Download Explain the limitations of using changes in a country`s Gross

Economic Growth V Economic Development:
Economic development is the development of economic wealth of countries or regions for
the well-being of their inhabitants. This is the short definition of Economic Development.
Economic Growth & development are two different terms used in economics.
Generally speaking economic development refers to the problems of underdeveloped
countries and economic growth to those of developed countries.
By Economic Growth we simply mean increase in per capita income or increase in GNP. In
recent literature, the term economic growth refers to sustained increase in a country’s output
of goods and services, or more precisely product per capita. Output is generally measured in
terms of GNP.
The term economic development is far more comprehensive. It implies progressive changes
in the socio-economic structure of a country.
Viewed in this way economic development Involves a steady decline in agricultural shares in
GNP and continuous increase in shares of industries, trade banking construction and services.
Further whereas economic growth merely refers to rise in output; development implies
change in technological and institutional organization of production as well as in distributive
pattern of income.
Hence, compared to the objective of development, economic growth is easy realize. By a
larger mobilization of resources and raising their productivity, output level can be raised. The
process of development is far more extensive. Apart from a rise in output, it involves changes
in composition of output, shift in the allocation of productive resources, and elimination or
reduction of poverty, inequalities and unemployment.
In the words of Amartya Sen “Development requires the removal of major sources of
unfreedom poverty as well as tyranny, poor economic opportunities as well as systematic
social deprivation neglect of public facilities as well as intolerance or over activity of
repressive states….”
Economic development is not possible without growth but growth is possible without
development because growth is just increase in GNP It does not have any other parameters
to it. Development can be conceived as Multi-Dimensional process or phenomena. If there is
increase in GNP more than the increase in per capita Income then we can say that
Development is possible. When given conditions of population improves then we can say that
this is also an indicator of economic Development.
http://www.economics4development.com/index.htm
Explain the limitations of using changes in a country’s Gross Domestic Product (GDP) as a measure
of changes in its level of economic development.
GDP may be more relevant as a measure of material living standards/economic growth than development. It
needs to be expressed per capita and in real terms to make a better comparison. It may still be inaccurate
because of unreliable statistics and under-recording of the informal economy. Development requires
additional information relating to non-material elements such as poverty, health and education. The equality
of distribution of GDP, what it is spent on and the circumstances of the particular country also need to be
considered. GNP may be a better measure than GDP.
Discuss whether ‘greater real income growth’ will necessarily lead to a higher standard of living in the
UK.
Candidates should show awareness of the definitional and measurement problems.
Most would agree that people’s living standards are determined by more than just their
material circumstances. It is however extremely hard to define an objective index of
human well-being or happiness, let alone to measure it!
Candidates could therefore discuss a variety of factors including:
• ‘Adjustment issues’ to calculate an appropriate measure of ‘average income’ eg
which measure of inflation, allowances for tax and welfare benefits, demographic
factors, and equivalence scale adjustments for different types of household
• Falling inequality does not necessarily eliminate poverty (especially pensioner and
child poverty) In 2004 the Gini coefficient was slightly above its 1997 level.
• Role of wealth – ownership rates of key assets
• Omissions from national income data - non-marketed activity – legal and illegal
• Availability and price of public/welfare services (health care, education, other
welfare services)
• Quality of life issues (environmental issues, working conditions
The approach to living standards taken in HBAI surveys is to focus solely on material
circumstances, and to use real disposable income (from all sources) as a simple proxy for the standard of
living. Candidates may refer to other relevant ‘indicators of SoL (eg ISEW, MEW, HDI, misery index).
They may justifiably query the sustainability of such changes which result from significant income
redistribution by government.