DYNAMIC LINKS BETWEEN ECONOMY AND HUMAN DEVELOPMENT

Submitted to:

Ms. Kiran Bala Das

(Faculty- Economics)

Submitted by:

Trishna Das

Roll No. – 167

Semester: I Section-B

B.A.-LL.B. (Hons.)

Programme: Principles of Economics

Date of Submission: 26th August 2013

HIDAYATULLAH NATIONAL LAW UNIVERSITY, RAIPUR (C.G.)

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ACKNOWLEDGEMENTS

I feel highly elated to work on the topic Dynamic Links between Economy and Human

Development because it has significant importance in the current scenario.

I express my deepest regard and gratitude for our Faculty of Economics. Their consistent

supervision, constant inspiration and invaluable guidance have been of immense help in

understanding and carrying out the importance of the project report.

I would like to thank my family and friends without whose support and encouragement, this

project would not have been a reality.

I take this opportunity to also thank the University and the Vice Chancellor for providing

extensive database resources in the Library and through Internet.

Trishna Das

Semester – I

Roll No. - 167

Section – B

B.A.-L.L.B (Hons.)

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RESEARCH METHODOLOGY

This project report is based on Descriptive Research Methodology. Secondary and Electronic

resources have been largely used to gather information and data about the topic. Books and other

reference as guided by Faculty have been primarily helpful in giving this project a firm structure.

Websites, dictionaries and articles have also been referred.

OBJECTIVES

To study the importance of economic growth

To study the factors affecting economic growth

To study human development

To study the Human Development Index

To study the links between economic growth and human development

STATISTICAL TOOLS.

Diagrams have been used to make this project on Dynamic Links between Human Development

and Economic Growth attractive and easy to understand. It was a highly informative experience.

Data Type: Secondary data

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TABLE OF CONTENTS

Acknowledgement.......................................................................................................2

Research methodology…………………………………………………………….....3

Objectives of study…………………………………………………………………...3

Statistical tool………………………………………………………………………...3

Introduction.................................................................................................................4

Economic Growth........................................................................................................5

Factors in economic growth......................................................................................7-11

Human development....................................................................................................12

Human Development Index......................................................................................13-16

Links between economic growth..............................................................................17-23

Conclusion...................................................................................................................24

Bibliography................................................................................................................25

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INTRODUCTION

Human development (HD) is increasingly viewed as the ultimate objective of development in

place of economic growth (EG). Yet, the links between HD and EG remain of critical importance

since EG would appear to be a foremost contributor to sustained progress in HD. Moreover, not

only are improvements in HD the fundamental development goal, but HD is itself an important

contributor to EG over time. HD has been defined as ‘a process of enlarging people’s choices’

(UNDP, 1990: 10). This definition is, of course, very broad, and includes non-material aspects

such as the many dimensions of political, cultural and social freedoms. Clearly, there exist strong

connections between EG and HD. On the one hand, EG provides the resources to permit

sustained improvements in HD. On the other, HD improvements raise the capacities of economic

agents who make the critical contributions to EG. Each of these relationships has often been

acknowledged separately—for example, the way in which EG affects HD forms part of the basic

needs literature, while the impact of improved labour quality on economic growth has been

widely explored in the human capital literature. EG is influenced by natural resources and both

economic and non economic factors. Natural resources often decide the limitations of

development. Economic factors include available capital stock and the rate of its accumulation,

capital-output ratio in various sectors, agricultural surplus, conditions in foreign trade and

economic system. Some non economic factors include size and quality of human resources,

political freedom, social organization, technical know-how, absence of corruption, but above all,

will to develop on the part of the people plays an important role in determining the pace and

direction of development.

The ultimate objective of all efforts is human development.

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ECONOMIC GROWTH

Economic growth is an important factor in reducing poverty and generating the resources

necessary for human development and environmental protection. There is a strong correlation

between gross domestic product (GDP) per capita and indicators of development such as life

expectancy, infant mortality, adult literacy, political and civil rights, and some indicators of

environmental quality. However, economic growth alone does not guarantee human

development. Well-functioning civil institutions, secure individual and property rights, and

broad-based health and educational services are also vital to raising overall living standards.

Despite its shortcomings, though, GDP remains a useful proxy measure of human well-being.

