The main

indicators of
economic
development

Arthur Silve The main indicators of economic

Introduction

GDP and growth

development
GDP, GNP, GNI and
growth
Growth, poverty, inequalities, and development
Sectoral decomp.
Decomp. by
expenditures
Decomp. by income

Determinants Arthur Silve

Proximate causes
Fundamental causes

Development
Agence Française de Développement
Income Paris School of Economics
Redistribution
Social and political
indicators
2013

Sustainable and inclusive growth

The role of public policies

The main
indicators of
economic
MACRO 1: introductory workshop to the main
development
macroeconomic concepts
Arthur Silve
countries eligibility to budget support
Introduction
identify the macroeconomic vulnerabilities
GDP and growth
GDP, GNP, GNI and assess the adequacy of implemented policies
growth
Sectoral decomp.
Decomp. by dialogue with the authorities – stabilization policies
expenditures
Decomp. by income
MACRO 2: follow-up workshop
Determinants
Proximate causes
Fundamental causes
dialogue with the authorities
Development stabilization policies (going further)
Income
Redistribution
development policies
Social and political
indicators
going further on the concepts discussed
(redistribution, political economy)
 Development, a multidimensional concept

The main
indicators of
economic
development Development: Sen 1999
Arthur Silve
Broadening choices and reducing deprivations:
Introduction

GDP and growth

hunger, illiteracy, health problems, insecurity,
GDP, GNP, GNI and
growth
humiliation, access to basic infrastructures, political
Sectoral decomp.
Decomp. by rights and freedom of speech
expenditures
Decomp. by income

Determinants
Proximate causes Development: World Bank
Fundamental causes

Development Qualitative changes and restructuring of a country’s

Income
Redistribution
Social and political
economy, in conjunction with social and technological
indicators
progress. Largely linked to economic growth.

Development, a multidimensional concept

The main
indicators of
economic
development Three main dimensions of development
Arthur Silve economic
Introduction standard of living – households purchasing power
GDP and growth distribution of wealth – poverty and inequalities
GDP, GNP, GNI and
growth
Sectoral decomp. social
Decomp. by
expenditures
Decomp. by income
health, education
Determinants social protection
Proximate causes
Fundamental causes political
Development
Income
individual freedoms and human rights
Redistribution
Social and political
political freedoms and democracy
indicators
quality of regulation and corruption
 Growth, a multidimensional concept as well
x:HDI et y:GDP/cap in PPP in Africa

The main
indicators of
economic
development

Arthur Silve

Introduction

GDP and growth

GDP, GNP, GNI and
growth
Sectoral decomp.
Decomp. by
expenditures
Decomp. by income

Determinants
Proximate causes
Fundamental causes

Development
Income
Redistribution
Social and political
indicators

Source: AS from the World Bank and UNDP

Objective of this sequence

The main
indicators of
Gather the whole set of relevant indicators to
economic
development characterize
Arthur Silve The production of wealth – its nature and
Introduction determinants
GDP and growth
GDP, GNP, GNI and
Redistribution of this wealth – poverty and
growth
Sectoral decomp.
inequalities
Decomp. by
expenditures
Decomp. by income
The social barriers to development – health,
Determinants education and social security
Proximate causes
Fundamental causes The political process / the business environment
Development
Income Formulate a first diagnosis relative to the development
Redistribution
Social and political
indicators
challenges a country faces
economic, social and political stakes
main barriers to economic growth
 Course outline

The main
indicators of 1 Introduction
economic
development 2 GDP and growth
Arthur Silve
GDP, GNP, GNI and growth
Introduction Sectoral decomp.
GDP and growth Decomp. by expenditures
GDP, GNP, GNI and
growth
Sectoral decomp.
Decomp. by income
Decomp. by
expenditures
Decomp. by income
3 Determinants
Determinants Proximate causes
Proximate causes
Fundamental causes Fundamental causes
Development
Income 4 Development
Redistribution
Social and political
indicators
Income
Redistribution
Social and political indicators

The gross domestic product - GDP

The main
indicators of
economic
development

Arthur Silve

Introduction Defined as
GDP and growth
GDP, GNP, GNI and
the market value
growth
Sectoral decomp.
Decomp. by
of all final products and services produced
expenditures
Decomp. by income on the national territory
Determinants
Proximate causes over one year (usually the calendar year).
Fundamental causes

