Economics for the People: When Growth Doesn't Help Ordinary Citizens - NYTimes.com

Economics for the People: When Growth Doesn't Help Ordinary Citizens - NYTimes.com

Economics for the People

By CATHERINE RAMPELL

Is economic growth a means, or an end?

That is one important question that surfaces again and again in the United Nations Development Project’s latest Human Development Report. The report attempts to measure the development of countries, not only by wealth but also by investments in their greatest resource: their populations.

As we’ve discussed before, three variables go into compiling this “human development index” — per-capita income, life expectancy and literacy rates. This index is then used to rank countries by how “developed” they are. Among the 169 countries ranked in 2010, Norway was rated the most highly developed country, and Zimbabwe the lowest.

This year’s report also looked at which countries have shown the greatestgrowth in the human development index. And perhaps counterintuitively, the report found a very weak relationship between economic growth and improvements in health and education over the years, especially in less developed countries.

In other words, in many places fast economic growth is not being realized by the citizens of that country.

Here is a chart, taken from the report, in which each dot represents a country. Per-capita income growth is plotted along the horizontal axis, and the components of human development not related to income (that is, literacy and life expectancy).

Source: HDRO calculations using data from the HDRO database.Relationship between economic growth and the nonincome components of the Human Development Index, 1970–2010.

As you can see, the correlation between per-capita income and other measures of human development is, in the works of the report, “remarkably weak and statistically insignificant.”

Here’s one example of economic growth not translating to development as expected, from the report:

Take a revealing comparison between China — the world’s fastest growing economy in the past 30 years — and Tunisia. In 1970 a baby girl born in Tunisia could expect to live 55 years; one born in China, 63 years. Since then, China’s per capita GDP has grown at a breakneck pace of 8 percent annually, while Tunisia’s has grown at 3 percent. But a girl born today in Tunisia can expect to live 76 years, a year longer than a girl born in China. And while only 52 percent of Tunisian children were enrolled in school in 1970, today’s gross enrollment ratio is 78 percent, considerably higher than China’s 68 percent.

That is not to say that richer countries don’t generally have more developed human capital; absolute levels of income do indeed correlate with levels of human development. It’s just that, for whatever reason, there is very little relationship between improvements in national wealth and improvements in education and health.

The report offers a few possible explanations for this puzzle, including that there might be a long lag between economic growth and the types of social services and infrastructure that could lead to better national health and education systems. There also may be many other country-specific variables — like cultural differences — that mask a possible relationship between wealth and human development.

For more on the fastest-developing countries, and in particular the astonishing growth in human development experienced by North African Muslim countries, see this post by Francisco R. Rodríguez and Emma Samman, two of the authors of the report; and this related item by Dani Rodrik, an economist at Harvard.