UNIT 2 INTERNATIONAL COMPARISONS

Structure
2.0 Objectives
2.1 Introduction
2.2 Development Gap
2.3 The Divide between Developed and Developing Nations
2.4 Historical Patterns of Development
2.5 Some Case Studies
2.6 Let Us Sum Up
2.7 Answers to Check Your Progress Exercises

2.0 OBJECTIVES
After going through this unit, you will be able to:
 Explain the nature of development gap between developed and developing
nations;
 Discuss the reasons for the emergence of the difference in the levels of
development between the developed and developing nations;
 Describe the historical patterns of development in different parts of the world;
and
 Present some case studies regarding different development experiences of
countries.

2.1 INTRODUCTION
When we study economic development we find some crucial questions confront
us regarding different countries and regions. Why are living conditions r so
drastically different for people in different countries and different regions of the
world?, We find some countries poor and others rich. Why is it so? Why are
there such disparities in income and wealth? t Also there are huge difference in
the levels of health, nutrition, education, liberty, choice, women’s rights? Why do
workers in some countries have secure jobs in the formal sector, with regular pay,
while in other countries such jobs are extremely there is scarcity of such jobs, and
most workers are in informal sector with fluctuating and insecure wages? Why
are populations growing at a fast pace in certain countries, while on the verge of
being stagnant or even reducing in others? Why are public services so inefficient,
insufficient, and corrupt in some countries and so effective in others? Why have
some formerly poor countries made so much progress, and other s so
comparatively little?
This unit takes up a discussion of issues regarding the difference, the gap
between the standard of living of the developing and developed nations.

Shri Saugato Sen, Associate Professor, IGNOU, New Delhi
It explores the reasons for such gaps. We also have to see whether there are International
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historical reasons for such gaps emerging.
In the next section we see the meaning of the development gap, conceptually and
theoretically. Subsequently we see various ways the developing nations are
classified. After looking at World Bank’s and United Nations’ classifications, the
following unit takes a look at the basic historical patterns of development in
order to see when and how in history the gap, the divergence between developed
and developing nations emerged. Finally the unit provides some case studies in
order to illustrate the development experiences of certain countries, how certain
countries developed to a great extent over time, and how some others fell back
and sometimes had a reversal of fortune.

2.2 DEVELOPMENT GAP

In its basic sense, development gap refers to the gap in per capita income
between the richer developed countries and poorer, developing ones. Since living
standards in all countries tend to rise absolutely over time, it obviously refers to
the comparative position of poor countries, but is the comparative position being
measured taking absolute or relative differences in per capita income? How
should the 'development gap' be assessed? Unfortunately there is no easy answer
to this question , yet the answer given has a profound bearing on the growth of
per capita income that poor countries must achieve either to prevent a
deterioration of their present comparative position or for an improvement to be
registered. Relative differences will narrow as long as the per capita income
growth rate of the developing countries exceeds that of the developed countries;
and this excess of growth is a precondition for absolute differences to narrow and
disappear in the long run. In the short run, however, a narrowing of relative
differences may go hand in hand with a widening absolute difference , given a
wide absolute gap to start with, and thus the rate of growth necessary to keep the
absolute per capita income gap from widening is likely to be substantially greater
than that required to keep the relative gap the same. But suppose the relative gap
does narrow, and the absolute gap widens, are the poor countries comparatively
better or worse off? In comparing rich and poor countries it is not difficult to
argue that even if a relative per capitaincome gap is narrowed, the comparative
position of the poor may have worsened because the absolute gap has widened.
To get an idea of the gap that exists between developed nations and developing
nations, consider a hypothetical, constructed example of the gap between the
incomes of two hypothetical nations. Suppose there are two countries, A and B.
Country A is the advanced nation and country B is the backward nation (no
value-judgement attaches to the term ‘backward’; it only denotes that country B
is the poorer country). Suppose in 2021, the per capita income of country A was
$ 1000 in purchasing power-parity terms, and that of country B was $ 100 in the
same terms. So we find that the gap in per capita income of the two nations is $
1000 -$ 100 = $900. It is a big gap. Now suppose that in the year 2021-2022, the
per-capita incomes of the two nations grow at 2 %.
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Growth and The per capita income of country A in 2022 becomes $ 1020 (because 2 % of $
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1000 is $ 20 and so its per capita income becomes $ 1000 + $ 20 = $1020). On
the other hand, the per capita income of country B in 2020 becomes $ 102
(because 2 % of $ 100 is $ 2 and so its per capita income becomes $ 100 + $ 2 =
$ 102).
Let us see what happens to the gap in the per capita income of the two countries.
In 2022 the gap is $ 1020 - $ 102 = $ 918. So we find that compared to 2021 the
gap has actually increased when both countries grew at the same rate. ( the gap
increased from $ 900 to $ 918). In fact, the poor country has to grow at 20 %
over 2021-2022 for its per-capita income to rise to $ 120, so as to keep the gap in
per capita income between the rich and poor countries at $ 900—the same as
before ($1020 – $ 120 = $ 900. So we see that in order to merely prevent the
gap in per-capita income from increasing, the poor country in this example has
to grow 10 times as fast as the developed country. As another example, Take for
illustration the case of the average person in the poor country living on the
equivalent of $200 per annum compared with the average person in the rich
country living on approximately $10 000. Suppose the income of the average
person in the poor country rises by 20 per cent and the income of the average
person in the rich country rises by 10 per cent. The average person in the poor
country is now relatively better off, but is he not comparatively worse off? The
increased command over goods and services of the average person in the rich
country (i.e. 10 per cent of $10 000) far exceeds that of the the average person in
the poor country (i.e. 20 per cent of $200)
where P is the principal sum. In our context, P can be taken as the initial per
capita income , S the final one, r the rate of growth and t the time period (number
of years )over which growth is considered

