Economic Growth and Development

Economic Growth refers to the increase in a country’s output of goods and services over time, typically measured by the rise in Gross Domestic Product (GDP) or Gross National Product (GNP). It is a quantitative concept.

• Indicators: GDP growth rate, per capita income.
• Nature: Narrow in scope, doesn’t reflect income distribution, quality of life, or sustainability.

Economic Development is a qualitative concept that encompasses economic growth along with improvement in living standards, reduction in poverty, inequality, and unemployment, and enhancement of human well-being.

• Indicators: Human Development Index (HDI), literacy rate, life expectancy, poverty levels, gender equality.
• Nature: Holistic, includes social, economic, and environmental dimensions.

ECONOMIC GROWTH

• Economic growth is considered as a quantitative progress. This is a narrow concept. The increase in Per-Capita income is the better measure of Economic Growth since it reflects increase in the improvement of living standards of masses. Economic Growth is measured by increase in real National Income and not just the increase in money income or the nominal national income.
• The increase of real national income and per-capita income should be sustained over a long period of time. Increase in Income can be sustained only when this increase results from some durable increase in productive capacity of the economy like modernization or use of new technology in production, strengthening of infrastructure.
• Economic Growth occurs when there is a discovery of new mineral/metal deposits.
• There is an increase in the number of people in the workforce or the quality of the workforce improves. There is an increase in capital and machinery. There is an improvement in technology.
• The concept of Economic growth is a widely used term in economics which is useful in national level economic analyses, policymaking and in the study of comparative economics.

ECONOMIC DEVELOPMENT

• According to Michael Todaro “Economic development is an increase in living standards improvement in self-esteem needs and freedom from oppression as well as a greater choice.” Economic growth is necessary to attain economic development but it is not sufficient. The proceeds of economic growth could be wasted or retained by small wealthy elite.
• Economic development encompasses both quantitative as well as qualitative progress in an economy. It is a broad concept.
• It has following objectives:
  • To increase the availability and widen the distribution of basic life sustaining goods.
  • To raise levels of living by ensuring higher incomes, more jobs and greater attention to culture.
  • To expand the range of economic and social choices available to both individuals and nations.
• Economic Development occurs when there is an increase in real income per head, The increase in levels of literacy and education standards. Improvement in the quality and availability of housing. Improvement in levels of environmental standards and Increased life expectancy.

Major indices of Economic Development:

Human Development Index

• It was in the year 1990, United Nations Development Programme published its first Human Development Report (HDR). The report consisted of a human development index (HDI), which was the first such attempt to define and measure the levels of development. The ‘index’ was a product of a selected team of leading scholars, development practitioners and members of the Human Development Report Office of the UNDP. The first such team which developed the HDI was led by Mahbub Ul Haq and Inge Kaul. Three broad parameters were chosen and were allotted equal weightage on the scale of one and measured the development of the countries included in the report.

The three parameters are as given below:

1. Standard of living: It is indicated by the real per capita income adjusted for the differing purchasing power parity (PPP).
2. Knowledge: of an individual is to be measured by indicators related to the level of education
   a. educational attainment among the adults (given 2/3rd weightage).
   b. School enrolment (given 1/3rd weightage).
3. Life Expectancy: to be calculated at the time of birth. The UNDP ranked the economies in accordance with their achievements on the above-given three parameters on the scale of one (i.e., 0–1). High Human Development Countries: 0.8–1 points on the index. Medium Human Development Countries: 0.500–0.799 points on the index. Low Human Development Countries: 0.000–0.499 points on the index.

Inequality-Adjusted Human Development Index (IHDI):

IHDI adjusts the Human Development Index (HDI) for inequality in distribution of each dimension across the population. The IHDI accounts for inequalities in HDI dimensions by ‘discounting’ each dimension’s average value according to its level of inequality. The IHDI equals the HDI, when there is no inequality across people, but is less than the HDI as inequality rises. In this sense, the IHDI is the actual level of human development (accounting for this inequality), while the HDI can be viewed as an index of potential.

Gross National Happiness

It is a term coined by His Majesty the Fourth King of Bhutan, Jigme Singye Wang chuck in the 1970s. The concept implies that sustainable development should take a holistic approach towards notions of progress and give equal importance to non-economic aspects of wellbeing. The Gross National Happiness Index is a single number index developed from 33 indicators categorized under nine domains. The concept of GNH has often been explained by its four pillars: good governance, sustainable socio-economic development, cultural preservation, and environmental conservation.

Gender Inequality Index (GII)

GII reflects women’s disadvantage in three dimensions reproductive health, empowerment and the labour market for as many countries as data of reasonable quality allow. The index shows the loss in human development due to inequality between female and male achievements in these dimensions. 3 dimensions: Reproductive health, Empowerment, Labour market participation.

Multidimensional Poverty Index (MPI)

MPI was developed in 2010, by Oxford Poverty and Human Development Initiative and UNDP and different factors to determine poverty beyond income based list were used. The MPI is an index of acute multidimensional poverty. It shows the number of the people, who are multi dimensionally poor (suffering deprivation in 33% of weighted indicators) and the number of deprivation with which poor households typically contend. It reflects deprivation in very rudimentary services and core human functioning for people across 104 countries. The index uses same three dimensions as the Human Development Index such as health, education and standard of living. These are measured using 10 indicators.

1. Health (Child morality, Nutrition)
2. Education (Years of schooling, Children enrolled)
3. Living Standards (Cooking fuel, Toilet, Water, Electricity, Floor, Assets).

NOTE: Human Development Index, Inequality Adjusted HDI, Gender Development Index, Gender Inequality Index and Multidimensional Poverty Index are part of HUMAN DEVELOPMENT REPORT.

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Subject: Economics

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