Economic_development

Economic development

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

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

Picture source: Exeter University

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, health and education. The HDI is used to track changes in the global position of specific countries over time.

Each year the UNDP produces a development report providing 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).

A composite index 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 – 0.6 means low development – for example, in 2006 Ethiopia had an index number of 0.38  while in Bangladesh it was 0.51
• An index of 0.61 – 0.85 means medium development – for example, in 2006 Croatia had an index of 0.85, while Brazil and the Ukraine had  0.80 and 0.79 respectively.
• An index of greater than 0.90 means high development – for example, the HDI for France and the UK in 2006 were 0.95 and 0.94. respectively.

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 growth, and fails to indicate other aspects of development, such as enrolment in school and longevity. Hence, the HDI is seen as 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

A variety of factors may contribute to differences in life expectancy, such as the stability of food supplies, war and the incidence of disease and natural disasters.

According to World Bank figures, between 1980 and 1998 average life expectancy rose from 61 to 67 years, with the largest increases occurring in low and middle income countries. However, the changes are not evenly distributed, and in many countries in sub-Saharan Africa, life expectancy is falling due to the AIDS epidemic.

(Source: www.worldbank.org/depweb/)

Adult literacy is usually defined as 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 simple arithmetic.

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

The OECD also uses income as its basis by classifying developing countries in terms of:

LICs (Low income countries), such as:

• Egypt
• India
• Pakistan

MICs (Middle income countries), such as:

• Barbados
• Syria
• Uruguay

NICs (Newly industrialising countries), such as:

• Argentina
• Brazil
• Mexico

Evaluation of the HDI

Despite the widespread use of the HDI, there are a number of criticisms that are often made. These include:

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 ultimately about freedom, and there is nothing in the index which directly measures this. For example, access to the internet might be regarded by many as a freedom which improves the quality of individual's lives.
4. As with GDP per capita, the more narrow measure of living standards, 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 this value can frequently change.

See also: The Human Poverty Index - HPI 

See also: evaluation of GDP statistics