2.3 THE DIVIDE BETWEEN THE DEVELOPED

AND DEVELOPING NATIONS
A developing country is often defined by its economic output. There has been a
lot of debate as to where to draw the line between a developed country and a
developing one, which can be seen by the lack of one single meaning for the
term.
The developing countries have been labeled with many different terms. A term
much used from the mid 1940s to the 1980s, especially in international forums,
was the third world. Perhaps the best way to define it is by elimination. Remove
the industrialized economies of western Europe, North America, and the Pacific
(the First world,) and the industrialized, formerly centrally planned economies of
eastern Europe (the Second World), and the remaining countries
constitute the third world. This terminology is used much less frequently today,
mainly because almost all of the former Second World has transformed its
political and economic systems. The geographic configuration of the Third World
has led to a parallel distinction of the
North (first and second worlds) versus the South, which is still used
occasionally. The more popular classifications used today implicitly put all
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countries on a continuum based on their degree of development. Therefore, we International
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speak of the distinctions between developed and underdeveloped countries, more
and less developed ones, or—to recognize continuing change—developed
countries and developing countries. The United Nations employs a
classification scheme that refers to the poorest nations as the least-developed
countries. Some Asian, eastern European, and Latin American economies,
whose industrial output is growing rapidly, are sometimes referred to as
emerging economies. Richer countries are frequently called industrialized
countries, because of the close association between industrialization and
development. The highest-income countries are sometimes called post-industrial
countries or service-based economies because services (finance, research and
development, medical services, etc.), not manufacturing, account for the largest
and most rapidly growing share of their economies.
The United Nations uses certain rules for distinguishing between developed and
developing countries. However, the World Bank has stopped using these terms in
favor of others, such as "low-income" or "lower-middle-income" economies,
based on gross national income (GNI) per person. The International Monetary
Fund (IMF) definition is based on per-person income, export diversification, and
the degree of union with the global financial system. (IMF) definition is based on
per-person income, export diversification, and the degree of union with the global
financial system. The IMF published a research report on the topic of
development classification in 2011. It outlined its methods for classifying a
country's level of development.
Countries that are deemed more developed are referred to as developed countries,
while those that are less developed are known as less economically developed
countries (LEDCs)
The World Bank has historically classified every economy as low, middle, or
high income. It now further specifies countries as having low-, lower-middle-,
upper-middle-, or high-income economies. The World Bank uses GNI per capita,
in current U.S. dollars converted by the Atlas method of a three-year moving
average of exchange rates, as the basis for this classification. It views GNI as a
broad measure and the single best indicator of economic capacity and progress.
The World Bank used to refer to low-income and middle-income economies as
developing economies; in 2016, it chose to drop the term from its vocabulary,
citing a lack of specificity. Instead, the World Bank now refers to countries by
their region, income, and lending status.
The World Bank assigns the world’s economies to four income groups—low,
lower-middle, upper-middle, and high-income countries. The classifications are
updated each year on July 1 and are based on GNI( Gross national Income) per
capita in current US dollars (using the exchange rates) of the previous year.
According to the World Bank, sustainable growth and development in MICs have
positive spillovers to the rest of the world. Examples are poverty reduction,
international financial stability, and global cross-border issues, including climate
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Growth and change, sustainable energy development, food and water security, and
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international trade.
MICs have a combined population of five billion, or over 70% of the world's
seven billion people, hosting 73% of the world's economically disadvantaged.
Representing about one-third of global GDP, MICs are a major engine of global
economic growth.
The classifications change for two reasons:
1. In each country, factors such as economic growth, inflation, exchange
rates, and population growth influence GNI per capita. Revisions to
national accounts methods and data can also have an influence in specific
cases. To keep the income classification thresholds fixed in real terms,
they are adjusted annually for inflation. The Special Drawing Rights
(SDR) deflator is used, which is a weighted average of the GDP deflators
of China, Japan, the United Kingdom, the United States, and the Euro
Area.
2. To keep the income classification thresholds fixed in real terms, they are
adjusted annually for inflation. The Special Drawing Rights (SDR)
deflator is used, which is a weighted average of the GDP deflators of
China, Japan, the United Kingdom, the United States, and the Euro Area.
3. To keep the income classification thresholds fixed in real terms, they are
adjusted annually for inflation. The Special Drawing Rights (SDR)
deflator is used, which is a weighted average of the GDP deflators of
China, Japan, the United Kingdom, the United States, and the Euro Area.

