Economic Growth and Development

Learning Outcomes:

1. Differentiate between economic growth and economic development.
2. Understand various indices like HDI, GII, IHDI, and their significance in measuring development.
3. Grasp the principles of sustainable development and its role in modern economies.
4. Learn the importance of green accounting and environmental taxes in economic policies.

Economic Growth

Economic growth refers to the increased economic capacity of a country to produce goods and services over time. It is usually measured by the growth in GDP (Gross Domestic Product), GNP (Gross National Product), or per capita NDP (Net Domestic Product). The most effective measurement of economic growth is per capita NDP.

Forms of Economic Growth

1. Extensive Growth: Utilizes more resources, including physical, human, or natural capital.
2. Intensive Growth: Achieves higher productivity using the same amount of resources.

Economic Development

Michael Todaro describes economic development as an enhancement in living standards, self-esteem, and freedom from oppression, including an increase in choices. It covers both quantitative and qualitative changes, such as human capital development, infrastructure, environmental sustainability, social inclusion, health, and literacy. The Human Development Index (HDI) is widely recognized as the best measure of economic development.

Objectives of Economic Development

1. Increase Availability: Broadening the distribution of basic life-sustaining goods.
2. Raise Living Standards: Ensuring higher incomes, more jobs, and enhanced cultural attention.
3. Expand Economic Choices: Increasing the economic and social options for individuals and nations.

Difference Between Economic Growth and Economic Development

Economic Growth	Economic Development
Increase in output of goods and services (GNP).	Upward movement of the entire social system in income, savings, and socio-economic structure.
Gradual rise in components of GDP (e.g., consumption, investment).	Growth of the human capital index, reduced inequality, and structural changes for quality of life.
Measured by increase in real GDP (quantitative).	Measured through HDI, GDI, HPI (qualitative).
Focuses on economic output.	Focuses on structural changes in the economy.

Measurement of Economic Development

Measuring economic development is complex and employs various indices.

1. National Income and Per Capita Income

• Traditional measures used by the World Bank include per capita Gross National Income (GNI).
• World Development Report (WDR), 2015 classifies countries based on per capita GNI.

Important Note: The use of official exchange rates in international comparisons often leads to inaccuracies because they ignore purchasing power differences and the value of non-traded goods.

2. Purchasing Power Parity (PPP)

• Introduced by Gustav Cassel in 1918; compares the cost of a basket of goods in different countries.
• Used by organizations like the IMF to measure living standards globally.
• Indian Economy ranks third-largest in terms of PPP.

3. Physical Quality of Life Index (PQLI)

• Developed by Morris David Morris in the 1970s.
• Averages three indicators: life expectancy, literacy rate, and infant mortality rate.

4. Human Development Index (HDI)

• Introduced by the UNDP in 1990.
• Comprised of three indices: Life Expectancy Index (LEI), Educational Attainment Index (EAI), and Standard of Living Index (SLI) (based on PPP).

Concept: HDI measures potential development. When adjusted for inequality, it becomes the IHDI, indicating the actual level of development.

Human Development Report (HDR) 2018 Highlights

1. HDI Ranking: India ranks 130 out of 189 countries with a score of 0.640.
2. Inequality-Adjusted Human Development Index (IHDI): Measures inequality’s impact on development.
3. Gender Inequality Index (GII): Reflects women’s disadvantages in health, empowerment, and the labor market.
4. Gender Development Index (GDI): Evaluates gender gaps in health, education, and economic command.

Additional Measures of Economic Development

1. Gross National Happiness (GNH)

• Coined by Bhutan’s King Jigme Singye Wangchuck in 1972.
• Considers holistic factors like mental wellness, social welfare, and environmental health.

2. Genuine Progress Indicator (GPI)

• Focuses on the welfare improvements resulting from increased goods and services production.

3. Multidimensional Poverty Index (MPI)

• Developed by the Oxford Poverty and Human Development Initiative.
• Uses health, education, and standard of living indicators.

Country	MPI Value
Bangladesh	0.194
China	0.023
India	0.121
Pakistan	0.228

Sustainable Development and Environment

Importance of Sustainable Development

Sustainable development balances economic growth and environmental protection, considering intergenerational equity. Defined by the Brundtland Commission in 1987, it promotes maximizing economic benefits while maintaining the stock of physical, human, and environmental assets.

Important Note: The Strong Sustainability Rule requires preserving each asset category separately, whereas the Weak Sustainability Rule focuses on maintaining the overall monetary value of assets.

India’s Environmental Performance

• Environmental Performance Index (EPI) 2018: India ranks 177 out of 180 countries.
• Challenges: Poor air quality, preventable child mortality, and forest cover concerns.

Environmental Taxes

Market-Based Instruments (MBIs) encourage polluters to alter behavior through financial mechanisms. Carbon Tax is an example where India increased taxes on fossil fuels, reducing CO2 emissions.

Green Accounting

Green accounting integrates environmental impacts into mainstream economic planning. It aids in assessing economic growth’s sustainability and environmental distortions.

Different Levels of Economic Development

1. Developing Country

• Lacks Western-style democracy, free markets, industrialization, and comprehensive human rights.

2. Newly Industrialized Countries (NIC)

• Exhibit advanced economic activities but haven’t reached the developed nation status.

3. Emerging Markets

• Experience rapid growth and industrialization (e.g., India, China).

Concept: Sustainable development is central to understanding how natural resources serve economic roles: waste disposal, production inputs, and life-support services.

Measurement Index Overview

Index	Key Features
HDI	Measures life expectancy, education, PPP-based income.
IHDI	Adjusts HDI for inequality, offering actual development.
GII	Reflects gender inequality in health, empowerment, and labor.
GPI	Considers the welfare impact of increased production.
GNH	Holistic measure, encompassing mental and social well-being.
MPI	Multidimensional approach covering health, education, and living standards.

Important Note: India’s forest cover registered a 0.2% increase between 2015 and 2017, showcasing a move toward sustainable growth.

Key Initiatives and Global Goals

Millennium Development Goals (MDGs)

• Set by UN in 2000; aimed at eradicating poverty and promoting development by 2015.

Sustainable Development Goals (SDGs)

• Adopted by UNGA in 2015 with 17 goals targeting issues like poverty, inequality, and climate change.

12th Five-Year Plan and Sustainability

• India’s plan includes low-carbon growth, energy use reduction, and increased forest cover.

Concept: The National Prosperity Index (NPI), proposed by APJ Abdul Kalam, incorporates GDP growth, quality of life improvements, and cultural heritage values.

MCQ: What does the Gender Inequality Index (GII) measure?
a) Environmental sustainability
b) Economic growth
c) Gender gap in health, empowerment, and labor market
d) Quality of infrastructure
Correct Answer: c) Gender gap in health, empowerment, and labor market