Political Economy: Critically Analyzing GNI, HDI & Development

This assignment delves into key concepts in political economy, critically analyzing Gross National Income (GNI) per capita as an indicator of individual well-being in developing countries, highlighting its limitations due to uneven income distribution, shadow economies, and political instability. It further examines the Human Development Index (HDI), its theoretical underpinnings in the capability approach, and its drawbacks, such as ignoring income inequality and limited consideration of factors beyond health and education. The assignment also explores theories of economic development, including the Lewis two-sector model and the policy of import substitution, while scrutinizing the role of foreign assistance and its potential pitfalls related to corruption and ineffective implementation. The student solution offers a comprehensive overview of these critical topics in economic development.

SURNAME. 1
POLITICAL ECONOMY
Name:
Course:
Instructor:
Date:

SURNAME. 2
Political Economy
Question 1.
Gross National Income are all the income received from all sources of income
generating units of a given country in a particular year. The GNI per capita is the average
income. It reveals the economic and political decisions of a country. Several reasons
disqualify the GNI per Capita as an adequate indicator of the well-being of the people in
developing countries. The GNI is not always distributed across the populace, in a given
country different people have different professions, it does not take into account the shadow
economies and it does not consider the problem of uneven income distribution1. World bank
categorizes different economies to Low income, lower middle income, upper middle income
and high income economies2. Their income is quite different and has a wide margin between
highest and lowest earning individuals. The GNI only captures the income of a country and
cannot be used to relate to the well-being of a country. Secondly, if the GNI is increasing due
to increase in illegal business then the GNI cannot be used as a measure of well-being of the
people of country. GNI is mainly focused on the income from business and other sources that
generate income to a country. Most booming business are generally illegal type of businesses
including smuggling, drug trafficking, human trafficking, forgery and internet crimes3.
Although these are lucrative business and earn a country a lot of income, they contravene the
idea of maintaining well-being of the people in a country.
Thirdly, if the GNI is increasing and the political stability is not guaranteed then the
GNI cannot be used as a measure of well-being of the people of country. This is because the
well-being entails living peacefully together, acquiring free education, access to good health
that increases the life expectancy of the people in country and citizens enjoying equal
distribution of resources4. Countries that exhibits constant political instability like Somalia,
Yemen and the rest of the countries that are not politically stable, are a great challenge to
doing business. Business requires an enabling environment that is free from interference.
1 "Trajectories of Economic development." The Political Economy of Economic Development.
(Accessed November 12,2018).
2 Martin, Bronfenbrenner. Income distribution theory. Routledge, 2017
3 Leslie, Hamilton, and Philip Webster. The international business environment. Oxford University
Press, 2018.
4 Todaro, Michael P., and Stephen C. Smith. Economic Development, Pearson Education, 2015:
Economic Development. Vol. 1. Bukupedia, 2015.

SURNAME. 3
Without peace no business would prosper and therefore, no income will be generated in that
particular country hence the GNI per capita will be very low. On the other hand, a country
which enjoys political stability attracts local and foreign investors and in turn contributing to
increased income in a country and consequently the GNI.
Lastly, if the GNI is increasing and the greater population is not educated then the
GNI cannot be used as a measure of well-being of the people of country. This is because the
well-being entails living peacefully together, acquiring free education, access to good health
that increases the life expectancy of the people in country and citizens enjoying equal
distribution of resources5.
Question 2.
Human development index is a measure of social economic development based on
combination of various indices including the health measures which measures life
expectancy, measures the education the number of years one spends schooling and mean
years of schooling and lastly HDI measures the development in terms of gross national
income per capita of standard of living and generally, the HDI takes a value of 0 to 1. The
HDI which tend to 1 means that a country is of high human development category as
compared to the one that tend to 0 meaning the country is moving from a higher to a lower
human development category6.
The HDI despite being a good measure of human development it has several
drawbacks. The HDI tends to ignore the unequal distribution of gross national income of a
country, this is so because in a country there are some parts which are developed than other
parts within the same country7. HDI does not consider this important factor. Secondly, HDI
only considers factor like education and health and tends to give little or no emphasis on to
other important factors like human rights, environmental issues, gender equality among other
relevant areas. Thirdly, the gross national income tends to ignore the welfare measures like
5 "Seminar, Indicators of Economic Well-Being." The Political Economy of Economic Development.
(Accessed November 16,2018).
6 S, Larroca. Garcia-Tizon, J. Arevalo-Serrano, A. Duran Vila, MP Pintado Recarte, I. Cueto
Hernandez, A. Solis Pierna, S. Lizarraga Bonelli, and J. De Leon-Luis. "Human Development Index
(HDI) of the maternal country of origin as a predictor of perinatal outcomes-a longitudinal study
conducted in Spain." BMC pregnancy and childbirth 17, no. 1 (2017): 314.
7 Suman, Seth, and Antonio Villar. "Human development and poverty: theoretical
approaches." Handbook of Research on Economic and Social Well-Being (2018): 104.

