Of the world's population of 6.3 billion, roughly 5 billion people have reached at least the first rung of economic development. Five sixths of the world's population is at least one step above extreme poverty. Morever, approximately 4.9 billion people live in countries where average income—measured by GDP per person—increased between 1980 and 2000. An even larger number, roughly 5.7 billion people, live in countries where life expectancy increased. Economic development is real and widespread. The extent of extreme poverty is shrinking, both in absolute numbers and as a proportion of the world's population. That fact is why we can realistically envision a world without extreme poverty as soon as 2025.
Precisely because economic development can and does work in so many parts of the world, it is all the more important to understand and solve the problems of the places where economic development is not working, where people are still off the ladder of development, or are stuck on its lowest rungs. To understand why economic growth succeeds or fails, we first need a conceptual framework that can account for changes over time in GDP per person. I have already discussed some of the factors that promote long-term development, but here I address them more systematically, including a discussion of why the process of economic development breaks down in many places, especially the poorest places. Perhaps it would be clearest to begin with a very specific case: a single farm household.
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