Development, Sustainability & Emerging Markets: Concepts & Indicators

Tutorial 1 Task 1: Getting Acquainted Task 2: Concepts and Definitions Before we get into the details of the economics of development, sustainability and emerging markets, it makes sense to get our definitions right and scope the theme of the course. If “The purpose is to learn about the process of economic development in emerging economies as well as the role of international organization’s and economic policies in achieving sustainable development targets.”, we should define what we mean by “economic development”, “emerging economies” and “sustainable development”. Textbooks help us on our way, but as many of these concepts are contested and fuzzy, we should also look for definitions in the broader academic literature Recommended literature: PRLB chapter 1-2 - Emerging economies: some Asian, eastern European, and Latin American economies, whose industrial output is growing rapidly (middle-income economies) - typically becomes more integrated with the global economy/ transitioning towards a modern, industrial economy - can offer greater returns to investors due to rapid growth, but also offer greater exposure to some inherent risks (e.g. political instability, infrastructure problems) - Economic growth and economic development are fundamentally different - Economic growth refers to a rise in national or per capita income. If the production of goods and services in a country along with-it average income increases, the country has achieved economic growth - not a sufficient condition for improving mass living standards for several reasons (e.g. governments use national income to expand military/ political leaders may be corrupt/ rich get all or most of the benefits) - happening prior to economic development - Economic development implies more- particularly improvements in health, education, and other aspects of human welfare (e.g. have access to the resources needed for a decent standard of living). Countries that increase their income but do not also raise life expectancy, increase schooling, and expand individual opportunities are missing out on some important aspects of development -development is also usually accompanied by significant shifts in the structure of the economy (from rural agricultural production to manufacturing or services)  the income distribution tells nothing about how widely (or narrowly) the benefits of growth are shared within countries - Sustainable development can be defined as development that meets the needs of the present without compromising the ability of future generations to meet their own needs - Sustainability= durable, stable - When is development sustainable?  If ecological sustainability (system boundaries), social stability (internal strains) and economic competitiveness (external challenges) will be given For a Development to be Sustainable it must… …provide the highest possible quality of life for most people… …in the present and future Task 3: Indicators of Sustainable Development With definitions clear, we can proceed to collect data and measure what we want to talk about. By now you should all know what GDP is and what data macroeconomists will typically be looking at. We tend to look at national aggregate statistics from a system of national accounts. But if we want to study sustainable development in emerging markets, is that enough? Is the nation state the appropriate level of analysis? And are the data we know, also the data we need? You are not alone in asking these questions. Frustration with narrow minded economists and bookkeepers is of all times. Ted Kennedy once famously stated that all that is of value is actually not measured by GDP. And Dutch seventeenth century poet Lucebert famously wrote: “Alles van waarde is weerloos”. Also, in academia, and fortunately in economics, there is a lively debate on these issues. Rotterdam has its happiness professor, Ruut Veenhoven and Bhutan has adopted Gross National Happiness as its yardstick for progress. The UN has first adopted the millennium development goals and now the SDGs to reflect that sustainable development is a multidimensional topic and monitor progress Recommended Literature: PRLB chapter 1-2 - Measuring Economic growth: GDP  counts all output produced within the borders of a country, including output produced by resident foreigners, but excludes the value of production by citizens living abroad - What is left out? The focus on goods and services sold in the market creates a measurement problem because many valuable contributions are left out - In the majority of developing countries, most of what is produced in the agricultural sector is consumed by the farm household and never exchanged in the marketplace  underestimated GDP - GDP does also not account for the “bads” society produces (e.g. pollution costs not deducted) or depreciation of goods/ depletion of natural resources  if economic growth does not guarantee improvement in living standards, then GDP per capita may not be a meaningful measure of economic development - Measuring economic development: Human development Index (HDI)  lead a long and healthy life, acquire knowledge, have access to resources for a decent standard of living/ political, economic, and social freedom, enjoy self-respect and human rights  development must therefore be more than just the expansion of income and wealth - BUT: raising incomes raise the HDI (not perfectly correlated with levels of income) - increasing levels of income predict a lot about economic development - Millennium development goals (MDGs): “making the right to development a reality for everyone and to freeing the entire human race from want” - eight goals consistent with this commitment:         Goal1.Eradicate extreme poverty and hunger. Goal2.Achieve universal primary education. Goal3.Promote gender equality and empower women. Goal4.Reduce child mortality. Goal5.Improve maternal health. Goal6.CombatHIV/AIDS, malaria, and other diseases. Goal7.Ensure environmental sustainability. Goal 8. Develop a global partnership for development.  Economic development involves all these goals. But it is a practical problem for those charged with realizing such an ambitious development agenda - Easterling Paradox: analysis of subjective well-being/ happiness  Even if rising per capita incomes are not perfectly correlated with perceptions of happiness, economic growth and development are essential for poor nations as a means of increasing choices and advancing human capabilities and freedoms.  There is no significant relationship between the improvement in happiness and the longterm rate of growth of GDP per capita. • What keeps people happy? - Satisfy Basic Needs - Security and Equity - Progress (Relative to Past and Peers) - money is important to a certain extend but at a certain point it doesn’t matter anymore