SURNAME. 4
availability to clean and safe water for drinking, availability and natural resource
preservation, pollution control and accessibility to organic food8. Lastly, HDI does not
measure the accessibility to education and healthcare facilities in a given country. Some parts
of a country have an easy access to education and healthcare facilities while others are
disadvantaged, in that they find it very hard to access those vital basic necessities.
HDI method despite having some major shortcomings, it has some strengths. The
measurement of HDI takes some very important social factors indices like education and
healthcare and also the gross national income during estimation9. Secondly, the HDI is an
international estimation to determine the human development and therefore it’s a basis for
consideration of international aid to less developed and poor countries10. Thirdly, the ranking
is not based on income alone but it considers poverty, education, health and life expectancy
all this reflects the status of the economy. Lastly, the HDI indicators are accepted at the
country level and also globally as long as the statistical data were accurate during the HDI
estimation. The data can also be used to measure the inequality state of a country.
Question 3
Foreign assistance is provided to the needy due caring reasons. For instance, there are
two concepts of inequality, the inequality of outcome which focuses on the normative
consideration that equal opportunity means the similar result of income to every member of
community and inequality of opportunity focuses on the notion that every member of a
community should have an equal opportunity to realise the benefits and rewards a society.
Among the monetary measures of poverty include the poverty head count index which is the
total individuals living below poverty line as a percentage share in total population and the
total poverty gap 11.
Renowned economist, P. Bauer in his articles and books discredited the socialist that
less developed nations were confined in a state of insufficiency and the only way to revert
8 A, Asongu, Simplice., and Jacinta C. Nwachukwu. "Increasing foreign aid for inclusive human
development in Africa." Social Indicators Research 138, no. 2 (2018): 443-466.
9 M, Çilingirtürk, Ahmet., and Habip Koçak. "Human Development Index (HDI) Rank-Order
Variability." Social Indicators Research (2018): 1-24.
10 M, Cole, Wade., and Megan M. Reynolds. "We Comply with a Little Help from Our Friends: Human
Rights, Development Aid, and Well-Being." Social Forces (2018).
11 ‘’Poverty and Inequality." The Political Economy of Economic Development. (Accessed November
19,2018).

SURNAME. 5
this situation was to provide them with enormous overseas aid12. In his book and articles he
reiterated that all the countries of the world were once poor and that those countries which are
now rich did not made their richness through foreign aid. They only achieved this by having
good laws and proper incentives, he also noted that, the overseas aid to poor counties is just
transferring financial aid from the underprivileged individuals who are living in rich nations
to rich individuals who are living in underprivileged nations.
Nations that creates and abide by the rule of law and spend time to eradicates
corruption, permits markets that have free entry and exit and attract abundant internal and
external investment to grow rapidly without depending on overseas assistance. Each and
every Country must ensure that rule of law is adhered to the latter. The countries must also
ensure that they come up with sound economic policies that will prevent corruption. No
country will grow if accountability is not adhered to irrespective of how much it gets as
overseas development aid.
United States and world bank has spent billions of dollars in official development
assistance to less developed countries. The problem is that those countries have corrupt rulers
who divert the money to their accounts leaving the innocent poor citizens with huge debt to
repay to the lenders13. The irony in this development aid, is that most of the countries that
have been lending loans ever since are extremely poor than they were before they requested
for the loans. United States and world bank should pass a resolution of imposing sanctions to
countries that fail to meet the target after acquiring loan and account for the money they
lend14.
12 N, McCloskey, Deirdre. "Bauer on Culture and the Great Enrichment." The Cato Journal 38, no. 3
(2018): 587-602.
13 David, Ettinger. "International economic development: Principal Internet resources." College &
Research Libraries News 79, no. 3 (2018): 144.
14 David.

