The world is getting better

There is a lot of doom and gloom these days. Opinion polls tend to show that most people think the world is falling apart. In our class we'll talk a lot about poverty, inequality and the plight of the poorest of the world's poor. Much of this will be depressing. It's important therefore to be mindful of the major progress that has been made in the recent past.

Here is a short piece from Nicholas Kristof of the New York Times highlighting some of the progress the world has made in terms of reducing poverty, disease and illiteracy.  Be sure to check out the link to the UN's new Sustainable Development Goals and also check out the progress that was made on the last set of goals (the Millennium Development Goals).

Purchasing Power Parity

One of the main themes of our course is understanding differences between nations.  In order to do this we need to measure stuff (income, education, health, etc.) that we want to compare.   One of the issues with comparing income measures (like GDP, GNP and GNI) across nations is that when converting to a common currency (for apples-to-apples comparisons) if we rely on official ("market") exchange rates, we may underestimate living standards in developing nations due to lower prices of "non-traded goods".   For accurate comparisons of living standards, we should convert a nation's income to another currency value using the Purchasing Power Parity exchange rate, rather than the official exchange rate.

Here is a link to FAQ about PPP at OECD.

Here is more reading about PPP vs. official exchange rates at IMF.

Here is a link to a recent article at The Economist describing the Big Mac index, which was designed to be a cute and easy way to understand the idea of purchasing power parity exchange rates.

US Inequality in 6 charts

From the New Yorker.
Hat tip: DC

Last chance...

What were your favorite/least favorite topics of the course?
What topic do you think is the most pressing in terms of where policy makers should address their attention?
What are some interesting research questions related to growth and development that you'd like to learn more about?

Dutch disease in Nigeria

Here is an excellent synopsis of the situation in Nigeria, straight from the ground level.

If a picture is worth a thousand words, this documentary (Poison Fire) is worth a few million. It's 30 minutes long, but well worth it.

Inequality, trickle-down consumption and economic growth

Here is an interesting article at the Washington Post (similar story in the local paper), regarding the effect of inequality on household savings by the middle class. The basic idea is one that we've discussed in class - personal well being may be influenced by the well being of those around you. If your "neighbors" are getting richer and buying more stuff, you may feel poorer and spend more to "catch up". What are some of the macro and micro implications? I can tell you from personal experience that this phenomenon works in reverse too. When we lived abroad, we lived very simply, barely spending any money at all.  There's a lesson here: As your income increases over time, try to maintain at least some of the spending habits that you develop when you have lower income.
Note chart 4 in the article... this looks like a simplified way of reporting the results of a regression model.

Health and economic growth

Our next topic is health...

Here is a nice intro from Jeffrey Sachs (Prof at Columbia).  Here is the full Sach's Report.

Here is a video of Sachs providing an overview 10 years later. 

Here is a nice overview of the relationship(s) between health and economic growth from The World Bank. It is long, but well worth the read.

For those of you interested in reading a more detailed analysis of the relationship between health and economic growth, here is a good paper from NBER. In both of these latter papers, note the discussion of the endogeneity problem we've been talking about all semester, and the econometric solution of instrumental variables.