Economic development is the improvement in people's standard of living and wellbeing in a country, not just a rise in output. This chapter looks at how it is measured, poverty, population and why countries are at different stages.
5.1 Living standards
Indicators
| Indicator | What it is |
|---|---|
| Real GDP per head | real GDP ÷ population: the average output (and so average income) per person, adjusted for inflation |
| Human Development Index (HDI) | a combined measure of three components: income (GNI per head), education (mean and expected years of schooling), and health (life expectancy at birth); scored from 0 to 1 |
| Advantages | Disadvantages | |
|---|---|---|
| Real GDP per head | simple, available for most countries, easy to compare over time and between countries | an average: hides inequality; ignores non-market output (unpaid work, the informal economy), leisure, pollution, health and education, and what is produced (weapons versus food) |
| HDI | includes health and education, not just income; easy to compare | still an average; ignores inequality, environment, freedom and safety; weights the three parts equally |
Comparing living standards and income distribution
Reasons for differences between countries: income levels, natural resources, education and health systems, productivity, technology, investment, political stability and corruption, trade, history (colonialism), climate, population growth.
Within countries: differences in income (between regions, urban and rural, men and women, rich and poor), unequal access to education, healthcare and jobs, tax and benefit policy, ownership of land and capital.
5.2 Poverty
| Meaning | |
|---|---|
| Absolute poverty | being unable to afford basic necessities (food, clean water, shelter, clothing); the World Bank sets an international poverty line of a few dollars a day, and countries set their own |
| Relative poverty | having much less than the average in the same country (for example below 60% of median income), so people cannot take part in normal activities |
Causes
- Unemployment: no earned income.
- Low wages: a job but not enough to live on.
- Illness: cannot work and medical costs.
- Age: the elderly (no pension) and children in poor families.
- Environmental factors: droughts, floods, poor soil and natural disasters destroy livelihoods.
- Also: lack of education and skills, large families, discrimination, conflict, debt.
Policies to alleviate poverty and redistribute income
| Policy | How it helps |
|---|---|
| Promoting economic growth | more jobs and incomes ("trickle down") |
| Improved education | raises skills and so wages and employment |
| Improved healthcare | healthier people can work; reduces medical costs |
| More generous state benefits | gives direct income support to the unemployed, sick and old |
| Progressive taxation | takes more from the rich to fund spending for the poor |
| National minimum wage | raises the pay of the lowest paid |
Evaluation: growth may not reach the poor; benefits cost the government and may reduce incentives; a minimum wage may cause unemployment; progressive taxes may reduce incentives to work and invest. Often a mix of policies is needed.
5.3 Population
Factors that affect population growth
| Term | Meaning |
|---|---|
| Birth rate | number of births per 1,000 people per year |
| Death rate | number of deaths per 1,000 people per year |
| Net migration | immigration (people coming into a country) minus emigration (people leaving) |
Variations between countries:
| Why | |
|---|---|
| Birth rates | higher in poorer countries: many children needed to work or to look after parents, high infant mortality (families have more to be safe), less access to contraception and education for women, cultural and religious attitudes. Lower in richer countries: women are educated and work, the cost of children is high, contraception, state pensions, later marriage |
| Death rates | higher in poor countries because of poor healthcare, sanitation and nutrition, disease and conflict; lower in richer countries, but may rise with an ageing population |
| Net migration | people move because of push factors (poverty, unemployment, war) and pull factors (jobs, higher wages, safety, family) |
Size and structure of population
- Optimum population: the population size at which output per head is highest (resources are used best). Overpopulation: too many people for the resources (lower living standards). Underpopulation: too few people to use resources fully.
- Effects of population growth: a bigger labour force and market, but more pressure on resources, housing, schools and healthcare, and may lower GDP per head if growth is faster than output.
- Effects of population decline: labour shortages, a smaller market, but less pressure on resources.
- Age and gender distribution: a young population has many dependants (children), costs for schools, but a growing future workforce; an ageing population has more retired people to support (pensions and healthcare), fewer workers and higher taxes. An imbalance between men and women (for example because of migration or discrimination) affects the labour force and families.
5.4 Differences in economic development between countries
Reasons countries differ, with causes and consequences:
| Difference | Cause and consequence |
|---|---|
| Income | richer countries have higher output per head, so more resources for education, health and investment, a "virtuous circle"; low-income countries find it harder to escape poverty (a "vicious circle") |
| Productivity | low productivity means low output and wages (poor skills, little capital) |
| Population growth | very fast growth can mean more mouths to feed and fewer resources per head |
| Size of primary, secondary and tertiary sectors | developing countries are usually dependent on the primary sector (low value, price swings); developed countries have a large tertiary sector (higher value-added) |
| Saving and investment | low incomes mean little saving, so little investment, so little growth |
| Education | a more educated labour force is more productive and attracts investment |
| Healthcare | healthier workers are more productive; poor health lowers life expectancy and output |
| Natural resources | can help development (oil, minerals) but may be mismanaged, or lead to dependence on one export |
Practise this chapter
Every past-paper question on these topics, with the mark scheme.