Group July 1, 2021 (new)

Low income

Lower-middle income 1,046 – 4,095

Upper-middle income 4,096 -12,695

High income > 12,695

Sometimes countries move to a different group if their Gross National Income

changes. For instance, Indonesia and Iran moved from Upper-Middle Income
Group to Lower-Middle Income Group in 2020 from 2019, and Romania had
also slipped from Higher Income to Upper-Middle Income Group in the same
period.
Sometimes the World Bank classification leads to the discovery of surprising,
even startling, facts. If we consider the situation about a decade back, in 2010,
and see the classification on the above-mentioned lines (of course, the actual
income-threshold at leach level was slightly different, due to current exchange-
rate and purchasing-power-parity requirements), we find that out of 216 countries
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of the world considered for classification, 35 countries were low-income International
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countries, 57 countries were lower-middle-income countries, 54 countries were
in the upper-middle-income category, and 70 countries were high-income
countries. Thus the largest number of countries were in the high-income
category! However, if we consider population, the population of the low-income
countries was 12 % of world population; the population of the lower-middle-
income countries was 36 % of world population; so was the population of the
upper-middle-income countries; while the population of high-income countries
was 16 % of the world population. Thus, while most of the countries in the world
were high-income, most of the population lived in middle-income countries.
In unit 1, we brought out the difference between economic growth and economic
development. We saw development is much more than economic growth.
Development involves a structural transformation of the economy, and there are
many more indicators of development. Economic growth is a necessary condition
for development but it is certainly not a sufficient one. Here, in this unit, in the
above discussion about the difference between developed and developing nation
you may be getting the idea that a lot of emphasis is being laid on income of
nations (for instance, the World Bank classification). So what happens if the
Gross National Income (same as the Gross National Product, or GDP, as you
have read in macroeconomics courses) of a nation were to change dramatically?
Consider the case of Equatorial Guinea, a small nation on the West coast of
Africa. It has a population of less than a million people. The discovery and
development of oil deposits and reserves off its coast led to a dramatic rise in its
per-capita GDP. In 1990 its per-capita income was $330. By 2009 it had shot up
to $ 12, 420. In the decade 2000-2009 it was the fastest growing economy in the
world, reaching average growth rates of 25 per cent, exceeding growth rates of
China. With this kind of growth rates, in about a decade, Equatorial Guinea
moved from being a low-income country to a high-income one.
Notice we are talking of growth rates. Did it mean that Equatorial Guinea
became a developed nation from a developing one. The answer is no, because in
terms of other indicators this country did not progress that dramatically. It
reached the same income level as that of Hungary, but this is where the similarity
between the two nations ends. Life expectancy in Equatorial Guinea is about 50
years, while in Hungary it is 74 years. About 90 percent of school-aged
Hungarian children are enrolled in primary school; for Equatorial Guinea it is
about 50 percent. Despite Equatorial Guinea’s sudden high level of per capita
income there has been little transformation in the low levels of education and
poor health care of most Equatorial Guineans. Nor has there been much change
in their economic activity. Rapid economic growth has not brought economic
development to most of the population of Equatorial Guinea. But again, this case
is the exception rather than the rule. In most cases, increases in per capita
incomes and economic development have moved together. Thus we see that
although levels of per-capita incomes are very important for determining whether
a country is developed or developing, we should consider many other features,
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Growth and characteristics and indicators. What proportion of the population is rural? How
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big is the share of agriculture in GDP? What is the composition of international
trade, particularly exports? How is the country doing in terms of social indicators
like health indicators , education, poverty, unemployment, inequality. How are
manufacturing and services placed. In all these aspects there this a big difference
and gap on the whole between developed and developing nations.
Modern economic growth, the term used by Nobel laureate Simon Kuznets,
refers to the current economic epoch as contrasted with, say, the epoch of
merchant capitalism or the epoch of feudalism. The epoch of modern economic
growth still is evolving, so all its features are not yet clear, but the key element
has been the application of science to problems of economic production, which in
turn has led to industrialization, urbanization, and even explosive growth in
population. Finally, it should always be kept in mind that, although economic
development and modern economic growth involve much more than a rise in per
capita income or product, no sustained development can occur without economic
growth.
Check Your Progress 1
1. What do you mean by development gap?
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2. Describe the World Bank classification of various countries of the world
in terms of economic levels. In what way does it differ from the
classification of the United Nations?
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2.4 HISTORICAL PATTERNS OF DEVELOPMENT

