4.3.6 - Growth and development in developing, emerging and developed economies
- Syllabus
- 2018
- Topic
- 4.3.6
- Level
- A2
Learning objectives
4.3.61a - three components of the Human Development Index (HDI): economic education, health,The three components of the Human Development Index (HDI): economic education, health, income; how they are measured. development4.3.61b - Advantages and limitations of the HDI in comparing living standards between countriesAdvantages and limitations of the HDI in comparing living standards between countries and over time.4.3.61c - Other measures of development: • the percentage of adult male labour in agriculture •Other measures of development:; the percentage of adult male labour in agriculture; access to clean water; energy consumption per capita; access to internet per thousand of population; access to mobile phones per thousand of population; access to doctors per thousand of population.4.3.62a - impact of economic factors in different countries: growth and • volatility of commodityThe impact of economic factors in different countries: growth and; volatility of commodity prices development; primary product dependency (the Prebisch-Singer hypothesis); savings gap (the Harrod-Domar model); foreign currency gap; capital flight; demographic factors (size and age distribution of population; migration); debt (household and overseas); access to credit and banking; infrastructure; education and skills.4.3.62b - impact of non-economic factors in different countries: • corruption • poor governance •The impact of non-economic factors in different countries:; corruption; poor governance; civil wars; migration; terrorism.4.3.63a - impact of market-orientated strategies: promote growth • trade liberalisation andThe impact of market-orientated strategies: promote growth; trade liberalisation and development; promotion of FDI; removal of government subsidies; privatisation; floating exchange rate systems; microfinance schemes.4.3.63b - impact of interventionist strategies: • development of human capital • protectionism •The impact of interventionist strategies:; development of human capital; protectionism; managed exchange rates; infrastructure development; promoting joint ventures with TNCs; buffer stock schemes.4.3.63c - impact of other strategies: • industrialisation (the Lewis structural dual-sectorThe impact of other strategies:; industrialisation (the Lewis structural dual-sector model); development of tourism; development of primary industries; debt relief; aid.4.3.63d - role of international institutions: • the World Bank • the International Monetary FundThe role of international institutions:; the World Bank; the International Monetary Fund (IMF); non-government organisations (NGOs).
How the Human Development Index is built
The Human Development Index (HDI) combines health, education and income into a single value between 0 and 1. It measures capabilities and living standards more broadly than income per person alone.
| Dimension | Indicator used |
|---|---|
| health | life expectancy at birth |
| education | mean years of schooling for adults and expected years of schooling for children |
| income | gross national income per person, adjusted for purchasing power parity |
Each indicator is converted into an index using stated minimum and maximum values. The education indicators are combined, then the three dimension indices are combined using a geometric mean. A higher HDI requires progress across the dimensions because a very weak dimension holds down the composite.
Purchasing power parity makes income more comparable by reflecting what money can buy. GNI records income received by a country's residents, including net income from abroad, rather than domestic production alone.
HDI is an index, not a percentage, and it does not add raw years and currency values. Equal HDI scores can conceal different combinations of health, education and income.
Using HDI to compare living standards
HDI is useful because it compares three central dimensions of development in one standardised measure, allowing countries and changes over time to be ranked more broadly than by income alone.
| Advantage | Limitation |
|---|---|
| health, education and purchasing-power-adjusted income are combined | averages conceal inequality by income, gender, region or group |
| common construction supports cross-country and time comparison | data quality, estimation methods and revisions differ across countries and years |
| a weak dimension lowers the composite, discouraging reliance on income alone | weighting and chosen indicators involve value judgements and omit political freedom, security and environment |
| a time series can show whether broad capability is improving | slow-moving indicators can hide short-run hardship or service quality |
Compare the overall score and the separate dimensions. If two countries have similar HDI but different life expectancy or schooling, the component pattern gives a more useful policy diagnosis than the rank.
A higher HDI suggests stronger measured capabilities, not that every resident has a higher living standard. It is evidence to combine with distributional and other development indicators, not a complete welfare verdict.
