Economic development

Economic development

Economic development is a broader concept than economic growth. Development reflects social and economic progress and requires economic growth. Growth is a vital and necessary condition for development, but it is not a sufficient condition as it cannot guarantee development.

One of the most compelling definitions of development is that proposed by Amartya Sen.

Image credit – https://shoonyamagazine.org/200000-deaths-amartya-sen-chooses-to-ignore/

According to Sen, development is about creating freedom for people and removing obstacles to greater freedom. Greater freedom enables people to choose their own destiny. Obstacles to freedom, and hence to development, include poverty, lack of economic opportunities, corruption, poor governance, lack of education and lack of health.

(Source: Development as Freedom, Amartya Sen: 2001, Oxford University Press)

The world population

By 2017, the world population had grown to 7,500 million (7.5bn) (Source: worldometers).  According to the Population Reference Bureau it took just 12 years for the global polulation to increase from 6 to 7bn. Of this number, only 15% will achieve a standard of living of at least 50% of that achieved in the USA. According to the World Bank over 20% of the world’s population live on less than $1 a day. In fact, the majority subsist at a standard of living similar to, or lower than, that typically achieved 10,000 years ago.

During the next 50 years the world population is predicted to grow to 9,000 million, and at this rate, the proportion of those impoverished is likely to increase.

World population growth

Indicators of development

The extent to which a country has developed may be assessed by considering a range of narrow and broad indicators, including per capita income, life expectancy, education, and the extent of poverty.

The HDI was introduced in 1990 as part of the United Nations Development Programme (UNDP) to provide a means of measuring economic development in three broad areas – per capita income, heath and education. The HDI tracks changes in the level of development of countries over time.

Each year, the UNDP produces a development report, which provides an update of changes during the year, along with a report on a special theme, such as global warming and development, and migration and development.

The introduction of the index was an explicit acceptance that development is a considerably broader concept than growth, and should include a range of social and economic factors.

A scale from 0 (no development) to 1 (complete development).

An index, which is based on three equally weighted components:

1. Longevity, measured by life expectancy at birth
2. Knowledge,  measured by adult literacy and number of years children are enrolled at school
3. Standard of living,  measured by real GDP per capita at purchasing power parity

• An index of 0 – 0.49 means low development – for example, Nigeria was 0.42 in 2010.
• An index of 0.5 – 0.69 means medium development – for example, Indonesia was 0.6. 3.
• An index of 0.7 to 0.79 means high development – for example, Romania was 0.76. 4.
• Above 0.8 means very high development – Finland was 0.87 in 2010.

The HDI is a very useful means of comparing the level of development of countries. GDP per capita alone is clearly too narrow an indicator of economic development and fails to indicate other aspects of development, such as enrolment in school and longevity. Hence, the HDI is a broader and more encompassing indicator of development than GDP, though GDP still provides one third of the index.

HDI figures for selected countries

Very high ranked countries

High

Medium

Low

Life expectancy

A variety of factors may contribute to differences in life expectancy, including:

1. The stability of food supplies
2. War
3. The incidence of disease and natural disasters

According to World Bank figures, life expectancy at birth in developing countries over the past 40 years has increased by 20 years. However, these increases were not evenly distributed. Indeed, in many countries in sub-Saharan Africa, life expectancy is falling due to the AIDS epidemic.

The percentage of those aged 15 and above who are able to read and write a simple statement on their everyday life.

More extensive definitions of literacy include those based on the International Adult Literacy Survey. This survey tests the ability to understand text, interpret documents and perform basic arithmetic.

GDP per capita is the commonest indicator of material standards of living, and hence is included in the index of development. GDP per capita It is found by measuring Gross Domestic Product in a year, and dividing it by the population.

Evaluation of the HDI

Despite the widespread use of the HDI there are a number of criticisms that can be made, including:

1. The HDI index is for a single country, and as such does not distinguish between different rates of development within a country, such as between urban and traditional rural communities.
2. Critics argue that the equal weighting between the three main components is rather arbitrary.
3. Development is largely about freedom, but the index does not directly measures this. For example, access to the internet might be regarded by many as a freedom which improves the quality of people's lives.
4. As with the narrow measure of living standards, GDP per capita, there is no indication of the distribution of income.
5. In addition, the HDI excludes many aspects of economic and social life that could be regarded as contributing to or constraining development, such as crime, corruption, poverty, deprivation, and negative externalities.
6. GDP is calculated in terms of purchasing power parity, and the value can change.

See also : The Human Poverty Index - HPI

Go to: Evaluation of GDP statistics