Development
Income
Redistribution
Social and political
indicators
 GNP, GNI

The main
indicators of
economic
development
GNP
Arthur Silve GNI
goods and services
Introduction
produced thanks to GNP – indirect taxes
GDP and growth
GDP, GNP, GNI and labor and assets (VAT) < GNP
growth
Sectoral decomp.
Decomp. by
supplied by the strongly correlated with
expenditures
Decomp. by income
nationals of a country GNP. Since the
Determinants
Proximate causes
More pragmatically: implementation of the
Fundamental causes
GDP + income on ESA 95 (consistent
Development
Income factors abroad – with the SNA 93), GNI
Redistribution
Social and political
indicators
income of non-national is usually preferred
in a country

Short term cycles

potential growth, output gap, overheating

The main
indicators of Real growth and nominal growth
economic
development Inertia of the productive sector
Arthur Silve Potential growth, real growth, output gap
Introduction

GDP and growth

GDP, GNP, GNI and
growth
Sectoral decomp.
Decomp. by
expenditures
Decomp. by income

Determinants
Proximate causes
Fundamental causes

Development
Income
Redistribution
Social and political
indicators

Source: AS as from Mauritius INS. x:year, y:%

 Overheating example: Vietnam 2008

The main
indicators of
economic
development

Arthur Silve

Introduction

GDP and growth

GDP, GNP, GNI and
growth
Sectoral decomp.
Decomp. by
expenditures
Decomp. by income

Determinants
Proximate causes
Fundamental causes

Development
Income
Redistribution
Social and political
indicators

Source: AS as from the World Bank. Green: growth. Black: inflation. x:year, y:%

Vietnam (continued)
Inflows in excess

The main
indicators of
economic
development

Arthur Silve

Introduction

GDP and growth

GDP, GNP, GNI and
growth
Sectoral decomp.
Decomp. by
expenditures
Decomp. by income

Determinants
Proximate causes
Fundamental causes

Development
Income
Redistribution
Source: AS as from the World Bank. FDI, portfolio, others, balances of the BP. x:year, y:% of GDP
Social and political
indicators
 Sectoral decomposition

The main
indicators of
economic
development

Arthur Silve

Introduction

GDP and growth

GDP, GNP, GNI and P
growth
Sectoral decomp.
GDP = GDPsect
Decomp. by
expenditures
Decomp. by income

Determinants
Proximate causes
Fundamental causes

Development
Income
Redistribution
Social and political
indicators

Sectoral decomposition

The main
indicators of
economic
development
If we decompose the Mauritian GDP growth, it gives:
Arthur Silve

Introduction

GDP and growth

GDP, GNP, GNI and
growth
Sectoral decomp.
Decomp. by
expenditures
Decomp. by income

Determinants
Proximate causes
Fundamental causes

Development
Income
Redistribution
Social and political
indicators

Source: AS as from Mauritian INS. y: %

 First country-case: Mauritania
Sectoral decomposition of GDP

The main
indicators of
economic
development

Arthur Silve

Introduction

GDP and growth

GDP, GNP, GNI and
growth
Sectoral decomp.
Decomp. by
expenditures
Decomp. by income

Determinants
Proximate causes
Fundamental causes

Development
Income
Redistribution
Social and political
indicators

Source: AS as from the World Bank

Mauritania (continued)
Sectoral decomposition of growth

The main
indicators of
economic
development

Arthur Silve

Introduction

GDP and growth

GDP, GNP, GNI and
growth
Sectoral decomp.
Decomp. by
expenditures
Decomp. by income

Determinants
Proximate causes
Fundamental causes

Development
Income
Redistribution
Social and political
indicators

Source: AS as from the World Bank: y:%

 Second country-case: Madagascar
Sectoral decompostion of GDP

The main
indicators of
economic
development

Arthur Silve

Introduction

GDP and growth

GDP, GNP, GNI and
growth
Sectoral decomp.
Decomp. by
expenditures
Decomp. by income

Determinants
Proximate causes
Fundamental causes

Development
Income
Redistribution
Social and political
indicators

Source: AS from the World Bank

Madagascar (continued)
Sectoral contributions to growth

The main
indicators of
economic
development

Arthur Silve

Introduction

GDP and growth

GDP, GNP, GNI and
growth
Sectoral decomp.
Decomp. by
expenditures
Decomp. by income

Determinants
Proximate causes
Fundamental causes

Development
Income
Redistribution
Social and political
indicators

Source: AS as from the World Bank. y:%

 Third country-case: El Salvador
Sectoral decomposition of GDP

The main
indicators of
economic
development

Arthur Silve

Introduction

GDP and growth

GDP, GNP, GNI and
growth
Sectoral decomp.
Decomp. by
expenditures
Decomp. by income

