- Economic growth means an increase in real national income / national output.
- Economic development means an improvement in quality of life and living standards, e.g. measures of literacy, life-expectancy and health care.
- Ceteris paribus, we would expect economic growth to enable more economic development. Higher real GDP, enables more to be spent on health care and education.
- However, the link is not guaranteed. The proceeds of economic growth could be wasted or retained by a small wealthy elite
Economic development
Development looks at a wider range of statistics than just GDP per capita. Development is concerned with how people are actually affected. It looks at their actual living standards and the freedom they have to enjoy a good standard of living.Measures of economic development will look at:
- Real income per head – GDP per capita
- Levels of literacy and education standards
- Levels of health care e.g. number of doctors per 1000 population
- Quality and availability of housing
- Levels of environmental standards
- Life expectancy.
Causes of Growth:
- Economic growth means an increase in real GDP. Economic growth means there is an increase in national output and national income.
- Economic growth is caused by two main factors:
- an increase in aggregate demand (AD)
- an increase in aggregate supply (productive capacity)
In the short term, economic growth is caused by an increase in aggregate demand (AD). If there is spare capacity in the economy then an increase in AD will cause a higher level of real GDP.
AD= C + I + G + X- M
- C= Consumer spending
- I = Investment (gross fixed capital investment)
- G = Government spending
- X = Exports
- M = Imports
Long term economic growth
This requires an increase in the long run aggregate supply (productive capacity) as well as AD.LRAS or potential growth can increase for the following reasons:
- Increased capital. e.g. investment in new factories or investment in infrastructure, such as roads and telephones.
- Increase in working population, e.g. through immigration, higher birth rate.
- Increase in labour productivity, through better education and training or improved technology.
- Discovering new raw materials.
- Technological improvements to improve the productivity of capital and labour e.g. Microcomputers and the internet have both contributed to increased economic growth.
The dictionary definition of ‘development’ is to improve, to progress, or to grow – but development is not just about growth! It is concerned with the improvement of human welfare within an economy, and so it encompasses concepts such as the standard of living, cultural identity and political freedom.
The most common measurement of development is the Human Development Index published each year by the United Nations Development Programme.
Dudley Sears has defined development as “the reduction and elimination of poverty, inequality and unemployment within a growing economy”. Under this definition, development is essentially about improving the incomes of those living in poverty.
The Nobel Economist Amartya Sen, writing in “Development as Freedom”, sees development as being concerned with improving the freedoms and capabilities of the disadvantaged, thereby enhancing the overall quality of life.
Development should be about increasing political freedom, economic freedom, and social freedom and not just about raising incomes.
Other measures of economic and social development:
There are many indicators that one might choose to consider when taking a broad look at the process of economic development, here is a selection:
1. The percentage of adult male and female labour in agriculture, % of arable land that is cultivated
2. Combined primary and secondary school enrolment figures and other indicators of progress in building human capital. 1990 HDR started with this phrase: “People are the real wealth of a nation.”
3. Access to clean water / improved sanitation facilities (% of population with access)
4. Energy consumption per capita
5. Depth of hunger, kilocalories per day per capita
6. Prevalence of HIV, average life expectancy at birth, years of healthy life expectancy, child mortality
7. Access to mobile cellular phones per thousand of the population
8. Percentage of the population living in extreme poverty
9. Dependence on foreign aid / levels of external debt
10. Percentage of households with a bank account
11. Unemployment rates and vulnerable employment rates
12. High-technology exports (% of manufactured exports)
13. The Human Development Index (covered in a later section of this chapter)
14. Progress in achieving the Millennium Development Goals
Michael Todaro specified three objectives of development:
1. To increase the availability and widen the distribution of basic life-sustaining goods such as food, shelter, health and protection.
2. To raise levels of living, including, in addition to higher incomes, the provision of more jobs, better education, and greater attention to cultural and human values, all of which will serve not only to enhance material well-being but also to generate greater individual and national self-esteem
3. To expand the range of economic and social choices available to individuals and nations by freeing them from servitude and dependence not only in relation to other people and nation-states but also to the forces of ignorance and human misery.
Note the emphasis on ‘cultural and human values’, ‘self-esteem’ and freedom from ignorance; it is important to remember that economic development is about much more than simply achieving economic growth.
Source: Tutor2u
