Variations in living standards in the global economy

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Despite the increasing integration of the global economy, large differences in living standards between countries have persisted and even worsened in recent years. This is evidently indicated by the stark differences in the levels of economic development and growth across the global economy, suggesting the wide gaps between wealthy and poor nations. Almost 80% of GWP income is dominated by just 15% of the world's population whilst the rest of the 20% is shared by 85%. While international organisations are attempting to reduce these significant differences, inequality remains an entrenched feature of the global economy. The main reasons accounting for these differences result from domestic and global factors.

Standards of living are usually measured by a nation's Gross Domestic Product (GDP) per capita. GDP measures the total value of all goods and services produced in an economy in a given year, and it is usually quoted in per capita terms to adjust for differences in levels in population levels and population growth over time. As GDP per capita are often adjusted to purchasing power parity (PPP) to allow comparison between different economies. However, economic growth may be an inaccurate measure as it only indicates an expansion of a country's productive capacity, resulting in the increased ability of a nation to satisfy the material wants of its people over a period of time. GDP figures fail to account for other social and economic factors such as the size of the black market, domestic work that is not given a financial value and the degree of income inequality within a society. Therefore economic development is a much broader concept that attempts to measure the overall social and economic welfare of the overall population through quality of life indicators. One of the most common indicators is the Human Development Index (HDI) that gives each nation a score between 0 for nations with no human development and 1 for maximum human development. The HDI measures a nation's GDP per capita, health conditions (life expectancy at birth) and levels of educational attainment. In recent years, more development indicators have been constructed to take into account other aspects of economic development such as the Measurement of Economic Welfare, which includes unpaid domestic work, pollution levels and the rate of environmental damage.

Statistics of economic growth and development both indicate the high levels of inequality in the global world. Around 1 billion of the world's population live in high income economies, which enjoy an average GNP per capita of US$27, 680 in 2000. These 49 economies are called "Advanced Industrialised Economies", having the highest levels of economic development and are the most technologically advanced economies.

At the other extreme, developing nations have the lowest levels of economic development and suffer from long term handicaps to growth such as low levels of human resource development and structural weaknesses. The World Bank estimated that about 63 developing countries have an average GNP per capita of US$1230 in 2000. A small number of countries are transitioning from the low/middle income to high income economies. These are known as the Newly Industrialised Countries (NICs). These economies have been the most open to the globalisation and therefore experienced the highest levels of economic growth over the past 2 decades, especially in south-east Asia and Latin America. The transition economies represent a small proportion of countries that are current changing from socialist to market-capitalist economic system. Most of these countries fall within the low to middle income group.

These broad categories of development highlights the differences in living standards and quality of life enjoyed in different countries across the globe. The explanations for global inequality can be divided by the structures of individual economies and the global economy.

The composition of the...
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