Determinants
Proximate causes
Fundamental causes

Development
Income
Redistribution
Social and political
indicators

Source: AS as from the World Bank

El Salvador (continued)
Sectoral contributions to growth

The main
indicators of
economic
development

Arthur Silve

Introduction

GDP and growth

GDP, GNP, GNI and
growth
Sectoral decomp.
Decomp. by
expenditures
Decomp. by income

Determinants
Proximate causes
Fundamental causes

Development
Income
Redistribution
Social and political
indicators

Source: AS as from the World Bank. y:%

 Decomposition by expenditures

The main
indicators of
economic
development

Arthur Silve

Introduction

GDP and growth

GDP, GNP, GNI and
growth
Sectoral decomp.
Y = C +I +X −M
Decomp. by
expenditures
Decomp. by income
= Cpub + Cpriv + Ipub + Ipriv + ∆S + X − M
Determinants
Proximate causes
Fundamental causes

Development
Income
Redistribution
Social and political
indicators

Decomposition by expenditures

The main
indicators of
economic
development

Arthur Silve

Introduction

GDP and growth

GDP, GNP, GNI and
growth
Sectoral decomp.
Decomp. by
expenditures
Decomp. by income

Determinants
Proximate causes
Fundamental causes

Development
Income
Redistribution
Social and political
indicators Source: AS as from the Maurician INS. y:%
 Mauritania (end)
Contributions of expenditures to growth

The main
indicators of
economic
development

Arthur Silve

Introduction

GDP and growth

GDP, GNP, GNI and
growth
Sectoral decomp.
Decomp. by
expenditures
Decomp. by income

Determinants
Proximate causes
Fundamental causes

Development
Income
Redistribution
Social and political
indicators

Source: AS as from the World Bank. y:%

Madagascar (end)
Contributions of expenditures to growth

The main
indicators of
economic
development

Arthur Silve

Introduction

GDP and growth

GDP, GNP, GNI and
growth
Sectoral decomp.
Decomp. by
expenditures
Decomp. by income

Determinants
Proximate causes
Fundamental causes

Development
Income
Redistribution
Social and political
indicators

Source: AS as from the World Bank. y:%

 El Salvador (end)
Contributions of expenditures to growth

The main
indicators of
economic
development

Arthur Silve

Introduction

GDP and growth

GDP, GNP, GNI and
growth
Sectoral decomp.
Decomp. by
expenditures
Decomp. by income

Determinants
Proximate causes
Fundamental causes

Development
Income
Redistribution
Social and political
indicators

Source: AS as from the World Bank. y:%

LT growth and investment

The main
indicators of
economic
development

Arthur Silve

Introduction

GDP and growth

GDP, GNP, GNI and
growth
Sectoral decomp.
Decomp. by
expenditures
Decomp. by income

Determinants
Proximate causes
Fundamental causes

Development
Income
Redistribution
Social and political
indicators

Source: AS as from the World Bank. y:% of GDP

 Decomposition by income

The main
indicators of
economic
development

Arthur Silve
GDP can be considered as the sum of the income derived
Introduction
from the various production factors / institutional sectors
GDP and growth
GDP, GNP, GNI and
growth
Sectoral decomp.
Decomp. by Labor: wages
expenditures
Decomp. by income
Capital: profits, after taxes
Determinants
Proximate causes
Fundamental causes
Public sector: taxes on production and imports –
Development subsidies
Income
Redistribution
Social and political
indicators

Course outline

The main
indicators of
economic
development

Arthur Silve 1 Introduction

Introduction

GDP and growth 2 GDP and growth

GDP, GNP, GNI and
growth
Sectoral decomp.
Decomp. by
expenditures 3 Determinants
Decomp. by income

Determinants
Proximate causes
Proximate causes
Fundamental causes
Fundamental causes
Development
Income
Redistribution
Social and political
4 Development
indicators
 First model: the hope of convergence
the neoclassical model (Solow-Swan)

The main
indicators of
Solow (1956) “Technical change and the aggregate
economic
development production function”, RES 39(3), 312-320.
Arthur Silve
Decreasing marginal y = Ak α
Introduction
productivity of capital
GDP and growth
GDP, GNP, GNI and
growth
Saving vs. pop. growth
Sectoral decomp.
Decomp. by
/ capital depreciation
expenditures
Decomp. by income
Steady states
Determinants
Proximate causes
Fundamental causes
Empirical predictions
Development convergence
Income
Redistribution
Social and political
flows to developing
indicators
countries
growth accounting
framework

