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Economic development and poverty

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Lesson notes

Measuring development

  • GDP per capita divides output by population; real GDP per capita adjusts for price change over time. Purchasing-power comparisons account for international price differences. These remain averages: they do not show how resources are distributed or all unpaid work and environmental costs.
  • HDI summarises health, education and standard of living using life expectancy, mean and expected years of schooling, and GNI per capita. It combines normalised dimensions geometrically; it is not simply the mean of raw years and money. Supplement it with poverty, inequality, access to services, security and environmental evidence.

Indicators answer different questions

Indicators answer different questionsIndicatorWhat to examineReal GDP per capitaAverage real output per personHDI healthLife expectancy at birthHDI educationMean and expected schooling yearsHDI livingstandardsGNI per capitaGini coefficientInequality of a stateddistributionService accessAvailability and effective use

Poverty

  • Absolute poverty concerns resources insufficient for a defined basic-needs standard. In June 2025 the World Bank replaced its $2.15 line in 2017 purchasing-power terms with $3.00 per person per day in 2021 purchasing-power terms. These are international comparison units, not three current US dollars converted at a market exchange rate; changing the method does not itself mean people suddenly became poorer.
  • Relative poverty uses a society-related threshold, for example 60% of median equivalised household income under a stated definition. Specify household size adjustment, period and housing-cost treatment. Inequality describes the distribution, not whether a basic-needs threshold is met. Monetary poverty also differs from multidimensional deprivation.

Keep poverty definitions distinct

Keep poverty definitions distinctMeasureBasis or limitationAbsolute monetarypovertyDefined basic-needs moneythresholdWorld Bank June 2025line$3.00 per day; 2021 PPP basisRelative incomepovertyStated share of medianhousehold incomeInequalitySpread of a specifieddistributionMultidimensionaldeprivationSeveral aspects of livingconditions

Barriers to development

  • Unreliable infrastructure, weak health, inaccessible education, conflict and corruption can constrain opportunities through specific channels. Commodity dependence may expose earnings to price, weather and demand shocks, though commodity prices are not always low and exports can generate useful revenue.
  • Debt servicing can crowd out services when burdens are unsustainable, while productive borrowing may support future capacity. Historical institutions, trade access and environmental risks also matter; avoid treating a country’s population or resources as an automatic destiny. Explain how constraints interact and who is affected.

Explain the barrier’s mechanism

Explain the barrier’s mechanismConstraintPossible channelUnreliable powerInterruptions to production andservicesInaccessibleeducationLimits on skills andopportunitiesCommodityconcentrationExposure to price or yield shocksUnsustainable debtservicePressure on public-servicebudgetsCorruption orconflictDiversion or disruption ofresources

Strategies

  • Effective education, health, infrastructure and accountable institutions can strengthen capabilities. Aid may be bilateral, multilateral or channelled through NGOs, and may include grants, expertise or concessional finance. Tied aid restricts procurement sources; not all conditions constitute tying. Debt relief can reduce debt-service pressures, but freed resources need effective use.
  • Trade access, fair-trade initiatives, FDI, tourism and industrialisation may create opportunities. FDI involves lasting influence, including acquisitions as well as new facilities. Evaluate local linkages, wages, conditions, environmental effects and profit outflows. Fairtrade certification has specific product standards and price/premium rules; it does not guarantee all produce is sold or every household earns enough. Microfinance can include saving and payments as well as credit, whose repayment risks remain.

Strategies need supporting conditions

Strategies need supporting conditionsStrategyQuestion for evaluationAidLocal priorities, delivery andaccountability?Debt reliefDebt-service savings used effectively?Education andhealthAccessible services of suitablequality?Trade andinvestmentLocal benefits, conditions andlinkages?MicrofinanceSuitable service and affordableobligations?

International organisations

  • The World Bank provides development finance and expertise, including loans, credits and grants. The IMF supports members’ balance-of-payments or external-financing needs, stability and policy capacity; its financing is distinct from a school or road project loan.
  • The WTO provides negotiated trade rules and a forum for talks and disputes, with permitted exceptions in agreements. UN agencies and NGOs have diverse mandates. Assess organisations through the particular programme, local priorities and outcomes rather than assuming membership or funding alone guarantees success.

Different institutions, different roles

Different institutions, different rolesInstitutionGeneral roleWorld BankDevelopment finance and expertiseIMFExternal-financing support and stabilityWTONegotiated trade rules and dialogueUN agenciesVaried development or humanitarian mandatesNGOsIndependent organisations with varied purposes

Sustainable development

  • Sustainable development meets present needs without undermining future generations’ ability to meet theirs. It includes economic opportunities, social wellbeing and environmental resilience, rather than simply maximising current growth.
  • Evaluate projects for distribution, safety, operating costs, maintenance, resource use and climate or other shocks. Locally accountable decisions and evidence on outcomes help compare trade-offs. A rise in GDP can coexist with damaged ecosystems or unequal access to essential services.

Assess present and future effects

Assess present and future effectsQuestionWhat to considerWhose needs?Distribution and access toservicesHow durable?Maintenance and operatingresourcesWhich risks?Shocks and resilienceEnvironmentaleffects?Water, soil, emissions andecosystemsWho decides?Local priorities andaccountability

Per-capita growth calculation

  • Fictional initial real GDP £100 billion divided by 10 million people gives £10,000 per capita. Later £110 billion divided by 11 million gives the same £10,000. Aggregate real GDP and population both rise 10%, leaving the ratio unchanged.
  • This result alone says nothing about the distribution of income or improvements in health, education and safety. Match units and time periods and identify real, nominal and purchasing-power bases before drawing comparisons.

Fictional real output per person

Fictional real output per personMeasureInitial / laterReal GDP£100bn / £110bnPopulation10m / 11mReal GDP per capita£10,000 / £10,000Aggregate GDP growth10%Per-capita GDP growth0%

Slides

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Practice questions

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  1. 1.What is development?

    Easy
    • Aimprovement in living standards and wellbeing
    • Ba fall in output
    • Ca rise in prices
    • Dno change

  2. 2.What is GDP per capita?

    Easy
    • AGDP times population
    • BGDP minus tax
    • CGDP plus tax
    • DGDP divided by population

  3. 3.What is absolute poverty?

    Easy
    • Abeing rich
    • Bno poverty
    • Cnot having enough income for basic needs
    • Dincome below average

  4. 4.What is relative poverty?

    Easy
    • Abasic needs only
    • Bincome below a stated share of the society’s median income, on the specified basis
    • Cno income
    • Dhigh income

  5. 5.What is aid?

    Easy
    • Ahelp given to other countries
    • Ba tax
    • Ca loan only
    • Da tariff

  6. 6.What is tied aid?

    Easy
    • Aaid with no conditions
    • Ba tax
    • Ca loan
    • Daid whose procurement is restricted to donor or other specified suppliers

  7. 7.What is debt relief?

    Easy
    • Araising debt
    • Btax
    • Ccancelling or reducing a country's debts
    • Dcreating debt

  8. 8.What is fair trade?

    Easy
    • Aquotas
    • Btrade initiatives seeking better terms and conditions for producers
    • Cfree trade
    • Dtariffs

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