SURNAME. 6
Question 4
In this approach, the workers migrate from the old-fashioned sector to the present
sector. The drop in output in the old-fashioned sector, if it exists, is much reduced than the
rise in productivity of the present sector. Normal output and returns rise during this process of
structural change. The approach has policies encouraging development targeting at leading
venture to the present sector and to progress technologies in this sector. China has
successfully pursued this strategy. The short comings of the Lewis model, Venture in the
present sector may substitute workers instead of generating workplaces, production in the
old-fashioned sector is actually high, profits from present sectors are not guaranteed to be put
back to investment and lastly there is no guarantee that there is shortage of workers in the
present sectors and if there is does migration of labour to modern sectors translate to rise in
wages?
This therefore, implies that there is an abundant supply of limited labour in
underdeveloped countries, for this reason of insufficient supply of limited skilled labour there
is exists problem in growth for industrialization and economic development in a country15.
According to Lewis, the supply of unskilled labour can be rectified and transformed into the
skilled labour, although it is not easy to do it in underdeveloped countries. Secondly, Lewis-
two sector model strongly oppose the unequal returns sharing. The movement of countryside
workforce to the industrialised areas increases the unnecessary workforce rivalry which
causes the wage rate to fall as a results of competition, this competition has an adverse effect
and widens the income gap.
In Lewis model, it assumes that there are surplus labour in the agriculture sector, the
industry sector hence demand labour from the agriculture sector. The workers in agriculture
15 “Theories of Economic Development." The Political Economy of Economic Development. (Accessed
November 15,2018).

SURNAME. 7
sector works at minimum level of wages that is lower than the wages at the industry sector.
This is the main reason as to why the workers in the agriculture sector will migrate to secure
a place at the industry sector where the wages are reasonable16. Poverty will reduce to a large
extent because the industrial sector employment increases. Labour in a dualistic economy is
open to the urban and industry sector at a constant wage rate17. After some time, the dual
economy exhausts the supply of labour then only an increasing wage rate will pull more
labour out of rural sector.
Bulk of the workforce is hired on the land which is immovable resource. The more
labour is employed on the land a point is eventually reached where more input or workers
input results to reduce marginal product and underemployment, this point is called the
diminishing marginal returns18.
Question 5
The industrialization and urbanization, rural relocation came to fruition looking for
better living conditions. With that, to divide the salary distribution of the populace in its
totality is basic to comprehend the manner by which pay is shared among urban communities
and provincial conditions, taking into account that the disparity of distribution and normal
rural per capital income are often lower than in urban settings, mainly due to lower
profitability characteristic to exercises in every domain. Since the circulation of investment
funds is more unequal than the dissemination of individual salary and resources, just the
16 Logan, Lewis, Ryan Monarch, Michael Sposi, and Jing Zhang. "Structural Change and Global
Trade." (2018).
17 Luca, Corolli, Guglielmo Lulli, Lewis Ntaimo, and Saravanan Venkatachalam. "A two-stage
stochastic integer programming model for air traffic flow management." IMA Journal of Management
Mathematics 28, no. 1 (2017): 19-40.
18 Giles, Hirst, Daan van Knippenberg, Qin Zhou, Cherrie Jiuhua Zhu, and Philip Cheng-Fei Tsai.
"Exploitation and exploration climates’ influence on performance and creativity: Diminishing returns as
function of self-efficacy." Journal of Management44, no. 3 (2018): 870-891.

