in between GDP and human development which is considered most appropriate measure for development and why
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We have started our discussion of development by addressing very broad issues relating to the concept of development. However, much of the literature and thinking about 'development' focuses on economics. Indeed 'development' and 'economic development' have often been treated as synonymous concepts. The economic development of a country or society is usually associated with (amongst other things) rising incomes and related increases in consumption, savings, and investment.
Of course, there is far more to economic development than income growth; for if income distribution is highly skewed, growth may not be accompanied by much progress towards the goals that are usually associated with economic development.
Clearly not all developed countries exhibit all these characteristics in equal measure. And, some of you might even question the presence of certain items in the above list, pointing perhaps to countries (or regions within them) in which, for example, crime and employment levels appear to be quite high, or highlighting the fact that not everyone has access to good public services, housing and so on. Some of these points are clearly open to debate. For instance crime levels in the rural areas of many developing countries where most people live are often much lower than in some of the urban population centres of developed countries. Nonetheless, the above list is probably fairly indicative of the characteristics that distinguish countries that are economically developed from those that are not.
Economic growth
From the answer to the previous question you will have noticed that the listed characteristics once again say more about goals than the processes or mechanisms for achieving them. So what drives a country towards achieving these goals? The orthodox view, espoused by most governments, most major international organisations, and the economists that advise them, is that a big part of the answer lies in economic growth.
However, economic growth can follow many different paths, and not all of them are sustainable. Indeed, there are many who argue that given the finite nature of the planet and its resources, any form of economic growth is ultimately unsustainable. We shall leave these debates for later. For now let us look at what exactly economic growth is and how it is measured.
Economists usually measure economic growth in terms of gross domestic product (GDP) or related indicators, such as gross national product (GNP) or gross national income (GNI) which are derived from the GDP calculation. GDP is calculated from a country's national accounts which report annual data on incomes, expenditure and investment for each sector of the economy. Using these data it is possible to estimate the total income earned in the country in any given year (GDP) or the total income earned by a country's citizens (GNP or GNI).
GNP is derived by adjusting GDP to include repatriated income that was earned abroad, and exclude expatriated income that was earned domestically by foreigners. In countries where inflows and outflows of this sort are significant, GNP may be a more appropriate indicator of a nation's income than GDP.
There are three different ways of measuring GDP
the income approach
the output approach
the expenditure approach
The income approach, as the name suggests measures people's incomes, the output approach measures the value of the goods and services used to generate these incomes, and the expenditure approach measures the expenditure on goods and services. In theory, each of these approaches should lead to the same result, so if the output of the economy increases, incomes and expenditures should increase by the same amount.
Figures for economic growth are usually presented as the annual percentage increase in real GDP. Real GDP is calculated by adjusting nominal GDP to take account of inflation which would otherwise make growth rates appear much higher than they really are, especially during periods of high inflation.
Short-term versus long-term growth
A distinction needs to be made between short-term growth rates and longer term ones. It is quite normal for short-term growth rates to fluctuate in line with the business cycle. This can be seen in the two figures in 1.2.1 representing GDP growth in the US between 1930 and 2003.
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