Economic growth does not necessarily breed economic development. Unless the increase in national income reaches all levels of society, development remains elusive. It is this, the pursuit of equal income distribution after growth, that is a widely accepted economic goal.
The big four sources of economic development are education, health care, infrastructure and political stability. Education improves opportunities for all lucky enough to receive it, especially disadvantaged groups like women and minorities. It allows people to become ever increasingly more productive and engaged as labor/human capital. In societies where women sit idle, roughly 50% of the potential workforce is simply out of commission. Educating and employing women can be immensely helpful in achieving growth and development as there are more and better FoPs. A very interesting argument here involves cultural relativism with respect to whether or not treatment of women is a cultural issue or a human rights / right to work issue.
Moreover, as people learn how to take care of themselves and others, mortality rates fall. For example, if mothers learn to wash their hands with soap before touching their child's wound or men learn to use condoms to prevent the spread of HIV, rates of infection in both cases will logically fall.
Closely connected to this issue is that of improving health care. Imagine how difficult it would be to work when suffering from malaria! As people become healthier, they are better equipped to achieve their maximum productivity. Therefore, many economists argue governments should spend money to build hospitals, to acquire doctors, nurses and medications and to make health care a vital part of government spending and investment for the future.
The Economist web site defines infrastructure as "the economic arteries and veins...roads, ports, railways, airports, power lines, pipes and wires that enable people, goods, commodities, water, energy and information to move about efficiently". As infrastructure improves, g/s can be moved around more easily and people can get to work or to school. Simply stated, development occurs.
Lastly, stories like this can be devastating for economies since people within the country become nervous and foreigners choose to stay away. With more institutionalized political instability, firms do not invest or conduct business at all. Therefore, political stability is a clear step to development as economic incentives and ownership become protected and business (via foreign direct investment, FDI) flows into the country.
Showing posts with label economic development. Show all posts
Showing posts with label economic development. Show all posts
Friday, May 7, 2010
Economic Growth and Development
Economic growth is simply the increase in the GDP (real output) of an economy over a period of time, usually a year. This is a quantitative measure, GDPnew - GDPold/GDPold. For example, if Angola saw 9% growth in 2009, that means the value of final g/s produced in Angola in 2009 was 9% higher than it was in 2008.
How is economic growth achieved? Simple answer: through the increase in the quality and/or quantity of FoPs. This increases the potential output of the country (Keynesian v. neo-Classical views) and can be shown by a rightward shift in the country's PPC or LRAS (see relevant posts from January and March).
How is economic growth achieved? Simple answer: through the increase in the quality and/or quantity of FoPs. This increases the potential output of the country (Keynesian v. neo-Classical views) and can be shown by a rightward shift in the country's PPC or LRAS (see relevant posts from January and March).
Economic development, a qualitative measure, describes of an economy's standard of living, including information like access to safe drinking water, mother mortality and GDP per capita. Although economic growth can lead to economic development, this isn't always the case if the rich reap the benefits of the increase in national income.
Although economic growth is very simply measured using the equation above, economic development requires numerous indices to provide a more complete picture of the development of a country. These include the UN Development Program's (UNDP) Human Development Index (HDI), Gender-related Development Index (GDI), Gender Empowerment Measure (GEM), Human Poverty Index (HPI), and Lorenz curve / Gini coefficient. These all deserve further description.
The HDI has three components : life expectancy at birth, education/knowledge measured via literacy rate (two-thirds weighting) and gross enrollment ratio (primary, secondary, tertiary) and standard of living measured by GDP per capita (PPP). The following graph from Wikipedia shows current HDI levels, with zero meaning very low development and one being almost total development, followed by the link for the most current Human Development Report:
Link (look for "Annual Report"): http://hdr.undp.org/en/
The GDI adjusts the HDI for gender to show the inequalities for men and women for life expectancy, education/knowledge and standard of living. The GEM targets differences in opportunities for women and men in different countries through a statistical calculation of political participation (parliamentary seats filled by women), economic participation (legislators, senior officials, managers; professional and technical positions) and female GDP per capita compared to male. Please see the following image (zoom in if necessary) for countries and their GEM values.
The HPI takes the HDI and reverses it to look at the other side of the equation. Instead of life expectancy at birth, the HDI calculates the chance that people won't live past a certain age (from 40 to 60). Moreover, the HDI uses the adult illiteracy rate instead of the literacy rate / enrollment rate and sort of an "anti" standard of living as measured by statistics of those without access to clean water or health services and child malnourishment rates. Click on this link for further information: A map of world poverty that includes human poverty index Development Economics.
Lastly, the Lorenz curve and the Gini coefficent it derives determine the income inequality of an economy. The Lorenz curve shows which percentage of households earn which percentage of the country's income. If the country was perfectly equal, the bottom 30% would earn 30% of national income and the bottom 60% would earn 60% of the income, etc. This is shown by the line of perfect equality, the 45 degree angle from the point of origin. The curve that exists beneath this line shows how unequal countries are, and the more bowed the curve, the more unequal is the income distribution in the economy. This is the Lorenz curve. Please see the following graph:
In this hypothetical (extreme) scenario, the bottom ten percent of the economy earns less than 1% of the income and the bottom 50% of the household earns just 10% of the income (compared to 50% at perfect equality). In fact, in this example, the upper 50% of society earns 90% of the income and the top 10% earns about 50% of the income! This would be an EXTREMELY unequal society. The distance between the Lorenz curve and the line of perfect equality derives the Gini coefficient which quantifies the actual income inequality of a country. Zero corresponds to perfect equality (everyone earns the same) and one perfect inequality (one person earns everything..."statistical dispersion"). Here is a graph that shows worldwide Gini coefficients (thanks to Wikipedia):
Where is your country? How does this make you feel?
The HDI has three components : life expectancy at birth, education/knowledge measured via literacy rate (two-thirds weighting) and gross enrollment ratio (primary, secondary, tertiary) and standard of living measured by GDP per capita (PPP). The following graph from Wikipedia shows current HDI levels, with zero meaning very low development and one being almost total development, followed by the link for the most current Human Development Report:
The GDI adjusts the HDI for gender to show the inequalities for men and women for life expectancy, education/knowledge and standard of living. The GEM targets differences in opportunities for women and men in different countries through a statistical calculation of political participation (parliamentary seats filled by women), economic participation (legislators, senior officials, managers; professional and technical positions) and female GDP per capita compared to male. Please see the following image (zoom in if necessary) for countries and their GEM values.
Lastly, the Lorenz curve and the Gini coefficent it derives determine the income inequality of an economy. The Lorenz curve shows which percentage of households earn which percentage of the country's income. If the country was perfectly equal, the bottom 30% would earn 30% of national income and the bottom 60% would earn 60% of the income, etc. This is shown by the line of perfect equality, the 45 degree angle from the point of origin. The curve that exists beneath this line shows how unequal countries are, and the more bowed the curve, the more unequal is the income distribution in the economy. This is the Lorenz curve. Please see the following graph:
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