The difference between economic growth and development

Economic growth refers to an increase in a country's gross domestic product (GDP), which measures the total value of goods and services produced. However, economic development is a broader concept that evaluates improvements in living standards and overall welfare, often involving judgements about what makes a country 'better off'.

Economic development

Economic development considers not just the scale of growth but its quality and effects on people. This includes factors like population health, access to resources, and environmental impact.

Examples of quality in economic growth:

• Growth that reduces pollution is more valuable than similar growth causing high environmental damage.
• Growth improving widespread access to essentials, such as safe water supplies, benefits more people than growth mainly enriching a small elite group.

Development assessments focus on how extra income from growth enhances daily life, rather than just increasing national output.

Using national income figures to measure development

National income data, such as real gross national income (GNI) per capita, provide insights into average living standards by accounting for inflation and population size. These figures allow comparisons between countries, especially when adjusted for purchasing power parity (PPP), which recognises that money buys more in less developed nations.

Limitations of national income data

While higher GNI per capita often signals better living conditions, it overlooks elements like leisure time, health quality, or unrecorded economic activities (the hidden economy), which can form a significant part of some economies.

The Genuine Progress Indicator (GPI)

The Genuine Progress Indicator (GPI) builds on GDP by including positive factors like voluntary work and subtracting negatives such as environmental harm. This helps policymakers target overall welfare improvements, though assigning values to non-financial elements can be subjective.

The Human Development Index (HDI)

The Human Development Index (HDI), created by the United Nations, offers a broader view of development by combining social and economic factors to assess welfare beyond income alone. It ranks countries or assigns an index value between 0 and 1, where higher scores indicate greater development (e.g., above 0.8 for high development, below 0.5 for low).

Components of the HDI

• Health - Measured by average life expectancy at birth.
• Education - Assessed using mean years of schooling and expected years in education.
• Standard of living - Evaluated through real GNI per capita, adjusted for PPP.

These indicators are weighted equally and chosen for their global consistency and ease of data collection. Countries can achieve similar HDI scores through different strengths, such as strong education offsetting lower health outcomes.

Uses of the HDI

• Tracking a country's progress over time.
• Comparing development levels across nations, either by ranking or index categories.

Criticisms of the HDI

• Long life expectancy does not guarantee quality of life, as people might face poor working conditions or limited freedoms.
• Education metrics focus on time spent in school but ignore teaching quality or learning outcomes.
• GNI per capita may distort comparisons by excluding the hidden economy, which is larger in less developed countries.
• The index does not address inequality, so a decent score might hide wide gaps between rich and poor groups.

Other indicators of development

Beyond income and HDI, various indicators help build a fuller picture of a country's quality of life and social welfare, especially when comparing diverse economies like a wealthy nation to a less developed one.

Examples of alternative development indicators:

• Percentage of adult male labour in agriculture - High levels suggest low development, as farming often involves hard, low-paid work with limited output; development brings mechanisation and fewer workers in this sector.
• Mobile phones per thousand people - Indicates better communication, trade opportunities, and wage levels sufficient to afford technology.
• Levels of disease and malnutrition - Lower rates reflect improved health and nutrition access.
• Newspapers bought per thousand people - Suggests literacy and access to information.
• Energy consumption per head - Higher use of electricity and gas points to advanced infrastructure.
• Levels of political and social freedom - Measures rights and liberties.
• Environmental impact and sustainability - Assesses long-term resource use.
• Access to clean water - Essential for health and daily living.

These indicators provide context beyond basic economic metrics, highlighting human and social aspects.

The impact of development on economic sectors

A country's level of development influences the balance of its primary, secondary, and tertiary economic sectors, affecting resource use and environmental outcomes.

The three economic sectors

• Primary sector - Involves extracting raw materials, such as mining, farming, or fishing.
• Secondary sector - Focuses on manufacturing and construction, turning raw materials into goods.
• Tertiary sector - Covers services like education, finance, and tourism.

How sectors change with development

• Less developed economies rely heavily on the primary sector.
• As development progresses, the secondary sector expands, boosting production but increasing resource depletion and pollution; this often mechanises the primary sector.
• In highly developed economies, the tertiary sector dominates, using fewer resources and producing less direct pollution, though imports may shift environmental burdens abroad.

Happiness and economic growth

Happiness economics explores links between growth and subjective well-being, focusing on non-financial factors that affect life satisfaction, such as relationships or freedoms, rather than just monetary measures.

Measuring happiness in economics

Psychological surveys help gauge personal satisfaction levels, though quantifying happiness remains challenging. In the UK, the Office for National Statistics (ONS) runs a programme tracking well-being through data on health, education, finances, and personal assessments to guide policy for better outcomes.