Measuring economic growth and developmentAfter studying this chapter, you should understand:
|• the difference between economic growth and development;|
|• the difference between gross national product (GNP) and gross domestic product (GDP), how to calculate each and the adjustments that can be made so that these measures are more useful for judging the level of development of economies;|
|• the implications of using either GNP or GDP per person as a measure of the well-being of a nation;|
|• how the purchasing power parity (PPP) definition of income differs from the usual GNP or GDP measure and why it may be a better measure for comparison;|
|• the importance of understanding income distribution, a Lorenz curve and the Gini coefficient when evaluating the level of development of a country;|
|• what the Human Development Index (HDI) is and how it can be used as a measure of development;|
|• the importance of sustainable development as a goal;|
|• the significance of the Kuznets' inverted-U hypothesis for the equity versus growth controversy and for understanding the process of development.|
What is meant by development? Though this may seem to be a deceptively simple question, the answer shapes how one judges different countries as to their respective levels of development. It affects what factors we consider as contributing to progress, and our answer to what development is will influence the public policies aimed at achieving a society's development goals. Knowing what is meant and what is not meant by development is thus a necessary first step if, as the British economist Joan Robinson once insisted, we are to ask the right questions.
We begin by considering how economists typically measure the level of development of a nation. There are two broad methodologies. One, the income per person or economic growth, criterion suggests that income levels are reasonably good approximate measures for comparing the level of development of nations and that income per person can serve as a logical surrogate for gauging overall social progress.