|Table of contents|
|Insights into Human Development|
|Nudge & Public Policy|
An increase in economic variables over a period of time is economic growth. The term can be used in an individual case or in the case of an economy or for the whole world. The most important aspect of growth is its quantifiability, i.e., one can measure it in absolute terms.
Economic development is the growth of the standard of living of a nation's people from a low-income (poor) economy to a high-income (rich) economy. When the local quality of life is improved, there is more economic development.
➢ Measuring Development
The idea of developing a formula/method to measure the development was basically facing two kinds of difficulties :
- On the other hand, economic development is the growth of the standard of living of a nation's people, which includes factors like income, healthcare, education, social security, and quality of life.
- While economic growth is measurable in absolute terms, economic development is more focused on the qualitative aspects of improvement.
- Therefore, the key difference between economic growth and economic development lies in their focus - growth on economic variables and development on the standard of living.
➢ Human Development Index
using geometric mean. The HDI facilitates instructive comparisons of the experiences within and
between different countries.
The UNDP ranked the economies in accordance of their achievements on the above-given
three parameters on the scale of one (i.e., 0.000–1.000). As per their achievements the countries
were broadly classified into three categories with a range of points on the index:
(i) High Human Development Countries: 0.800–1.000 points on the index.
(ii) Medium Human Development Countries: 0.500–0.799 points on the index.
(iii) Low Human Development Countries: 0.000–0.499 points on the index.
➢ Introspecting Development
developed a new concept of assessing development in the early 1970s—the Gross National
Happiness (GNH). Without rejecting the idea of human development propounded by UNDP, the
kingdom has been officially following the targets set by the GNH. Bhutan has been following the
GNH since 1972 which has the following parameters to attain happiness/development:
(i) Higher real per capita income
(ii) Good governance
(iii) Environmental protection
(iv) Cultural promotion (i.e., inculcation of ethical and spiritual values in life without which,
it says, progress may become a curse rather than a blessing)
A recent study by a senior economist from the UNDP on the Bhutanese development
experience under the GNH has vindicated the idea of ‘gross happiness’ which development must
result into. As per the study, the period 1984–98 has been spectacular in terms of development
with life expectancy increasing by a hopping 19 years, gross school enrolment reaching 72 per
cent and literacy touching 47.5 per cent (from just 17 per cent).
The World Happiness Report 2020 was released on 20th March 2020 (the International Day of
Happiness). The 156-nation report (though, only 153 nations have been ranked), 8th in the series
(no report was published in 2014), ranks nations on the basis of ‘reported happiness’ by their
citizens. Aimed at ‘guiding public policy’ of the nations, the report measures and ranks the
nations on the basis of the following six variables:
(i) GDP per capita (at PPP)
(ii) Social support (someone to count on)
(iii) Healthy life expectancy at birth
(iv) Freedom to make life choices
(vi) Perception of corruption
■ India is ranked 144th (4 ranks lower than the report of 2019). India has lost ranks almost
every year since the report is published—from 111th in 2013 to 117th in 2015, 118th in
2016, 122nd in 2017, 133rd in 2018, 140 in 2019. For that matter fall in ranks has been
seen in case of several developed countries also (notably, not caused by economic but
■ India ranks lower than all of its neighbours—Pakistan (66), Nepal (92), Bangladesh (107)
and Sri Lanka (130). All nations in BRICS are better ranked than India—Brazil (32),
Russia (73), China (94), S. Africa (109).
■ India is ranked with the least happy nations in the world with—Afghanistan, South
Sudan, Zimbabwe, Rwanda, Central African Republic, Tanzania, Botswana, Yemen and
■ India is among world’s 5 nations where the largest drops in ranks have been seen since
2008–2012 (other 4 nations are Venezuela, Afghanistan, Lesotho and Zambia). Life
evaluations have been sharply declining in case of India.
■ While in case of ‘current life evaluation’ Delhi is ranked 180th, in case of ‘future life
evaluation’ it is ranked 182nd—out of a total of 186 cities taken from the world. Some
other peer cities are ranked in case of ‘current life evaluation’ are—Karachi (117th),
Lahore (122nd), Beijing (134th), Colombo (170th), Baghdad (163rd), Myanmar (165th),
and Kabul (186th)
- These indicators are converted into a composite index, the HDI, which serves as a frame of reference for both social and economic development.
- The scores for the three HDI dimension indices are then aggregated into a composite index using geometric mean.
- This allows for instructive comparisons of development experiences within and between different countries.
The World Bank in its report (World Development Report 2015: Mind, Society, and Behaviour)
said that development policies become more effective when combined with insights into human
It sites some examples from India in the areas of healthcare and education:
■ Open defecation dropped 11 per cent from very high levels after a Community-Led Total
Sanitation (CLTS) programme was combined in some chosen villages with the standard
approach of subsidies for toilet construction and information on the transmission of
■ The likelihood of default on loans became three times less with a simple change in the
periodicity of meetings between microfinance clients and their repayment groups to
weekly rather than monthly.
■ Research showed that boys from backward classes were just as good at solving puzzles as
boys from the upper castes when caste identity was not revealed. However, in mixedcaste groups, revealing the boys’ castes before puzzle-solving sessions created a
significant “caste gap” in achievement with the boys from backward classes
underperforming by 23 per cent (making caste salient to the test takers invoked identities,
which in turn affected performance, as per the report).
There is research in psychology and evolutionary biology which shows that morality, altruism,
and other-regarding values are an innate part of the human mind, even though the social setting
in which a person lives can nurture or stunt these traits. However, the recognition that these
human and moral qualities can have a large impact on economic development came relatively
late to economics. Hence, the literature on this is relatively recent and brief. In fact, recent
research shows that having a few ‘good’ human beings in society can give rise to dynamics
through which we end up with an overall better society. There is also evidence that social norms
and habits that at first sight seem ingrained in a society can change over short periods of time. By
this argument it is possible for a country to nurture and develop the kinds of social norms that
enable a more vibrant economy.
Economic development is not only dependent on fiscal policy, monetary policy and taxation but is also rooted in human psychology, sociology, culture and norms. In economics, there has been a bit of resistance in emphasising other aspects of development, because it is thought of giving ground to the neighbouring disciplines.
|1. What is the difference between economic growth and economic development?|
|2. How does economic growth impact happiness?|
|3. What are some insights into human development?|
|4. How can nudges be used in public policy?|
|5. How do economic developments contribute to overall well-being?|