The world economy has grown approximately fivefold since 1950, an unprecedented rate of

increase. The industrialized economies still dominate economic activity, accounting for US$22.5

trillion of the US$27.7 trillion global GDP in 1993 [1]. Yet a remarkable trend over the past 25

years has been the burgeoning role played by developing countries, in particular the populous

economies of east and south Asia.

A major factor in this development has been the steady integration of the global economy. Since

the Second World War, international trade has grown consistently faster than output and now

accounts for approximately 25 percent of world GDP. Other measures of globalization include

the enormous expansion of international financial markets, the spread of new technologies that

have revolutionized international communications and encouraged the development of

transnational patterns of production and consumption, and the fourfold increase in foreign direct

investment flowing to developing and transition economies over the past decade.

However, this overall picture masks large, growing disparities among the developing countries;

not all countries have been able to take advantage of the benefits of globalization. Since about

1980, the fastest-growing economies of Asia and Latin America have been characterized by high

rates of domestic savings, declining dependence on agriculture, and a rapid growth in trade,

especially of manufactured exports. The emerging economies of the developing world – such as

Brazil, China, Indonesia, and Mexico – have been increasingly attractive to private finance; two

thirds of the US$95.5 billion foreign direct investment flows in 1995 went to just six developing

countries. In addition, of the estimated 12 million jobs created by transnational corporations’

investment in developing countries, about half are in China.

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FACTORS IN ECONOMIC GROWTH

Natural Resource

Until the 1930s, development or under development of an economy was often explained in

terms of natural resources available. Jacob Viner, William J. Baumol and W.A. Lewis are some

of the leading economists who attach great importance to natural endowments of a country for its

development. Jacob Viner has stated, “Much obviously depends on the character of the physical

environment, or the ‘quality’ in my terminology, of the natural resources considered as factors of

production...An unfavourable physical environment can be a major obstacle to development.”1

Indeed, development and prosperity of a number of countries may be associated, among other

things, with the kind and size of the resources base they have. Availability of fertile soil with

abundant supply of water for irrigation purposes provides favourable conditions for agricultural

development. Similarly, adequate reserves of coal and petroleum and water resources for

electricity generation can be profitably utilised by an underdeveloped country for its

transformation into a developed economy. Minerals like iron ore, copper, tin, bauxite and

uranium, if available in plenty, can induce the process of industrialisation. Sea coast provides

navigation facilities necessary for overseas trade. As it has happened in Japan and Scandinavian

countries, coast can prove to be a source of abundant supply of fish. Without these resources

there is not much hope for economic development. The natural endowments of a country

place general limits on the possibilities of economic development. However, resources

availability is not a sufficient condition for human progress. A number of countries in Latin

America, Africa and Asia are favourably endowed with natural resources, yet their achievements

in terms of economic progress are rather disappointing. Many parts of the world which are

presently underdeveloped are poor in terms of natural resources. Cases of Afghanistan and Tibet

are often cited to prove that lack of natural resources can turn out to be a major obstacle to

development. But this point is not to be stretched too far, as man often succeeds in overcoming

the problems arising from the scarcity of natural resources. Switzerland, for example, has

scarcely a single physical advantage for development, yet in wealth per capita it ranks as high as

Germany, Britain and the U.S.A. which are rich in the physical endowments.

1 Jacob Viner, “Economics of Development”, in A.N. Agarwal and S.P. Singh (eds.) Economics of Underdevelopment (New York, 1963) pp. 16-17

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Furthermore, the relative role of natural resources in economic development of a country tends to

decline as an economy grows. Theodore Schultz has pointed out that the ratio of the natural

resources to the complex of all resources used in poor countries is about 20-25 percent as against

5 percent or even less in developed industrial countries.2

ECONOMIC FACTORS

In a country’s economic development role of economic factors is decisive. The stock of capital

and the rate of capital accumulation in most cases settle the question whether at a given point of

time a country will grow or not.

Capital formation: The strategic role of capital in raising the level of production has traditionally

been acknowledged in economics. With the development of growth economics in post World

War-2period its role in economic progress has been increasingly emphasised. The Harod-Domar

model of growth has treated capital as the crucial factor in economic growth. It is now

universally admitted that a country which wants to accelerate the pace of growth has no choice

but to save a high ratio of its income, with the objective of raising the level of investment. Great

reliance on foreign aid is highly risky and thus has to be avoided. Economists highly assert that

lack of capital is the principle obstacle to growth and no developmental plan will succeed unless

adequate supply of capital is forthcoming.

