what do we mean by economic development

economic growth is a necessary but not sufficient condition for improving living standards necessary because with no growth, individuals can become better off only through transfers of income and growth from others this is of limited effect in poor countries with limited number of rich segment of people with economic growth therefore, enables some or even all people to become better off without anyone becoming worse off.

economic growth is not sufficient for improving living standards because of problems related to how income in spent and distributed: 1. governments may promote economic growth to attain other goals other than improving its citizens well-being 2. resources may be heavily invested in further growth with the promise of “future” consumption 3. “the rich get richer and the poor get poorer”

therefore, economic development goal (according to Sen), is to expand the capabilities of people to live the lives they choose to lead. income is one factor in determining such capabilities but not the one. income is a mean to an end not an end by itself.

human development

Countries based on World Bank income groupings for 2006 (calculated by GNI per capita, Atlas method). ██ High income ██ Upper-middle income ██ Lower-middle income ██ Low income

human vs. economic development the idea is the same: the distinction is intended to expand the perception of development as encompassing more than increases in per capita income. human development is a process of enlarging people’s choice three essentials choices/levels of development are:

to enjoy a healthy life, to acquire knowledge, and to have access to resources needed for a decent standard of living. human development is associated with additional choices:political and economic freedom, opportunities for being creative and productive, enjoying self-respect... 2 sides of human development: the formation of human capabilities (such as improved health, knowledge and skills) and the use people make of their acquired capabilities (for leisure, productive purposes, or being active in cultural, social, and political affairs)

measuring human development for each element of human development: healthy life, to acquire knowledge, and to have access to resources needed for a decent standard of living, a specific measure was constructed and aggregated into an index, the Human Development Index (HDI). (The UNDP)

what can we learn from HDI? HDI vs. GDP per capita as an index of economic or human development

Fig. 2.2 HDI Versus GDP per capita ranking 2001

most countries have different ranking for gdp per capita than for HDI. example: Peru: HDI ranking of 82, GDP per capita (PPP) ranking of 96 this suggests that Peru has made more relative progress in achieving human development than in raising per capita income. Kuwait: GDP per capita rank of 27, HDI rank of 46. therefore, there is no automatic link between a nation’s per capita income and its level of human development.

human development seems to progress more rabidly than income growth yet, economic growth at low income levels seems disconnected from human development.

Fig. 2.3: HDI versus log GDP rankings

Fig. 2.4: GDP versus GDPper capital by country

the trend in 2-4 confirms the result computed in 2-3. rising incomes systematically raises the HDI

is economic growth desirable? other prospectives: (examples:) negative effects: spread of materialism, westernization of world cultures, and the destruction of traditional societies environmental issues

Fig. 2.5: How Happy Are People Around the world, 1995-2002