What Is Development?

Economic development is not an easy concept to define but can be considered to mean an increase in living standards for the people of a country or region, which must include the worst-off. Development requires increases in material well-being as well as improvements in life expectancy, infant mortality and literacy amongst many others. There are many ways of measuring economic development, but it is very difficult to capture this complicated concept in a single number. GDP per capita is often used, as it is collected widely and can be used to make comparisons across countries and time easily. However not only does an increase in per capita income not necessarily increase standards of living, standards of living can be increased without an increase in per capita incomes. Other individual measures such as life expectancy or literacy rates could be used to measure development, as well as composite measures such as HDI.

There are many ways of considering the concept of economic development. Under the Washington Consensus it was considered that economic growth was synonymous with economic development (Stiglitz) but according to Basu the world is now 'coasting towards consensus' that there is more to development than economic growth. Streeten (1998) considers development to mean providing 'all human beings with the opportunity for full life'. This is a rather vague definition, but can still clearly be contrasted with the previous consensus, and what Sen described as 'commodity fetishization', where economic development is considered to be about increasing consumption. Whist this is an important component of development, concepts of 'human development' and 'comprehensive development' encompass more than this. Development is increasing living standards, particularly for the least well-off, as to be a developed country all people should have a standard of living above a certain minimum. Ray (1998) talks of the intuitive notions of development, which include sufficient nutrition and access to healthcare and education. It could also include certain levels of political right and freedoms (Dasgupta and Weale). This wider definition is far more complicated as there are potentially many more factors that should perhaps be included in the concept of development. This makes it more difficult to reach an agreement on what development is, and therefore how to increase it. Streeten considers it necessary to include some measure of environmental sustainability, for example. Nonetheless it is probably better to have a more complicated definition of development, which reflects the fact that the issue is not straightforward. This does, however, leads to difficulties in measuring development.

A common way to measure development is using GDP PPP per capita. This figure is known for all countries across time and this makes it easy to make comparisons. There are, however some serious problems with this measure. Too much focus on income per capita can lead to environmental damage, inequality and declining living standards for the poor. Kuznets found that inequality increased at first as countries grew richer, before declining. This means increases in total incomes might not lead to increasing incomes for the poorest. GDP figures also exclude informal activity such as subsistence farming and unpaid household services. This is a particular problem for developing countries, which have particularly large informal sectors. There is often significant underreporting of income in order to minimise taxation. Population size can also be incorrect, by up to 20 per cent in some cases. This means that even if income per capita was a good indicator of development, GDP per capita would not be.

However increases in per capita incomes do not necessarily mean higher levels of development, though it often helps by facilitating increased consumption or government spending on services. Firstly if the increases in incomes only went to those already on high-incomes, there would still be the same levels of depravation for the poorest in terms of access to health, education, and clean water. Sri Lanka has a lower GDP per capita ($2990) than Guatemala ($3350) but a far lower infant mortality rate of 18/1000 compared to 48/1000. This is probably because of the less equal distribution of income in Guatemala, where the bottom 40 per cent receive only 8 per cent of the income, compared to 22 per cent in Sri Lanka. If economic growth comes with environmental degradation such as deforestation or pollution, living standards may not increase for many people. Furthermore it is possible to have economic development without having increasing in real per capita incomes. Cultural changes could increase economic development without increasing real incomes. The empowerment of women, for example, could increase child nutrition and therefore reduce child mortality. Overall, therefore, GDP per capita is imperfect as a measure of development.

Dasgupta and Weale, however, find that GDP per capita correlates well their aggregate measure of development, the Borda Ranking, with a spearman's ranking of 0.84. They also found correlations between per capita income growth and growth in all components of the Borda Ranking except adult literacy. Borro's analysis conflicted somewhat with this anomaly as he found a positive correlation between income growth and school enrolment rates in the 1960s, though it is important to note that higher enrolment rates do not necessarily lead to higher literacy rates, and if they do there is a time lag. This is surprising given the wealth of opposition to the use of GDP per capita as a proxy for development, but suggests that it is not a bad proxy for development. Basu suggests using the bottom quintile of incomes as a proxy for development would be better than average incomes. This is because increasing the living standards of the poorest is critical for economic development. Such a measure would not completely ignore those outside the bottom quintile, as if incomes of the bottom quintile overtook those above them, these people would then be in that poorest quintile. However Basu does not believe that economic indicators alone can be used to measure development.

One such index is the Human Development Index (HDI), which is a composite measure of life expectancy at birth, GDP per capita PPP (with diminishing marginal returns to the index), and education (consisting of school enrolment rates and adult literacy) each given equal weight. This creates a relatively simple measure of development, allowing easy comparison between countries. However it cannot be used to compare over time as the scores are relative to other countries. Streeten questions the logic of capturing a vector as a single number, and it does seem unnecessary to oversimplify economic development in this way. The choice of components and their weightings are completely arbitrary, and could potentially lead to over-targeting of certain areas such as enrolment rates to the detriment of overall development. The GDP per capita component fails to account for distribution of income, and life expectancy for how many years were healthy years. Nonetheless, HDI is a better indicator than simply GDP per capita as it captures more of what is considered to be development.

Dasgupta and Weale constructed a Borda Ranking, another composite index, to measure development. This comprises of six components, GDP per capita, life expectancy at birth, infant mortality, adult literacy, civil liberties and political liberties. The addition of civil and political liberties, which are more subjective in their measurement, is a significant difference. It potentially involves the imposition of developed countries' standards on the developed world. Nonetheless it is difficult to deny that political rights, such as the right to choose the government, or civil liberties, including a free press and independent judiciary are components of livings standards. Whether a country can consider itself developed without these is a more difficult question. Civil and political freedoms correlate poorly with the other components used in their Borda Ranking, so it is questionable whether it is wise to aggregate them in this way, rather than looking at these components separately. Overall this measure of development is probably more contentious than HDI due to the inclusion of more subjective components, but still a valid way of measuring development.

Rather than using composite measures of development, it is possible to use individual measures, if it is felt they generally reflect overall development. Dasgupta and Weale looked at the correlations between their Borda Ranking and the individual components. They found that the best predictor of Borda Ranking was life expectancy at zero, with a spearman's rank of 0.91. It may therefore be easier to use a single measure such as this as a proxy rather than an aggregate, as it requires less data collection. However, just because life expectancy correlates highly with the Borda Ranking does not mean that it will be a good reflection of development in all countries. Despite this, higher life expectancy is positive in itself, as well as generally reflecting a higher level of development. Nonetheless, it is probably unwise to use such a narrow measure.

In conclusion, development is a difficult concept to define and to measure accurately. It is not simply the level of income that matters, though a certain level of income is required to achieve development, but the overall standard of living. This includes access to education and health care, and potentially some degree of political and civil freedoms. As the definition of development gets more complex, the level of development becomes harder to measure. However it is better to have a more complex definition that is harder to measure than to oversimplify and target insufficient areas. GDP per capita is not a great measure, as it comes with a danger of oversimplification. It is also clear that increases in GDP per capita do not necessarily lead to increases in development. Nonetheless GDP per capita does correlate well with the Borda Ranking of development. Composite measures such as HDI or Dasgupta's and Weale's Borda Ranking can also be used but there is a danger that composites mask individual trends and oversimplify development through the arbitrary selection of a limited number of categories. It would be ideal if every component of development could be considered individually, but there is clearly a trade-off between accuracy and unwieldiness. For this reason composite measures are probably the best compromise.