We study this section by considering at the findings of economic historian
Angus Maddison, who estimated income levels and corresponding rates of
economic growth for the world economy as far back as the year 1 B.c.E. Such
an exercise requires a lot of conjecture, especially the further back in time
one goes. To perform the analysis, Maddison compiled estimates of
population, GDP, and a price index for determining PPP.
According to Maddison’s calculations, average world income in 1000 was
virtually the same as it had been 1,000 years earlier. In other words, growth

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in per capita income between 1 B.c.E. and 1000 was effectively zero. The next International
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820 years (from 1000 to 1820) were barely any better, with world income per
capita growing, on average, by just 0.05 percent per year. (Note: This is not a
growth rate of 5 percent; it is a growth rate of 0.05 percent.) During those 820
years, world GDP grew by only slightly more than the growth in world
population. After eight centuries, world per capita income had increased by
only 50 percent. To place this in some perspective, China today is one of the
world’s fastest-growing economies. With more than 1 billion people (about
four times the entire world’s population in 1000), economic growth in China
aver- aged about 9.5 percent over the past decade, raising Chinese per capita
incomes by 50 percent, not in 820 years but in just under 5 years!
Maddison’s estimates indicate considerable uniformity in per capita
incomes throughout the first millennium. The little bit of economic growth
that did take place over the next 800 years was centered in western Europe
and in what Maddison calls the western “offshoots” (Australia, Canada,
New Zealand, and the United States). By 1820, these regions already had a
decided advantage over the rest of the world. For example, whereas China
and India may have been slightly ahead of the western European countries
in 1000, average per capita incomes in western Europe and in their
offshoots were already double those of China and India by 1820.
Maddison’s research suggests that rapid economic growth as we know it
really began around 1820. He estimates that over the subsequent 190
years, the aver- age growth in world income increased to 1.3 percent per
year. Note that the difference between annual growth of 0.05 percent and
1.3 percent is huge. With the world economy growing at 0.05 percent per
year, it would take more than 1,400 years for aver- age income to double. With
annual growth of 1.3 percent, average income doubles in just 55 years. The
world had changed from no growth at all during the first millennium, to slow
growth for most of the second millennium, to a situation in which, in the
past two centuries, average real income began to double in less than every three
generations. Several features of these data are notable. First, economic
growth rates clearly accelerated around the world since the early 1800s
and especially after 1880. Second, and perhaps most striking, the richest
countries recorded the fastest growth rates and the poorest countries
recorded the slowest growth rates, at least until 1950. Per capita income in
the Western offshoots grew by about 1.6 percent per year between 1820 and
1950, while in Asia it grew by only 0.16 percent. As a result, the ratio of the
average incomes in the richest regions to those in the poorest regions grew
from about 2:1 in 1820 to about 13:1 in 1950.
Between 1950 and 2008, the patterns of economic growth changed, at least in
several regions. The gap between the Western offshoots and western Europe,
which had been widening through 1950, narrowed significantly. The poorest
region in 1950 (Asia) recorded the fastest subsequent growth rate (3.6

