Economic Growth vs.

Development

Economic growth
Steady process by which the productive
capacity of the economy is increased over time
to bring about rising levels of national output
and income
(GDPt GDPt-1 / GDPt-1 ) x 100

Economic Development
Economic growth used as an index of progress
& development may be meaningful but not
sufficient (Tullao, 2009)
Economic growth doesnt explain how the fruits of
economic progress have been distributed among
people

A multidimensional process involving major

changes in social structures, popular attitudes, &
national institutions
Reduction in inequality
Eradication of poverty

Indicators of Economic Development

Human Development Index (HDI)
Per capita income
Life expectancy at birth
Level of educational attainment
Adult literacy
Educational enrolment rates

Green GNP
Based on the green system of national accounting
National income measures adjusted to account for
depletion of natural resources & environmental
degradation
i.e. social cost of pollution emissions

Diverse structures
and
common characteristics
of developing countries

Countries with different income levels

World bank classification of LDCs by income

Classification by UNDP
starting from 1990
Human Development Index (HDI)
countries are ranked high (with HDI values
of 0.8 above), medium (with HDI values
between 0.5-0.799) and low (with HDI
values below 0.5)
ranked more than 170 countries, however,
not all countries are ranked due to the lack of
comparable data.

Examples of rankings by HDI (1993)

HDI Rank
Canada

Real
GDP pc
US$

Rank

0.951

20950

Hong
0.909
Kong
Malaysia 0.826

22

21560

53

8360

42

Sri Lanka 0.698

89

3030

97

Ethiopia

168

20

173

0.237

Structural diversity of LDCs

Size of country (geographic area, population and income)

Historical and colonial background
Endowments of physical and human resources
Ethnic and religious composition
Relative importance of its public and private sectors
Nature of its production structure
Degree of dependence on external economic and political
forces (foreign trade, investment and aid)
Distribution of power: institutional and political power within
the nation (eg. Interest groups)

Common Characteristics of LDCs

1. Low levels of living, characterized by low
incomes, high inequality, poor health, and
inadequate education, slow growth rates of
national income
Indicators:

real GDP or GNP per capita (using purchasing power

parity exchange rate)
people living in absolute poverty
infant mortality rates (# of children die before 1st
birthday out of 1000 live births)
adult literacy rates

Correlation between GNP per capita and

indicators of living standards (1991)
Country

GNP/ per
capita
$US

Life
expectancy

Infant
mortality

Uganda

170

46

118

Ghana

400

55

83

Argentina

2790

71

25

Denmark

23700

75

Correlation between GNP per capita and indicators of

living standards (1991)
Country

GNP/ per capita $US

Life expectancy

China

370

69

Brazil

2940

66

Saudi Arabia

6200

64

Per capita income and inequality

Lowest 40%
Country

Top 20%

GNP/capita $US
(percentage of national income)

Brazil 1989

2940

67.5

Tanzania 1991

100

63

US 1985

22240

16

42

2. Low levels of labour productivity (due to law of

diminishing marginal productivity or work attitudes or poor health &
education)

3. High Rates of population growth and

dependency burdens (eg. Crude birthrate:

10 - Hong Kong, Austria

30 - Philippines, Venezuela
50 - Uganda, Afghanistan

4. High and rising levels of unemployment and

underemployment
5. Substantial dependence on agricultural
production and primary-product exports
6. Dominance, dependence and vulnerability in
international relations

Average Annual Population Growth Rates by Country

Income Group, 1980-2010

Composition of Population in Low- and High-income Economies, 1995

In many low-income countries, the large difference between the percentage of

people of childbearing age causes population momentum which keeps population
growth rates high even when fertility rates drop. In many high-income countries,
where fertility rates are below replacement level and the largest segments of the
population are older, populations will increase much less.