SURNAME. 8
wealthiest portion of society have the ability to save this leads, ceteris paribus, to the
centralization of a growing portion of income19.
The observational information in the Kuznets findings proposes that disparity is
decreased in developed nations just in the later periods of the development procedure and as
an element of its advantages20. Society increases more noteworthy access to medicinal
services systems and instruction, which prompts more noticeable profitability, which prompts
quick industrialization and urbanization. The study likewise reasons that, as economy
encounter development, access to instruction can give better chances, diminish imbalances
and make the poorest portion of the populace increasingly political and ready to adjust with
government policies. The results of the move from the agrarian transformation to the modern
age, alongside populace development because of quickly declining death rates and the
upkeep, or at times increment, of birth rates, prompts the expansion in imbalance, essentially
in beginning periods.
As indicated by Kuznets, the populace development rate can be considered as a
feature of both the circumstances and logical results of the long move in income imbalance.
What's more, in the expressions of Kuznets, it is advantageous to take note of that at this
stage there may have been a dominance of components favouring support or increment in the
offers of best pay gatherings, seeing that their position was reinforced by additions that
emerged out of new enterprises21. In light of the above, a dynamic disparity model can be
proposed, subject to an explicit development routine ready to portray the common structure
of salary appropriation, in which imbalance increments in the beginning periods of monetary
development, is solidified for a period and afterward diminishes in later stages. This fleeting
19 Stephen, Jenkins. "The measurement of income inequality." In Economic inequality and poverty:
International perspectives, pp. 17-52. Routledge, 2017.
20 Yan-Ling, Tan, Muzafar Shah Habibullah, and Badariah Haji Din. "Does Economic Development
Mitigate Tax Evasion? Evidence From Evasional Kuznet Curve." (2017).
21 Yan-Ling

SURNAME. 9
model is changed in accordance with the poorest populace, however the outcomes gained
show that this procedure of diminishing disparity, examined in created nations, is set apart by
the inevitable rise of imbalance after some time, restructured in the inverted U curve22.
Question 6
Direct finance implies that customers borrow directly from borrowers. To do this, customers
give out financial instruments that investors can keep in custody. In indirect finance implies
to banks stands between the borrowers and the customers. The banks borrow the borrowers
and again the same bank give out as loan to the customers. The level of growth of a financial
system specifies how well the system does the main duty of directing funds from excess units
to scarcity units23. The comparative significance of financial markets against the banks can be
measured by equating the pointers of the amounts directed to markets and banks respectively.
Consequently, a financial system can be considered bank founded or market centred. A
coarse measure of the competence of the financial system is the spread between borrowing
and lending rates. The greater the spread, the less competent the system is. The
comprehensiveness of a financial system can be characterised by the number of the grown-up
populace that acquire a bank account. Microfinance benefits in possibly alleviate
complications of conventional formal finance to provide to the financially omitted.
Microfinance can be well-defined as a conventional organisation that decreases operation
costs in small-scale financial transactions below the exorbitant level24. Social factors in
Malawi and sexual introduction express attitudes about the division of work moreover shape
the decisions about whether a youth should or should not be in school. Another factor which
in like manner acts together with attitude is religion. Religious advantages of access have
22 Ibid
23 “Financial systems in Developing countries." The Political Economy of Economic Development.
(Accessed November 27,2018).
24 Elaina, Rose. "Child Gender and the Family." The Oxford Handbook of Women and the
Economy (2018): 259.

SURNAME. 10
often been limited to explicit classes and to folks. Additionally, this case of transmitting and
grabbing of religious data and power has been convincing in choosing access and denial to
formal government subsidized preparing. Studies have found that religion, nearby sex, social
class and common territory were fundamental determinants of tutoring25.
In choosing to send their kids to class, guardians confront an exchange off between
family unit utilization now and youngsters' normal future income. Therefore, opportunity
costs allude to the money income or different commitments which a family or individual
forfeits all together, for instance, to keep a tyke in school. Research discoveries show that the
job of chance expenses in the age of interest for tutoring has been underplayed26. They
noticed that despite the fact that stagnation, disappointment, dropout and such different
variables of wastage have regularly been ascribed as explanations behind the low interior
productivity of training frameworks, the implanted suspicions neglect to speak to the
multifaceted nature of the wonders as there are outside components which may likewise
encroach upon the instruction framework.
Question 7
Impediments to Agriculture, Land is usually limited, decreasing farm size due to
population increase and reduced soil fertility. Water shortage due to decline in rainfall, the
cost of installing the green water harvesting is very expensive and not affordable to all.
Human capital is limited with possibilities to device technological progress and lack of
agricultural training centres and lastly, lack of institutional and physical infrastructure to
support market integration. In Agriculture centred economies, the contribution of agriculture
economic growth is over 30% rural poor to over 80 % of total poor small and family-owned
farms for subsistence livelihoods27.
25 Sara, Bragg, Emma Renold, Jessica Ringrose, and Carolyn Jackson. "‘More than boy, girl, male,
female’: exploring young people’s views on gender diversity within and beyond school contexts." Sex
Education 18, no. 4 (2018): 420-434.
26 L Jacobson, Jodi. "Women’s health: The price of poverty." In The Health Of Women, pp. 3-32.
Routledge, 2018.
27 “Agriculture and Rural Transformation." The Political Economy of Economic Development.
(Accessed November 20,2018).

