Economic growth, economic development and human development
You may think economic growth and economic development are the same thing and use the terms interchangeably, but they are not exactly the same.
Figure 3.1 New buildings in cities are signs of economic growth.
The economic growth of a country is an increase in worth of the national economy and is measured by its Gross Domestic Product (GDP). GDP is a measure of the total value of goods and services produced by a country in a year. It is usually measured in US dollars.
Economic development is a broader concept than economic growth that also includes aspects of human welfare. It is linked to technological and social progress, and general improvements in living standards. Economic development means improvements to infrastructure such as roads, schools, water and wastewater treatment plants, hydropower, etc. One of the indicators of economic development is GDP per capita. GDP per capita is the total GDP value divided by the population of the country, giving an indication of the economic output per head of population. This reflects an increase in the economic productivity and average material well-being of a country’s population but does not take account of uneven distribution of wealth among the population.
The GDP of India (US$2.05 trillion) is greater than the GDP of Norway (US$0.5 trillion) (IMF, 2015). So, can we say that India is more economically developed than Norway?
No. India has a higher total GDP than Norway, but it also has a much larger population. So, if you divide the GDP by the population to give GDP per capita, you would see that Norway has a much higher per capita GDP (US$97,013) than India (US$1,626). In reality, therefore, Norway is more economically developed than India.
GDP is a purely economic measure. Economic growth does not necessarily lead to human development. This is because a country can have an increase in GDP without improving the quality of life of the majority of people. Human development is the continuous improvement of human well-being and the quality of life. Some of the characteristics associated with countries that are not highly developed are a low literacy rate, high poverty level, high unemployment rate, high malnutrition, low water supply coverage, low health service coverage, poor roads, poor public transport and poor environmental conditions.
The most widely used indicator for human development is the Human Development Index (HDI), which measures the relative development status of different countries on a scale from 0 to 1. It looks beyond economic assessment and brings in other ways of measuring well-being. HDI is a composite index that focuses on three criteria:
- life expectancy.
- education.
- standard of living.
The first criterion, life expectancy, is the average number of years that a person may expect to live. If people live long and healthy lives, this will increase the HDI of a country.
The second criterion in the HDI, education, comprises two components: years of schooling for the adult population, which is the average number of years of education received in a lifetime by people aged 25 years and older; and the expected years of schooling for children of school-entrance age. Developed countries are expected to have people in education for longer.
Figure 3.2 Classrooms should provide an environment that encourages learning.
The final criterion in the HDI is standard of living, which means the level of wealth, comfort and material goods available to people.