Economic Development – Meaning and Measurement - 2021 Revision Update

This study resource looks at the meaning of economic development and the range of measures that might be used to measure development progress.

What is meant by economic development?

Economic development is a broad rather than a narrow concept and means a (hopefully sustained) improvement in the quality of life and living standards show through measures of literacy, life-expectancy and health care outcomes.

Economic development is fundamentally about people development over time. As of 2020, nearly 9 per cent of the world’s population still live on an income below $1.90 per day (PPP).

Amartya Sen’s Capabilities Approach recognises development as a process of expanding an individual’s freedom

The Human Development Index (HDI)

What is the Human Development Index ?

HDI is a broad composite measure of improvements in people’s lives

HDI is calculated through a geometric mean of GDP per capita, life expectancy at birth, and the average between mean years of schooling and expected years of schooling. Each component of the HDI has an equal 33% weighting

What are the components of the Human Development Index?

1. Knowledge: An educational component made up of two statistics – (i) mean years of schooling and (ii) expected years of schooling
2. Long and healthy life: A life expectancy component is calculated using a minimum value for life expectancy of 25 years and maximum value of 85 years
3. A decent standard of living: Using GNI per capita adjusted to purchasing power parity standard (PPP)

Economic Growth:

• A sustained rise in a country’s productive capacity.
• An increase in real value of GDP / GNI per capita.
• Increases in the productivity of factors of production.

Economic Development:

• Progress in expanding economic freedoms.
• Sustained improvement in economic and social opportunities.
• Growth in personal and national capabilities.

How else can we measure development progress?

• Levels of household savings and access to basic financial services
• Scale of dependency on export incomes from primary commodities
• Share of the population living in rural areas and employed in farming
• Scale of the informal economy, people dependent on subsistence farming
• Demographic data: natural population growth rate, a country’s median age
• Extent of urbanization and scale of rural-urban migration
• Access to & reliability and cost of basic critical infrastructure such as telecoms, transport, ports, clean water and household sanitation
• Strength of institutions (government, civil service, financial markets)
• Levels of corruption within a country, transparency of institutions
• Resilience of economy and communities to external shocks