Marketable surplus of agriculture: Increase in agricultural production accompanied by a rise in

productivity is important from the point of view development of a country. But what is more

important is that the marketable surplus of agriculture increases. The term ‘marketable surplus’

refers to excess of output in the agricultural sector over and above what is required to allow the

rural population to subsist. The importance of marketable surplus emanates from the fact that the

urban industrial population subsists on it. With the development of an economy, the ratio of the

urban population increases and increasing demands are made on agriculture for food grains.

These demands must be met adequately; otherwise the consequent scarcity of food in urban areas

will arrest growth.

2 Theodore W. Schultz, “Connections Between Natural Resources and Economic Growth” in Carl Eicher and Lawrence Witt (eds.), Agriculture in Economic Development (Bombay 1970), p 227

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Conditions in foreign trade: The classical theory of trade has been used by economists for a long

time to argue that trade between nations is always beneficial to them. In the existing context the

theory suggests that the presently less developed countries should specialise in production of

primary products as they have comparative cost advantage in their production. The developed

countries on the contrary have a comparative cost advantage in manufacturers including

machines and equipments and should accordingly specialise in them. In the past it was argued

that free trade based on this kind of specialisation was not beneficial to a developing economy.

Economic system: The economic system and the historical setting of a country also decide the

development prospects to a great extent. There was a time when a country could have a laissez

faire economy and yet face no difficulty in making economic progress. England’s economy was

precisely the one in which there was minimal government intervention, and yet it steadily

developed over a long period. In today’s entirely different world situation, a country would find

it difficult to grow along the England’s path of development. The Third World Countries of the

present times will have to make their own path of development. They cannot hope to make much

progress by adopting a laissez faire economy.

NON ECONOMIC FACTORS

Human resources: Human resources are an important factor in economic development.

Economists often see population as an obstacle to growth rather than a factor which will assist

the developmental activity. Nevertheless, man makes positive contribution to growth. Man

provides labour power for production and if in a country labour is efficient and skilled, its

capacity to contribute to growth will decidedly be high. The productivity of illiterate, unskilled,

disease ridden and superstitious people is generally low and they do not provide any hope to

developmental work in a country. If a country can manage to use its manpower properly, it will

prove to be an important factor in development. But in case human resources remain either

unutilised or the, manpower management remains defective, the same people who could have

made a positive contribution to growth activity prove to be a burden on the economy.

Technical knowhow and general education: It has never been doubted that the level of technical

knowhow has a direct bearing on the pace of development. As the scientific and technical

knowledge advances, man discovers more and more sophisticated techniques of production

which steadily raise the productivity levels. Under assumptions of a linear homogenous

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production function and a neutral technical change which does not affect the rate of substitution

between capital and labour, Robert M. Solow has observed that the contribution of education to

the increase in output per man hour in the United States between 1909 and 1949 was more than

that of any other factor3. T.W. Schultz, A.K. Sen, and some others in the recent years have

emphasised the contribution of investment in man for economic development.

Political freedom: Looking to the world history of modern times one learns that he processes of

development and underdevelopment are interlinked and it is wrong to view them in isolation. We

all know that the underdevelopment of India, Pakistan. Bangladesh, Sri Lanka, Malaysia, Kenya

and a few other countries, which were in the past British colonies, was linked with the

development of England. England recklessly exploited them and appropriated a large portion of

their economic surplus. This made a significant contribution to Britain’s economic development.

The colonies, however, were forced to remain backward in the process. Dadabhai Naoroji has

also candidly explained in his classic work ‘Poverty and Un-British Rule in India’ that the drain

of wealth from India under the British was the major cause of the increase in poverty in India

during that period, which in turn arrested the economic development of the country. Hence,

political freedom is an essential condition for the economic development of the country.

Social organization: Mass participation in development programmes is a pre-conditin for

accelerating the growth process. However, people show interest in the development activity only

when they feel that the fruits of growth will be fairly distributed. Experiences from a number of

countries suggest that whenever the defective social organisation allows some elite groups to

appropriate the benefits of growth, the general mass of people develop apathy towards state’s

development programmes. Under the circumstances, it is futile to hope that masses will

participate in the development projects undertaken by the state.

