Understanding Economic Growth

Economic Growth

• Economic growth is when a country increases the amount of goods and services it produces over time.
• Typically, this is measured by an increase in the Gross Domestic Product (GDP).
• Economic growth is considered an increase in real per capita gross domestic product (GDP).
• Real per capita GDP is the real GDP per person, calculated by dividing GDP by the total population.
• If Jamaica's GDP increases by 5% in a year because of higher income from tourism, that is economic growth.
• Economic growth requires an increase in real per capita GDP, such that the economy's output increases at a faster rate than the population.

Drivers of Economic Growth

• Natural resources (land): Countries with many natural resources may have more growth, and can generate significant export revenue.
• Human Capital (labor): Education and skill training improve worker productivity and lead to innovation.
• Physical and Financial Capital: Increased spending on infrastructure, as well as technology and innovation, increase efficiency, reduce costs, and lead to higher output.
• Entrepreneurship/Government's Role: Individuals who start businesses and innovate lead to product development, contributing to economic improvement and growth.
• Government Policy: Fiscal and monetary policies that encourage business investment and consumer spending.

Economic Development

• Economic development includes improvements in living standards, income distribution, education, health care, and environmental sustainability.
• It's about making qualitative changes and improving social outcomes.
• Economic development requires a sustainable increase in the quality of life for residents, especially in developing countries, which coincides with changes to the economy's structure.
• Economic development is multi-dimensional and encompasses continuous economic growth (increased real per capita income), better education and health, and conservation of the environment.
• In Jamaica, programmes that provide financial assistance to low-income families represent economic development.
• In its simplest form, economic development is the creation of economic wealth for all citizens, potentially increasing their quality of life.
• Some characteristics of economic development are: increased real per capita GDP, diversification of the economy from primary production to secondary and tertiary production, increased access to health services and education, modern transport, a low level of negative externalities, and freedom and social justice.

Measures of Economic Development

• Human Development Index (HDI): Measures average achievements in life expectancy, educational attainment (literacy rate), and adjusted real income.
• Used to measure quality of life and level of development to determine if a country is developed, developing, or underdeveloped.
• Quality of Life Indicators: Literacy rates, infant mortality, and life expectancy highlight social well-being.
• Income Distribution: Measurement of how equitably income is shared among a country's population.
• Access to Basic Services: Availability of healthcare, education, and sanitation reflects development progress.
• Human Property Index (HPI): Measures deprivation using the percentage of people expected to die before the age of 40, the percentage of illiterate adults, the percentage of people without access to health services and safe water, and the percentage of underweight children under 5 years old.
• A Reduction in the number of people living below the poverty line is a sign of development.

Economic Growth Vs Economic Development

• Economic Growth focuses on increasing GDP and output, while Economic Development emphasizes improvements in the quality of life and social welfare.
• Economic Growth is quantitative and measurable, while Economic Development is qualitative and broader.
• A country can have economic growth without economic development so long as income inequality and social challenges persist.