Other indicators of economic development
Development indicators reveal access to productive opportunities and essential services that a single income or HDI value can miss. Each should be read as a signal with a stated direction and limitation.
| Indicator | What it can indicate |
|---|---|
| percentage of adult male labour in agriculture | a high share may signal low productivity and limited structural transformation |
| access to clean water | health, sanitation and basic infrastructure |
| energy consumption per person | access to power and productive activity |
| internet access per thousand | digital connectivity, information and market access |
| mobile-phone access per thousand | communication and access to services or finance |
| doctors per thousand | healthcare capacity and potential access |
Use several indicators together and compare definitions, dates and population coverage. Rising connectivity alongside clean water and medical access gives stronger evidence of broad development than any one series.
More is not always unambiguously better: energy use can be inefficient or polluting, a doctor may be inaccessible, and device ownership does not prove affordable internet service. The male agricultural share also excludes women and says nothing directly about farm productivity.
Economic constraints on growth and development
Economic constraints restrict investment, productivity, foreign exchange or the ability to turn growth into higher living standards. They often reinforce one another rather than operate separately.
| Factor | Main constraint |
|---|---|
| volatile commodity prices | unstable export, producer and tax income weakens planning and investment |
| primary-product dependency | Prebisch-Singer proposes a long-run tendency for primary-product terms of trade to worsen relative to manufactures |
| savings gap | in Harrod-Domar, low income limits saving, investment and capital accumulation, keeping growth low |
| foreign-currency gap | insufficient export/financial inflows restrict essential capital and intermediate imports |
| capital flight | domestic savings, tax base and foreign exchange leave the economy |
| demographics and migration | rapid population growth, ageing or skilled emigration can lower income per person or productive capacity |
| household and overseas debt | servicing displaces consumption, public services or productive investment and may add currency risk |
| weak credit and banking access | viable households and firms cannot finance saving, investment or risk management |
| poor infrastructure | unreliable transport, energy, water or communications raises cost and deters investment |
| weak education and skills | low human capital limits productivity, innovation, employability and technology adoption |
The same factor can support development under different conditions: debt that finances productive assets, population growth matched by jobs, or commodity revenue invested well may raise future capacity. Diagnose magnitude, institutions and time horizon.
Non-economic constraints on development
Non-economic factors constrain development by weakening institutions, security, trust and the continuity needed for people and firms to invest. Their effects still travel through economic channels.
| Factor | Growth and development channel |
|---|---|
| corruption | diverts public funds, raises unofficial costs, weakens tax collection and rewards connections over productive projects |
| poor governance | insecure property rights, weak law and unpredictable policy deter saving, enterprise and FDI and reduce service quality |
| civil war | destroys people and capital, displaces workers, interrupts schooling, trade and tax revenue, and redirects spending to conflict |
| migration | skilled emigration can reduce human capital, while immigration or return migration can add labour, skills, enterprise and remittances |
| terrorism | loss of life, insecurity and higher protection costs deter tourism, trade and investment and disrupt infrastructure |
These factors can create a vicious circle: conflict weakens governance and revenue, poor services reduce opportunity, and capital or skilled labour leaves. Stable institutions can reverse the feedback by making productive investment more credible.
Migration is not inherently a constraint, and country-level correlation does not establish one causal direction. Assess who moves, skills, remittances, duration and institutional response.
Market-oriented development strategies
Market-oriented strategies aim to strengthen price signals, competition, private ownership and access to finance or global markets so resources move towards more productive uses.
| Strategy | Intended impact | Main risk or condition |
|---|---|---|
| trade liberalisation | larger markets, competition and imported inputs raise specialisation and productivity | infant firms, jobs and tariff revenue may be lost; gains depend on mobility and market access |
| promotion of FDI | adds capital, employment, technology, skills and export links | profit outflows, weak linkages, tax concessions or environmental/labour costs reduce gains |
| removal of subsidies | improves fiscal balance and exposes firms to competition | essential prices, poverty and firm closures may rise during adjustment |
| privatisation | profit incentives and capital access may raise efficiency and investment | private monopoly can raise prices, cut access or employment |
| floating exchange rate | market adjustment can restore external balance and monetary autonomy | volatility and depreciation can raise imported inflation and debt burden |
| microfinance | small-scale credit supports enterprise and financial inclusion | high costs, debt stress and small loan size can limit productive impact |
A market label does not guarantee competition or development. Regulation, institutions, infrastructure, sequencing and distribution determine whether efficiency gains become durable improvements in living standards.