Corruption: corruption is rampant in developing countries at various levels and it operates as a

negative factor in their growth process. Until and unless these countries root out corruption in

their administrative system, it is most natural that the capitalists, traders and other powerful

economic classes will continue to exploit national resources for their personal interests.

Furthermore a substantial portion of the outlay on development projects is appropriated by the

government officials and other functionaries by employing corrupt means. The regulatory system

is also and licenses are not always granted on merit. The art of tax evasion has been perfected by

3 Robert M. Solow, “Technical Change and Aggregate Production Function” , Review of Economics and Statistics, Vol 34, no.3, pp312-320, August 1957

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certain sections of developing countries and quite often tax is evade by them with the connivance

of government officials. Under conditions of rampant corruption it is futile to think that the pace

of development will be fast. It is , however, surprising that one finds hardly any reference to

corruption as a growth arresting factor in the literature that has appeared on development and

underdevelopment in recent years.

Desire to develop: development activity is not a mechanical process. The pace of economic

growth in any country depends to a great extent on people’s desire to develop. If in some country

level of consciousness is low and the general mass of people has accepted poverty as its fate,

then there will be little hope for development. Richard T. Gill has candidly remarked, “the point

is that economic development is not a mechanical process; it is not a simple adding up of

assorted factors. Ultimately, it is a human enterprise. And like all human enterprises, its outcome

will depend finally on the skill, quality and attitudes of the men who undertake.4

HUMAN DEVELOPMENT

4 Richard T. Gill, Economic Development: Past and Present (New Delhi, 1965), p. 19

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In the recent year the search for an alternative to GNP as a measure of economic development

has led to the computation of Human Development Index. The United Nations development

programme introduced the HDI in the first Human Development Report prepared under the able

stewardship of Mahbub ul haq, and published in 1990. The measure has been enlarged & refined

over the years & many related indices of Human Development like- gender related development

index(GDI), gender empowerment measure(GEM), human poverty index(HPI)have been

developed in subsequent Human Development Reports published annually by UNDP.

The first Human Development Report in 1990 opened with the simply stated premise that has

guided all subsequent Reports: “People are the real wealth of a nation.” By backing up this

assertion with an abundance of empirical data and a new way of thinking about and measuring

development, the Human Development Report has had a profound impact on policies around the

world.

"The basic purpose of development is to enlarge people's choices. In principle, these choices can

be infinite and can change over time. People often value achievements that do not show up at all,

or not immediately, in income or growth figures: greater access to knowledge, better nutrition

and health services, more secure livelihoods, security against crime and physical violence,

satisfying leisure hours, political and cultural freedoms and sense of participation in community

activities. The objective of development is to create an enabling environment for people to enjoy

long, healthy and creative lives."

Mabub ul Haq

(1934-1998)

Founder of the Human Development Report

THE HUMAN DEVELOPMENT INDEX: WORKING

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The first Human Development Report introduced a new way of measuring development by

combining indicators of life expectancy, educational attainment and income into a composite

human development index, the HDI. The breakthrough for the HDI was the creation of a single

statistic which was to serve as a frame of reference for both social and economic development.

The HDI sets a minimum and a maximum for each dimension, called goalposts, and then shows

where each country stands in relation to these goalposts, expressed as a value between 0 and 1.

The education component of the HDI is now measured by mean of years of schooling for adults

aged 25 years and expected years of schooling for children of school entering age. Mean years of

schooling is estimated based on educational attainment data from censuses and surveys available

in the UNESCO Institute for Statistics database and Barro and Lee (2010) methodology).

Expected years of schooling estimates are based on enrolment by age at all levels of education

and population of official school age for each level of education. Expected years of schooling are

capped at 18 years. The indicators are normalized using a minimum value of zero and maximum

values are set to the actual observed maximum value of mean years of schooling from the

countries in the time series, 1980–2012, that is 13.3 years estimated for the United States in

2010. The education index is the geometric mean of two indices. The life expectancy at birth

component of the HDI is calculated using a minimum value of 20 years and maximum value of

83.57 years. This is the observed maximum value of the indicators from the countries in the time

series, 1980–2012. Thus, the longevity component for a country where life expectancy birth is 55

years would be 0.551.