Second model: endogenous growth

Romer: augmented Solow model

The main
indicators of
economic
development
Romer (1986) “Increasing returns and long-run growth”,
Arthur Silve
JPE, 94(5), 1002-37
Introduction
Mankiw, Romer, Weil (1992) “A contribution to the
GDP and growth
GDP, GNP, GNI and empirics of economic growth”, QJE 107(2), 407-37.
growth
Sectoral decomp.

y = k α hβ
Decomp. by
expenditures
Decomp. by income

Determinants
Proximate causes
Fundamental causes
Investment is made both in human and physical capital.
Development ! Explain much better global panel data
Income
Redistribution
Social and political % Does not explain the conditional convergence
indicators
 Immediate causes (proximate)
growth accounting framework

The main
indicators of
economic
Multiplicative model
development

Arthur Silve Y = AK α L1−α

Introduction

GDP and growth In per capita terms and log-linearised:

GDP, GNP, GNI and
growth
Sectoral decomp.
Decomp. by
y = ln A + αk
expenditures
Decomp. by income

Determinants GDP Growth Capital Labor Innovation

Proximate causes
Fundamental causes 1980-90 6.3 3.0 2.0 1.3
Development
Income
1991-00 5.6 2.5 2.1 1.0
Redistribution
Social and political
2001-07 4.1 2.5 0.9 0.7
indicators
1980-07 5.3 2.6 1.7 1.0
Source: Rojid et Seetanah (2009)

Taking stock
Describe growth

The main
indicators of
economic
development

Arthur Silve

Introduction cycles, output gap, nominal and real effects

GDP and growth
GDP, GNP, GNI and
growth
sectoral decomposition
Sectoral decomp.
Decomp. by decomposition by expenditures
expenditures
Decomp. by income
decomposition by income
Determinants
Proximate causes
Fundamental causes
growth accounting framework
Development
Income
Redistribution
Social and political
indicators
 Underlying causes
Why do countries get richer?

The main
indicators of
economic
development

Arthur Silve

Introduction
investment, technical progress, education,
GDP and growth economies of scale are not determinants of growth:
GDP, GNP, GNI and
growth they ARE growth
Sectoral decomp.
Decomp. by
expenditures
institutions
Decomp. by income

Determinants
the structure of incentives
Proximate causes institutions de jure and de facto
Fundamental causes

Development
different levels of exogeneity
Income
Redistribution
Social and political
indicators

Course outline

The main
indicators of
economic
development
1 Introduction
Arthur Silve

Introduction

GDP and growth

2 GDP and growth
GDP, GNP, GNI and
growth
Sectoral decomp.
Decomp. by
expenditures
3 Determinants
Decomp. by income

Determinants
Proximate causes
Fundamental causes
4 Development
Development Income
Income
Redistribution Redistribution
Social and political
indicators Social and political indicators
 First measure of the economic
development
Indicators of households income

The main
indicators of
economic
development

Arthur Silve

Introduction

GDP and growth

GDP, GNP, GNI and
GDP or GNP at Purchasing Power Parity
growth
Sectoral decomp.
Decomp. by
Income per capita according to the Atlas method
expenditures
Decomp. by income (World Bank)
Determinants
Proximate causes
Fundamental causes

Development
Income
Redistribution
Social and political
indicators

The trajectory of 2 exceptional countries

World Bank classification

The main
indicators of
economic
development

Arthur Silve

Introduction

GDP and growth

GDP, GNP, GNI and
growth
Sectoral decomp.
Decomp. by
expenditures
Decomp. by income

Determinants
Proximate causes
Fundamental causes

Development
Income
Redistribution
Social and political
indicators
 Redistribution

The main
indicators of
economic
development

Arthur Silve
A full-fledged objective for policy
Introduction which takes very different forms depending on
GDP and growth
GDP, GNP, GNI and
societies
growth
Sectoral decomp. income redistribution
Decomp. by
expenditures
Decomp. by income
land reform, universal medical coverage, free
Determinants education, etc.
Proximate causes
Fundamental causes
focus on poverty reduction
Development employment and unemployment
Income
Redistribution
access to financial services. . .
Social and political
indicators

Measures of poverty

The main
indicators of Absolute / relative poverty
economic
development Share of population under the poverty line (poverty
Arthur Silve headcount)
Introduction
Poverty gap, etc.
GDP and growth
GDP, GNP, GNI and
growth
Sectoral decomp.
Decomp. by
expenditures
Decomp. by income

Determinants
Proximate causes
Fundamental causes

Development
Income
Redistribution
Social and political
indicators

Source: UNDP. % of population in absolute poverty

 Variable poverty lines

The main
indicators of
economic
development

Arthur Silve

Introduction poverty line headcount gap

GDP and growth
GDP, GNP, GNI and
DRC 38 88% 53%
growth
Sectoral decomp.
Mexico 192 18% 38%
Decomp. by
expenditures South Africa 38 14% 2%
Decomp. by income

