services. Standards are increasing and poverty is reducing
High Mass consumption: Societies in which wealth and the production and consumption of modern consumer groups are widespread.
The result of this model of development: government introduced policies that focused on building infrastructure, nurturing new industries through national subsidies and investments, and the development of trade relations.
Dependency theory
Replaced the modernisation theory as the most popular development theory in the 1960's. Has marxist roots, understands the structure of the world economy as a whole and not individual states.
Criticises the Modernisation theory and argues that newly independent/ undeveloped nations cannot develop by simply imitating western industrialised nations.
Underdeveloped and newly independent states are locked into an unequal system of global trade, in which western industrialised nations are set to benefit, at the cost of poorer countries
The world is divided into core and periphery states: western industrialised nations make up the core, and undeveloped nations make up the periphery.
The core states developed and became wealthy by exploiting the periphery states, and are interested in maintaining this unequal relationship in order to remain dominant in the world.
This theory was based on observations of newly independent nations. THESE ARE THE RESULTS
In an attempt to break free from the unequal system of global trade, newly independent nations broke economic relations with other states and tried to become self-sufficient.
They did so by:
placing high tariffs on imported consumer goods to protect domestic industries
overvalued their currencies to make the importing of production inputs cheaper
subsidised industries as well as agriculture with the goal of self-sufficiency
This resulted in: states borrowing a lot of money, a lot of money being wasted or corrupted due to the state having a lot of power, and international finance institutions and western nations pressuring developing countries to change their development practices as it affected global economy (1970's debt crisis)
Other measures of development
Holistic development uses more complex measures of development. They capture aspects of development without using economic data.
HDI: life expectancy, income, education level
HPI: ecological foot print, well-being etc.
IT IS DIFFICULT TO MEASURE NON-ECONOMIC INDICATORS OF DEVELOPMENT. HOWEVER, HDI IS POPULAR