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For the wealth component, the goalpost for minimum income is $100 (PPP) and the maximum is

$87,478 (PPP), estimated for Qatar in 2012.

The decent standard of living component is measured by GNI per capita (PPP$) instead of GDP

per capita (PPP$) The HDI uses the logarithm of income, to reflect the diminishing importance

of income with increasing GNI. The scores for the three HDI dimension indices are then

aggregated into a composite index using geometric mean. The HDI facilitates instructive

comparisons of the experiences within and between different countries.

Formula for calculating HDI

Old method (before 2010 Report)

The HDI combined three dimensions last used in its 2009 Report:

Life expectancy at birth, as an index of population health and longevity

Knowledge and education, as measured by the adult literacy rate (with two-thirds weighting)

and the combined primary, secondary, and tertiary gross enrollment ratio (with one-third

weighting).

Standard of living , as indicated by the natural logarithm of gross domestic product per capita at

purchasing power parity.

This is the methodology used by the UNDP up until its 2011 report.

The formula defining the HDI is promulgated by the United Nations Development Programme

(UNDP) In general, to transform a raw variable, say , into a unit-free index between 0 and 1

(which allows different indices to be added together), the following formula is used:

where and are the lowest and highest values the variable can attain,

respectively.

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The Human Development Index (HDI) then represents the uniformly weighted sum with ⅓

contributed by each of the following factor indices:

Life Expectancy Index =

Education Index =

o Adult Literacy Index (ALI) =

o Gross Enrollment Index (GEI) =

GDP =

New method (2010 Report onwards)[6]

Published on 4 November 2010 (and updated on 10 June 2011), starting with the 2010 Human

Development Report the HDI combines three dimensions:

A long and healthy life: Life expectancy at birth

Education index : Mean years of schooling and Expected years of schooling

A decent standard of living: GNI per capita (PPP US$)

In its 2010 Human Development Report, the UNDP began using a new method of calculating the

HDI. The following three indices are used:

1. Life Expectancy Index (LEI)

2. Education Index (EI)

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2.1 Mean Years of Schooling Index (MYSI) [7]

2.2 Expected Years of Schooling Index (EYSI) [8]

3. Income Index (II)

Finally, the HDI is the geometric mean of the previous three normalized indices:

LE: Life expectancy at birth

MYS: Mean years of schooling (Years that a 25-year-old person or older has spent in schools)

EYS: Expected years of schooling (Years that a 5-year-old child will spend with his education in his whole life)

GNIpc: Gross national income at purchasing power parity per capita

LINKS BETWEEN ECONOMIC GROWTH AND HUMAN DEVELOPMENT

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Generally, economic growth and human development move together and are mutually

reinforcing in the long-run. However, economic growth does not invariably and automatically

translate into human development. Countries differ in their human development efficiency, or in

how well they translate income into human development. Links between human development

and economic growth can be mutually reinforcing. When links are strong, they contribute to

each other. When weak, one can undermine the other. Unbalanced links are the result of rapid

human development with little growth or of fast growth with slow human development. While

economic growth is generally found to positively impact several human development indicators,

we cannot say that economic growth will invariably and automatically translate to human

development if other important factors are not in place. The report makes several suggestions for

strengthening links between growth and human development.

Link between economic growth and human development not automatic, but can be strengthened

through sensible policy actions.

Human development requires considerable investment in education, health, and nutrition.

Result: healthier, better educated population that is capable of being economically more

productive.

Growth also linked to other elements of human development such as

political freedom

cultural heritage

environmental sustainability

The report identifies two main sets of links between economic growth and human

development:

The effect of growth in household income and spending on human development

The effect of growth on government policies and expenditures.

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Household activities (mostly unpaid and largely invisible to national accounts) contributing to

human development:

Women do most of these activities – managing the household, raising children, caring for the

sick and elderly, work in voluntary organizations that contribute to health, nutrition, and

education. The value of this work was estimated in 95 to be $11 trillion globally.

Educational attainment: Increases in income are associated with improvements for several

reasons. Families can spend more on school materials and are more likely to send children to

school. As incomes increase, families are in a better position to exert political pressure for better

schools. Wealthier families are able to create an environment more conducive to learning both at

home and at school. (Cautions against just looking at improvements in school enrollment

because it may understate the benefits).