Determinants
Switzerland 1148 9% 39%
Proximate causes
Fundamental causes
Denmark 955 5% 24%
Development
Income
Redistribution
Social and political
indicators

Multidimensional poverty

The main
indicators of
economic
development

Arthur Silve

Introduction The HDI can be interpreted as a composite poverty

GDP and growth
GDP, GNP, GNI and
index
growth
Sectoral decomp. The MDGs indicate several important dimensions of
Decomp. by
expenditures
Decomp. by income
poverty
Determinants
Proximate causes
This philosophical tradition dates back to Perroux,
Fundamental causes Sen
Development
Income
Redistribution
Social and political
indicators
 Income inequalities

The main
indicators of Lorenz curve
economic
development Deciles / quintiles
Arthur Silve Gini coefficient
Introduction

GDP and growth

GDP, GNP, GNI and
growth
Sectoral decomp.
Decomp. by
expenditures
Decomp. by income

Determinants
Proximate causes
Fundamental causes

Development
Income
Redistribution
Social and political
indicators

Source: World Bank

Other dimensions of inequalities

The main
indicators of
economic
development

Arthur Silve

Introduction Income inequalities only offer a partial view

GDP and growth
GDP, GNP, GNI and inequalities in termsSource: UNDP
of human capital
growth
Sectoral decomp.
Decomp. by
access to administrative services
expenditures
Decomp. by income
access to public infrastructures
Determinants
Proximate causes
Fundamental causes
access to education and basic health services
Development
Income
Redistribution
Social and political
indicators
 Measuring inequalities

The main
indicators of
economic
development

Arthur Silve

Introduction Classical indicators of inequalities and poverty

GDP and growth
GDP, GNP, GNI and
growth
Sectoral decomp.
Gini index
Decomp. by
expenditures
Decomp. by income
Poverty headcount
Determinants
Proximate causes
poverty gap
Fundamental causes

Development
Income
Redistribution
Social and political
indicators

Inclusive growth

The main
indicators of
economic
development

Arthur Silve
Absolute or relative “pro-poor” growth often call on
Introduction
redistribution mechanisms
GDP and growth
GDP, GNP, GNI and
growth
“Inclusive” growth implies an increase in
Sectoral decomp.
Decomp. by
productivity and new employment opportunities
expenditures
Decomp. by income “Sustainable” growth =⇒ largely spread according
Determinants to sectors, and call on the idea of resilience
Proximate causes
Fundamental causes Inclusive =⇒ equality of opportunities (access to
Development
Income
markets, resources and fair regulation)
Redistribution
Social and political
indicators
 The challenge of inclusive growth in
mineral-rich countries
The main
indicators of
economic
development

Arthur Silve

Introduction
Dutch disease
GDP and growth Mining generates little formal employment
GDP, GNP, GNI and
growth The productive diversification is blocked by a low
Sectoral decomp.
Decomp. by competitiveness
expenditures
Decomp. by income
Conflict
Determinants
Proximate causes
Fundamental causes
Rent-seeking behaviors, corruption and institutional
Development failure
Income
Redistribution
Social and political
indicators

Measuring social and political development

The main
indicators of
economic
development Common indicators of governance quality
Arthur Silve

Introduction Worldwide Governance Indicators (World Bank)

GDP and growth
GDP, GNP, GNI and
Global Competitiveness Index (World Economic
growth
Sectoral decomp. Forum)
Decomp. by
expenditures
Decomp. by income
Doing Business (World Bank)
Determinants
Proximate causes
Fundamental causes

Development
Common indicators of social development
Income
Redistribution
Social and political
indicators
Human Development Index (UNDP)
 Human Development Index 2011

The main
indicators of
economic
development

Arthur Silve

Introduction

GDP and growth

GDP, GNP, GNI and
growth
Sectoral decomp.
Decomp. by
expenditures
Decomp. by income

Determinants
Proximate causes
Fundamental causes

Development
Income
Redistribution
Social and political
indicators Source: PNUD. Darker = HDI is higher

HDI and GDP/capita in PPP in Africa

The main
indicators of
economic
development

Arthur Silve

Introduction

GDP and growth

GDP, GNP, GNI and
growth
Sectoral decomp.
Decomp. by
expenditures
Decomp. by income

Determinants
Proximate causes
Fundamental causes

Development
Income
Redistribution
Social and political
indicators

Source: AS as from the World Bank and UNDP. x:HDI, y:GDP/capita in PPP