Interventionist development strategies
Interventionist strategies use public investment, protection, price or exchange-rate management and coordinated ownership to address missing markets, instability and capability gaps.
| Strategy | Intended impact | Main risk or condition |
|---|---|---|
| human-capital development | health and education raise productivity, adaptability, income and HDI | quality, relevance, access and long time lags matter |
| protectionism | gives infant industries time to learn, invest and create jobs | weak competition can preserve high cost, retaliation and misallocation |
| managed exchange rate | limits volatility or supports export/import objectives | reserves are finite and the target may conflict with inflation or competitiveness |
| infrastructure development | lowers transport, power and communication cost and crowds in investment | fiscal cost, poor selection, corruption and construction lags |
| joint ventures with TNCs | share finance, risk, technology, skills and market access with local firms | objectives may conflict and spillovers or tax revenue are not guaranteed |
| buffer stocks | official buying and selling stabilise commodity prices and producer income | storage, finance, spoilage and choosing a sustainable price are difficult |
Government action does not remove scarcity or information problems. Compare the failure being corrected with fiscal opportunity cost, administrative capacity and the risk of government failure.
Other routes to growth and development
Industrialisation, tourism, primary industries, debt relief and aid use different assets and financing routes. Their development value depends on linkages, distribution and whether short-run receipts build lasting capacity.
| Strategy | Development route | Main limitation |
|---|---|---|
| industrialisation / Lewis model | workers move from low-productivity subsistence agriculture to a higher-productivity modern sector; profits finance further capital accumulation | urban unemployment, inequality or low wages persist if jobs and reinvestment are insufficient |
| tourism | earns foreign currency and creates jobs and demand for local suppliers | seasonal demand, profit leakage, external shocks and environmental pressure |
| primary industries | exploit comparative advantage and generate exports, tax and infrastructure | volatility, depletion, weak linkages and primary-product dependency |
| debt relief | releases fiscal and foreign exchange for health, education, infrastructure or investment | moral hazard, conditions, poor governance and limited coverage can reduce impact |
| aid | finances emergencies, services, human capital and infrastructure or fills saving/foreign-currency gaps | tied aid, dependency, volatility, donor priorities or diversion weaken effectiveness |
Growth in one sector is not automatically development. Track local value added, jobs, skills, public revenue, distribution, environment and whether the strategy diversifies or deepens dependence.
World Bank, IMF and NGOs
International institutions support development through different mandates: long-term development finance, short-term macroeconomic and balance-of-payments support, or locally delivered programmes and advocacy.
| Institution | Main role | Strength and limitation |
|---|---|---|
| World Bank | lends, grants and provides expertise for poverty reduction, institutions, human capital and long-term development projects | can finance large programmes, but debt, conditions, project choice and implementation affect outcomes |
| International Monetary Fund | lends temporary financial assistance for balance-of-payments problems and supports monetary cooperation, surveillance and technical capacity | can restore reserves and confidence, but adjustment conditions may reduce demand or services in the short run |
| non-government organisations | deliver or support community-based health, education, relief, rights and livelihood projects independently of government | local knowledge and targeting can be strong, but scale, funding continuity, accountability and coordination vary |
The institutions can complement one another: IMF stabilisation may address an external financing crisis, World Bank finance may build longer-run capacity, and NGOs may reach specific communities or monitor delivery.
The IMF is not the World Trade Organization and the World Bank is not a central bank. Judge each intervention by mandate, conditions, country ownership, opportunity cost and verified development outcomes.