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Growth and percent), thereby beginning to close the income gap with the richer regions of
Development
the world. By contrast, Latin America’s growth stagnated during the 1980s
and 1990s, and eastern Europe’s collapsed after the fall of the Berlin Wall in
1989. Both regions resumed economic growth during the 2000s.
In Africa, as elsewhere, average growth rates accelerated after 1820 and
did so again after 1950, in the period associated with the end of the colonial
era. But as in Latin America, economic growth in Africa faded after 1980,
continued to stagnate in the 1990s, and rebounded only recently. As a
result, the income gap between the world’s richest regions (the Western
offshoots) and the poorest in 2000 (Africa) reached 19:1. According to
Maddison’s work, this is the largest gap in income between rich and poor
regions the world has ever known. Because of resurgence in economic
growth in Africa during the 2000s, this gap has narrowed but still remains
huge by historical standards.
Maddison’s broad sweep of world economic history indicates how
differential rates of economic growth, especially over the past two
centuries, have produced the divergence in income levels that characterizes
the world’s economy today.

2.5 SOME CASE STUDIES

In this section we begin by looking at some countries that were at the same level
of development at one point of time, and then their levels started to diverge. We
try to arrive at some explanation for this moving apart of the countries. As we
have mentioned earlier, unit 7 in block 2 will also some determinants of growth.
After reading that unit, you should think back about applying the insights you
will get from that unit back to the content of the present unit.
A large number of less-developed countries have experienced growth in income
over the past four decades and many have enjoyed substantial growth. There are
many examples of countries that have had an income growth exceeding 2 percent
a year over the past four decades. At 2 percent annual growth, average income
doubles in 35 years; at 4 percent, it doubles in 18 years. In most of these
countries, manufacturing grew more rapidly than the gross domestic product and
thus moved these economies through the inevitable structural change that reduces
the share of income produced and labour employed in agriculture. Many other
countries experienced slower (albeit positive) growth and development, with
incomes growing 1 or 2 percent per year. In still others, incomes stagnated or
declined.
The most rapidly growing economies have been in Asia and include China, India,
Indonesia, Korea, Malaysia, and Thailand. But several non-Asian countries also
are among the fast growers, such as Botswana, Chile, Estonia, and Mauritius.
Since 1970, Botswana, a landlocked country in southern Africa, has been one of
the fastest-growing economies in the world and one that has used its increased
income to improve the lives of its citizens. Botswana’s experience challenges the
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stereotype that all African countries have been stuck with little growth and International
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development. At the same time, several
Asian countries have grown slowly or not at all, including Myanmar (Burma),
North Korea, and Papua New Guinea. Below, we mention the facts related to
some individual countries. They do not pertain to the latest time period, or even
the same period, in the case of every country.
Malaysia, which previously had been known mainly for the export of rubber,
tin, and palm oil, became one of the world’s largest exporters of electronic
components and other labor-intensive manufactured goods. Partly because
of these exports, Malaysia emerged as one of the fastest growing economies
in the world and a leading development success story. The income of the
average Malay more than quadrupled in real terms between 1970 and 2010,
infant mortality fell from 41 to 6 infants per thousand, and life expectancy
rose from 61 to 75 years. Adult literacy jumped from 58 to 92 percent and
the ratio of girls to boys enrolled in school increased from 83 to 103 percent.
Ethiopia Per capita incomes in 2004 were at about the same levels as in
1981. In the intervening years, incomes at times increased and at other
times declined, but overall, economic stagnation characterized the nation.
Since 2004, how- ever, economic growth has been faster and more consistent,
averaging 6.6 percent per year. This is much faster than at any time over
the past three decades. Despite the global recession of 2008–09, Ethiopia’s
economy continues to grow rapidly, although it is hard to know if this will be
sustained.
Looking at other indicators of living standards, infant mortality rates fell
from an estimated 136 per thousand in 1970 to 67 per thousand in 2009,
reflecting the potential for health outcomes to improve even when income
does not. Life expectancy, at 56 years, is 13 years more than in 1970 but still
well below the levels in Malaysia and other more affluent economies. Adult
literacy is less than one out of three, but this will improve in the future. Four
out of every five of Ethiopia’s children of school age are now enrolled in
primary school—double the level of a decade ago. The economy is changing
too, albeit slowly. In 1970, 61 percent of national output was derived from
agriculture; today this figure is 51 percent.
Bangladesh has an impressive track record of growth and poverty reduction.
It has been among the fastest growing economies in the world over the past
decade, supported by a demographic dividend, strong ready-made garment
(RMG) exports, and stable macroeconomic conditions. Continued recovery in
exports and consumption will help growth rates pick up to 6.4 percent in fiscal
year 2021-22.
Bangladesh tells the world a remarkable story of poverty reduction and
development. From being one of the poorest nations at birth in 1971 with per
capita GDP tenth lowest in the world, Bangladesh reached lower-middle-income