Health: Higher household income is associated with higher height-for-age ratios, survival rates,

life expectancy at birth, reduced illness among children. In several studies, income effects seem

to be higher in urban than rural areas. The full benefits of increased income cannot be realized in

rural areas because there are fewer healthcare facilities.

Combining income with greater education: Per capita income and adult literacy are the most

important indicators of life expectancy. The choices that families make in spending their income

depend on personal preferences, education, community knowledge, and customs. Also, several

studies suggest income is more likely to be spent on human development when women control the

purse strings. One reason may be that the increased income is less likely to be spent on

cigarettes and alcohol. In addition, increasing educational attainment of women also has strong

effects on children’s health and nutritional status.

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Government Policies and Expenditures:

There are several economic arguments for using government policies to improve human

development. Lack of investment in human capital can be seen as a market failure, which

government activity can help to correct.

Examples of Market Failures in Investment in Human Development:

Credit for human development is often lacking because lenders cannot stake a future claim

on human capital. Consequently, people who might want to borrow for education and health

often cannot do so, especially if they are poor.

Failures in information flows often lead the poor to invest less in health and education than

they would prefer if they had full information.

Human capital has externalities not reflected in the private returns of households and firms.

Several benefits of human development have social benefits that are not directed

compensated for monetarily (education can help contain infectious diseases).

Governments can improve human capital by making loans for such activities available and

by improving information flow.

In principle, growth should lead governments to give more support to human development. In

reality, countries differ in the following ways:

Public-expenditure ratio : averages about 20-30% for developing countries but ranges from

5% to 60%. Depends largely upon ability and willingness of governments to collect taxes.

Taxes in developing countries are only about 10-20%, half that of industrialized countries.

Social allocation ratio : percentage of public expenditure earmarked for social sectors (health,

education, social security, water supply, sanitation) – averages about 20% for 61 countries

studied.

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Social priority ratio : percentage of social expenditure devoted to basic social services (basic

education, basic healthcare and nutrition, low-cost water supply and sanitation). Depends upon

governments’ political objectives and pressure of different interest groups. Averaged 24% in

1980s for 12 countries studied, with a range from 11% to 55%. Generally, the more basic social

services the government supports, the better off the poor.

Even if these ratios remain the same when a country is growing, spending for basic social

services can increase but only with increases in government expenditure. Countries have been

able to increase spending on human development during economic declines (e.g., Nicaragua in

the 1980s), but such expenditures are not sustainable without growth.

Diversion of Government Spending

Many countries squander large amounts on items that do nothing for human development

(e.g., military expenditures).

Due to political pressures, governments often skew expenditures toward the rich. Examples:

subsidies to tertiary education made at the expense of primary education, spending toward high-

tech hospitals for the affluent at the expense of basic healthcare in rural areas, corruption.

Demands by international lenders for repayment of debt.

Aid donors often show little interest in social services , particularly in basic health services.

- 20:20 initiative is one solution. It requires 20% of aid flows and 20% of developing country

budgets to be earmarked for basic social services.

Making Expenditure Effective

Decentralization : handing down responsibility of public services to local governments can

make them more efficient and give local people greater voice in their planning and operations.

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Efficient Allocation : expenditure on basic services usually has greater impact on human

development than on tertiary education or curative medical services

Complementary Inputs : education often needs to be combined with other services to make

them effective. Educating girls also contributes to increases in child survival rates and

decreasing fertility rates.

Strengthening the Links from Growth to Human Development

This section concludes by saying that for human development to improve, growth must be

equitable and employment-generating. Governments must give priority to social spending,

particularly for basic services. People must have access to productive assets, such as land,

credit, and physical infrastructure. Governments must also maintain good governance by

enabling people to share the benefits of growth and allowing them to participate extensively in

public life. Finally, NGOs and community groups can play a vital community action role by

supplementing government and playing an advocacy role.

Links from Human Development to Growth

This section identifies ways in which human development improvements can lead to economic

benefits. “Healthy, well-educated people make an economy more productive.” Some of the

clearest economic benefits of human development arise from making workers, especially poorer

workers, more productive by improving their nutrition, health, and education. Increases in

access to education may also make income distribution more equitable. Total returns from

education tend to be higher for women than for men.

