Economic growth and Development
• Economic growth: measures changes in physical quantity of goods/services that economy actually/potential produce
• Economic development: not just increase quantity of output but quality + contribution to human happiness/economic welfare
• Economic growth doesn’t necessarily improve economic welfare all/most population
• Economic development can be measured by:
1) General improvement living standards which reduces poverty human suffering
2) Access resources such as food + housing required satisfy basic human needs
3) Access to opportunities for human development (i.e., education/training)
4) Sustainability + regeneration, through reducing resource depletion + degradation
5) Access decent level healthcare
Main characteristics of less developed countries
• ‘Less developed’ covers wide range economies, from extremely poor to UN calls middle-income economies
➢ Various ways identifying main characteristics less developed economies
• W.W. Rostow, economic historian/political theorist concentrates main method identification less developed countries:
➢ Rostow coined term ‘traditional society’ to describe economies completely lacking economic development
➢ Described as primitive, poor societies with minimal generational change
➢ Tradition, accepted customs + persistent relationships between people govern economic life
• Traditional societies face low limit total production (limited available methods production) largely agricultural
➢ Higher up ranking less developed countries Rostow coined ‘traditional economies preparing for take-off’
➢ Economies becoming more productive + various preconditions for successful industrial growth beginning appear
➢ Scope for commerce/trade appears; banks + other financial institutions for mobilisation savings into productive
investment
• Next stage, Rostow identified economies ‘taking off into self-sustaining growth’
➢ Countries in position choose allocate increased output economies producing to social welfare + other aspects: ‘economic
development’
Indicators of development: GDP per capita, distributions income, mortality rates, health statistics
• Economists use GDP per capita as 1st indicator economic development
➢ Most poor developing countries, GDP usually greater than GNI (another indicator development)
➢ Profit outflows + interest payments out developing countries to more developed economies
• 3 components total economic welfare:
1) Economic welfare derived goods/services purchased in market economy
2) Economic welfare derived public goods/merit goods collectively provided by state
3) Economic welfare derived quality life factors (including external benefits minus external costs + intangibles)
• National income figures can provide reasonable estimate economic welfare derived 1st 2nd elements (relate direct consumption)
➢ National income fails provide satisfactory indication externalities/other factors affecting welfare/living standards
• Intangible factors largely ignored: include value leisure time, pollution, road congestion et
• National income fails reflect effect resource depletion + environmental degradation resulting producing current income on
humankind’s ability produce future income
➢ Doesn’t address issue sustainability
• Addition, whilst national income includes value output merit goods (healthcare/education etc), unless data disaggregated not
possible determine extent which nation’s resources devoted producing these services (vital economic development)
➢ Indicators such as life expectancy, infant mortality, literacy rates can be used supplement national income per head (in
order provide better/more rounded indicator quality life)
The United Nations Human Development Index (HDI)
• Other indicators development less dependent ‘raw’ GNI or GDP increasingly used place value on economic + social progress
• Earliest: Measure of Economic Welfare (MEW) developed by Nordhaus + Tobin 1972
➢ Recent attempts adjust conventional national income figures show developments economic welfare: HDI Index + Index
Sustainable Economic Welfare (ISEW)
• HDI constructed measuring:
1) Life expectancy at birth
2) Mean years schooling + expected years schooling
3) GNI per head population, reflecting PPP in $
• Max value HDI is 1 (unity) → closer to 1 greater human development
➢ 2018: Norway led way in HDI top 15, USA + UK respectively 13th + 14th; countries sub-Saharan Africa took all bottom 15
places
➢ HDI not perfect: ignores inequalities distribution income; IHDI (inequality adjusted)
➢ HDI measures max IHDI able be achieved if no inequality within countries; greater degree inequality within country,
greater difference between country’s HDI + IHDI
• Economic growth: measures changes in physical quantity of goods/services that economy actually/potential produce
• Economic development: not just increase quantity of output but quality + contribution to human happiness/economic welfare
• Economic growth doesn’t necessarily improve economic welfare all/most population
• Economic development can be measured by:
1) General improvement living standards which reduces poverty human suffering
2) Access resources such as food + housing required satisfy basic human needs
3) Access to opportunities for human development (i.e., education/training)
4) Sustainability + regeneration, through reducing resource depletion + degradation
5) Access decent level healthcare
Main characteristics of less developed countries
• ‘Less developed’ covers wide range economies, from extremely poor to UN calls middle-income economies
➢ Various ways identifying main characteristics less developed economies
• W.W. Rostow, economic historian/political theorist concentrates main method identification less developed countries:
➢ Rostow coined term ‘traditional society’ to describe economies completely lacking economic development
➢ Described as primitive, poor societies with minimal generational change
➢ Tradition, accepted customs + persistent relationships between people govern economic life
• Traditional societies face low limit total production (limited available methods production) largely agricultural
➢ Higher up ranking less developed countries Rostow coined ‘traditional economies preparing for take-off’
➢ Economies becoming more productive + various preconditions for successful industrial growth beginning appear
➢ Scope for commerce/trade appears; banks + other financial institutions for mobilisation savings into productive
investment
• Next stage, Rostow identified economies ‘taking off into self-sustaining growth’
➢ Countries in position choose allocate increased output economies producing to social welfare + other aspects: ‘economic
development’
Indicators of development: GDP per capita, distributions income, mortality rates, health statistics
• Economists use GDP per capita as 1st indicator economic development
➢ Most poor developing countries, GDP usually greater than GNI (another indicator development)
➢ Profit outflows + interest payments out developing countries to more developed economies
• 3 components total economic welfare:
1) Economic welfare derived goods/services purchased in market economy
2) Economic welfare derived public goods/merit goods collectively provided by state
3) Economic welfare derived quality life factors (including external benefits minus external costs + intangibles)
• National income figures can provide reasonable estimate economic welfare derived 1st 2nd elements (relate direct consumption)
➢ National income fails provide satisfactory indication externalities/other factors affecting welfare/living standards
• Intangible factors largely ignored: include value leisure time, pollution, road congestion et
• National income fails reflect effect resource depletion + environmental degradation resulting producing current income on
humankind’s ability produce future income
➢ Doesn’t address issue sustainability
• Addition, whilst national income includes value output merit goods (healthcare/education etc), unless data disaggregated not
possible determine extent which nation’s resources devoted producing these services (vital economic development)
➢ Indicators such as life expectancy, infant mortality, literacy rates can be used supplement national income per head (in
order provide better/more rounded indicator quality life)
The United Nations Human Development Index (HDI)
• Other indicators development less dependent ‘raw’ GNI or GDP increasingly used place value on economic + social progress
• Earliest: Measure of Economic Welfare (MEW) developed by Nordhaus + Tobin 1972
➢ Recent attempts adjust conventional national income figures show developments economic welfare: HDI Index + Index
Sustainable Economic Welfare (ISEW)
• HDI constructed measuring:
1) Life expectancy at birth
2) Mean years schooling + expected years schooling
3) GNI per head population, reflecting PPP in $
• Max value HDI is 1 (unity) → closer to 1 greater human development
➢ 2018: Norway led way in HDI top 15, USA + UK respectively 13th + 14th; countries sub-Saharan Africa took all bottom 15
places
➢ HDI not perfect: ignores inequalities distribution income; IHDI (inequality adjusted)
➢ HDI measures max IHDI able be achieved if no inequality within countries; greater degree inequality within country,
greater difference between country’s HDI + IHDI