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Growth and status in 2015. It is on track to graduate from the UN’s Least Developed
Development
Countries (LDC) list in 2026. Poverty declined from 43.5 percent in 1991 to 14.3
percent in 2016, based on the international poverty line of $1.90 a day (using
2011 Purchasing Power Parity exchange rate). Moreover, human development
outcomes improved along many dimensions.
In 2021, Bangladesh’s Cabinet Secretary told reporters that GDP per capita had
grown by 9% over the past year, rising to $2,227. Pakistan’s per capita income,
meanwhile, is $1,543. In 1971, Pakistan was 70% richer than Bangladesh; today,
Bangladesh is 45% richer than Pakistan.
Bangladesh’s growth rests on three pillars: exports, social progress and fiscal
prudence. Between 2011 and 2019, Bangladesh’s exports grew at 8.6% every
year, compared to the world average of 0.4%. The success is largely due to the
country’s relentless focus on products, such as garments, in which it possesses a
comparative advantage. Moreover, the share of Bangladeshi women in the labour
force has consistently grown. Also, Bangladesh has maintained a public debt-to-
GDP ratio of between 30% to 40 %.
Check Your Progress 2
1. Describe the performance of the world economy between the eleventh
and nineteenth century as elucidated by Angus Maddison. Since when did
the world economy grow?
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2. Briefly bring out the contours of development of any particular

developing country of your choice, giving reasons for its success.
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2.6 LET US SUM UP

In this unit we looked at the developed and developing world in a comparative
perspective. The aim was to look at the notion of economic development, and
centre the discussion around the comparison between developed and developing
countries. The central question was what are the characteristics that differentiate
developed nations from developing nations? To this end, the unit began by
explaining the concept and significance of the development gap, with the help of
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a simple example. The discussion brought home the fact that the developing International
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nations have to grow very fast in order to not increase the gap or fall behind.
Next, the unit looked at the divide between the developed and developing
nations. The insight that we got was that the divide is not merely in terms of
income levels, but also in terms of several economic and social indicators of
development. Merely by raising rates of growth, a country can go from being in
the category of low-income nations to high-income nations, but it will not
necessarily become a developed nation. Following this, the unit took a look at
broad contours of development of the world economy, based on studies by
Angus Maddison and presented some broad historical patterns of development.
Finally, the unit mentioned the case of some developing nations that have
performed admirably in the post World War II period, and some in recent times.

2.7 ANSWERS TO CHECK YOUR PROGRESS

EXERCISES
Check Your Progress 1
1. See section 2.2
2. See section 2.3
Check Your Progress 2
1. See section 2.4
2. See section 2.5

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