SURNAME. 11
Secondly, a remarkable advancement in mechanical progressions has achieved
progressive changes in divergent fields of agribusiness, data innovation, broad
communications, correspondence, transportation, military fighting, and so on. Truth be told,
the impact and digestion of innovation into human lives has turned out to be apparent to the
point that a large portion of individuals in them to a great extent debauched ways of life
neglect to try and recognize its inborn repercussions on us. The most discernible precedents
are broad communications and correspondence, where web, PCs, and cell phones are making
more current alternatives28. For example, a large portion of us Indians used to rush to get their
approaches the land telephones already; However today, Indians are the second biggest cell
phone clients on the planet with more than 865 million clients. In the field of present day
military fighting, innovation has basically changed the standards of the amusement. Current
traditional fighting in present day times has been quickly motorized and digitized. Innovation
has likewise accepted a crucial job in worldwide exchange as the world is turns out to be
progressively nearer and moving towards globalization. All things considered, the most vital
commitment of innovation is perceived by how it enables individuals and makes their lives
simpler29.
Lastly, innovation enables individuals to ruin themselves, in this way making their lives
increasingly convoluted. Not the majority of the effects of innovation are sure. Truth be told,
quite a bit of its outcomes have been hazardous to humankind. For example, most children
spend their relaxation times sitting at their PCs or playing computer games as opposed to
playing open air amusements. Land ventures are just a single vital reaction to the
nourishment security issues of nations with constrained land and water assets and talk of
these speculations should be set in the more extensive setting of discourse of sustenance
security procedures all the more for the most part. An assortment of different components,
including making of provincial nourishment holds, budgetary instruments to oversee chance,
respective understandings including counter-exchange and enhancement of worldwide
28 Sekhar, Nagothu, Udaya, ed. Agricultural Development and Sustainable Intensification: Technology
and Policy Challenges in the Face of Climate Change. Routledge, 2018.
29 San, Thein, Jean-Christophe Diepart, Hlwan Moe, and Céline Allaverdian. "Large-Scale Land
Acquisitions for Agricultural Development in Myanmar: A Review of Past and Current Processes."
(2018).

SURNAME. 12
sustenance showcase data frameworks can add to advancing nourishment security for asset
compelled sustenance shippers
.
Question 8
Poor health leads to poverty; diseases of young youngsters unpleasantly influence
the whole life-cycle, high risk of kids’ death effects on the reproductive performance of poor
possibly reducing consumption and investment per child. In Macroeconomics, disease drain
the poor because he cannot manage to pay for medical treatment. Starvation also causes
immunosuppression. poverty makes a more dangerous home atmosphere poor individuals are
susceptible to being pressed to dangerous work environments. The variances in their costs
because of ordinary changes sought after or supply are bigger than those in different costs,
expanding the expenses to makers of holding stocks or working capital, while a few costs are
likewise subject to unusual and wild stuns from climate or new revelations. In this way
makers confront the double issue of lower returns and higher dangers. These issues confront
all nations which deliver wares, created and growing, yet they are progressively genuine for
creating30.
The idea of product markets implies that a few expenses and dangers are unavoidable for the
world all in all. Nations, global foundations and help benefactors have utilized an assortment
of arrangements to decrease the issues, to shield nations from them by redistributing the
dangers, or to remunerate them for the outcomes. The main potential cure is self-evident, for
creating nations to move out of items into various sorts of fare: fabricates or benefits. The
changes of individual item costs recommend that enhancing into more products could lessen
the danger of vacillations in all out pay. Moving into handling exercises identified with the
product may build pay and lessen variances. Foreign direct investment is the purchase of real
30 “Human Capital in developing countries." The Political Economy of Economic Development.
(Accessed November 21,2018).