CHAPTER 50 Economic Development
Economic growth and development are linked. While growth is possible without development
because growth is just an increase in real GDP, development cannot take place if there is no
growth. Economic development is a far more comprehensive idea than economic growth.
In addition to a rise in real output, it involves changes in the composition of this output and a
consequent shift in the allocation of resources as well as the reduction of poverty, inequalities
and unemployment. In addition, development can refer to the availability of education and
literacy rates as well as health and life expectancy.
Amartya Sen stated that 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.
Classification of economies in terms of their level of development
Criteria for evaluating a country’s level of development are GDP per capita, the level of
industrialization, the general standard of living, and the amount of technological infrastructure.
The United Nations classifies countries into three groups:
1. Developed economies are those which have a high level of economic growth and security.
2. Transitional economies are those which are in a process of moving from a centrally planned
economy to a mixed or free market economy.
3. Developing economies are those that have a low GDP per capita and, normally, rely heavily
on agriculture as the primary industry.
Classification of economies in terms of their level of national income
The World Bank assigns the world’s economies to four income groups – low, lower-middle,
upper-middle, and high-income countries. Examples of these groups for 2021 are shown in
Table below. This information is revised every year.
Indicators of living standards and economic development
Living standards refers to the amount and quality of material goods and services available to the
population of a country. It includes many aspects such as: income; housing; employment; hours
of work required to purchase necessities; education; environmental quality.
Monetary indicators
GDP per capita is the most widely used monetary measure of living standards. It together with
GNI and NNI, are easy to obtain and give an ‘at a glance’ comparison without needing further
understanding. Real and per capita allow for different inflation rates and different levels of
population. GDP is a production concept, but the way that it is constructed makes it equal to the
total income earned in the production process. Some of this income is paid to non-residents,
while residents receive some income from production in other countries. GDP can be adjusted
for “net income from abroad” to arrive at the concept of gross national income, GNI, which is
more relevant for the wellbeing of residents of a country. In turn, by deduction, capital
Economic growth and development are linked. While growth is possible without development
because growth is just an increase in real GDP, development cannot take place if there is no
growth. Economic development is a far more comprehensive idea than economic growth.
In addition to a rise in real output, it involves changes in the composition of this output and a
consequent shift in the allocation of resources as well as the reduction of poverty, inequalities
and unemployment. In addition, development can refer to the availability of education and
literacy rates as well as health and life expectancy.
Amartya Sen stated that 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.
Classification of economies in terms of their level of development
Criteria for evaluating a country’s level of development are GDP per capita, the level of
industrialization, the general standard of living, and the amount of technological infrastructure.
The United Nations classifies countries into three groups:
1. Developed economies are those which have a high level of economic growth and security.
2. Transitional economies are those which are in a process of moving from a centrally planned
economy to a mixed or free market economy.
3. Developing economies are those that have a low GDP per capita and, normally, rely heavily
on agriculture as the primary industry.
Classification of economies in terms of their level of national income
The World Bank assigns the world’s economies to four income groups – low, lower-middle,
upper-middle, and high-income countries. Examples of these groups for 2021 are shown in
Table below. This information is revised every year.
Indicators of living standards and economic development
Living standards refers to the amount and quality of material goods and services available to the
population of a country. It includes many aspects such as: income; housing; employment; hours
of work required to purchase necessities; education; environmental quality.
Monetary indicators
GDP per capita is the most widely used monetary measure of living standards. It together with
GNI and NNI, are easy to obtain and give an ‘at a glance’ comparison without needing further
understanding. Real and per capita allow for different inflation rates and different levels of
population. GDP is a production concept, but the way that it is constructed makes it equal to the
total income earned in the production process. Some of this income is paid to non-residents,
while residents receive some income from production in other countries. GDP can be adjusted
for “net income from abroad” to arrive at the concept of gross national income, GNI, which is
more relevant for the wellbeing of residents of a country. In turn, by deduction, capital