Technology : In agriculture, farmers with education are more likely to adopt modern

fertilizers and to learn from their own and others’ experiences. In industry, workers must be

sufficiently educated to adapt to and disseminate new technology. On-the-job training by

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employers is particularly important for this. At higher levels of technology, educated personnel

are necessary for research and development.

Trade : Countries with higher-skilled workers can have comparative advantages in exporting

manufactures – these skills are particularly important for countries with few natural resources so

therefore need an alternative form of comparative advantage.

Savings and Investment : Government efforts to promote savings must be complemented with

education. One problem of foreign investment coming from capital flows rather than official

development assistance is that private flows tend to ignore countries with low human

development. In several countries, a large portion of human development expenditures comes

from official development assistance.

Strong, Weak, and Unbalanced Links

Strong Links : Countries have rapid advances in both economic growth and human

development. Progress in human development and economic growth mutually reinforce each

other (e.g., Japan, Hong Kong, Malaysia, South Korea, Singapore, Spain, Portugal, Botswana).

Weak Links : Countries have both slow economic growth and human development progress,

with each undermining the other. Most of the least developed countries are in this category.

Unbalanced Links : Rapid economic growth but slow human development progress (e.g.,

Egypt, Lesotho, Pakistan). Or rapid human development but slow growth. This is not

sustainable in the long-run (e.g., Costa Rica, Jamaica, Peru, Sri Lanka, state of Kerala in India).

Countries with unbalanced links are more unstable in the long-run than those with weak or

strong links between growth and human development. In the long-run, countries tend to

converge toward either strong or weak links. However, several countries have successfully

switched from weak links to strong over the last three decades (Botswana, Sri Lanka, China,

Indonesia).

Policy Recommendations for Countries with Weak Links

improve minimum literacy and primary education

improve income distribution by focusing on employment creation and poverty reduction

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restructure public and private resources to gear more resources to basic health, primary

education, nutrition, and family planning

allocate budgetary subsidies to social programs that benefit the masses rather a few elites,

provide transparent breakdown of budgets to show who the real beneficiaries are

Policy Recommendations for Countries with Strong Links

challenge is to give even more attention to human development including poverty reduction,

human rights, and environmental conservation and regeneration.

target segments of the population that have not fully benefited from overall progress in

human development and growth, such as women

advance higher levels of human development, such as tertiary education

Policy Recommendations for Countries with Unbalanced Links

For Countries with Fast Growth and Slow Human Development:

improve distribution of public and private resources by emphasizing job creation and

productivity growth, redistributing productive assets

make more equitable the distribution of human capital by investing in education

reallocate public expenditures to ensure that basic needs are met, provide transparent

breakdown of budgets to show who real beneficiaries are

For Countries with Slow Growth and Fast Human Development

promote skill-intensive productive activities for exports

strengthen link between science and technology institutions and needs of economy

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CONCLUSION

Emphasis on human development and the construction of Human Development Index

have shifted the focus from the ‘quantity of growth’ to the ‘structure and quality of

growth.’ We now realize that “success in economic growth must ultimately be judged by

what it does to our lives- the quality of life we can enjoy and the liberties we can

exercise. In general, economic growth cannot be dissociated from the ‘end’ of promoting

human capabilities and of enhancing well-being and freedom.” Governments are now

becoming increasingly aware that unless they take corrective actions, economic growth

can become lopsided and flawed. This would lead to an economy that is jobless, ruthless,

voiceless, rootless and futureless. Avoiding these pitfalls requires fostering of strong

links between economic growth and human development. Economic Growth should lead

to fuller choices for all people-rather than few choices for most people or many choices

for a few. But it is never enough to wait for economic growth automatically to trickle

down to the poor. Instead, human development and poverty reduction must be moved to

the top of the agenda for political and economic policy making. And even when links

between economic growth and human development have been painstakingly established

they must be protected against being blown apart by sudden shifts in political power or

market forces.

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BIBLIOGRAPHY

BOOKS REFERRED

INDIAN ECONOMY, MISRA-PURI

INDIAN ECONOMY, DUTT AND SUNDARAM

SITES VISITED

http://en.wikipedia.org/wiki/Human_Development_Index#2013_report

http://hdr.undp.org/en/statistics/hdi/

http://www.un.org/esa/desa/papers/2005/wp8_2005.pdf

http://hdr.undp.org/en/reports/global/hdr1996/chapters/

http://hdr.undp.org/en/humandev/

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