I. Economic historians make the distinction between economic growth and economic development:
Economic growth: the sustained increase in the output of goods and services of a society.
Economic development: economic growth accompanied by changes in the technical and institutional arrangements by which output is produced.
A. What are examples of changes in technical and institutional arrangements by which output is produced?
Change to settled agriculture – Neolithic transition technical/institutional
Breakdown of manorial system institutional change
Invention of flying shuttle by John Kay in 1733
1. Can we have economic growth without economic development?
Yes, output can increase simply by increasing the inputs in production, eg. Agricultural economies increase simply by a growing population expanding and bringing more area under cultivation
2. What comes first in spurring on economic development – the economic growth or the structural change?
A “Chicken-or-egg” dilemma. The causal relationship between institutional or technical change and growth is fairly intuitive: the power loom allowed more output (specifically per unit of labor). The causal relationship can run the other way: As output increase, new types of institutions may develop and new ways of organizing production emerge. Growth spurs development spurs more growth.
3. The link between economic growth and economic development today
We use these terms interchangeably because we acknowledge that economic growth is only possible with institutional and technical change.
B. Economic development as a (relative) state of being. We refer to economics as being ”developed” or “undeveloped”, “underdeveloped”, “less-developed”, “developing”. Implication that certain characteristic make an economy developed: wealth (income) per capita, other measurements of living standards and health, the structure if the economy (share of output or labor force in agriculture). Developing countries generally have a very high percentage in the primary (ag) sector. As countries develop, the general patter is to reallocate labor out of ag, and into manufacturing, secondary sector. Finally post industrialization, high developed are primarily service economies (tertiary sector). We can also look at infrastructure measures, like access to clean water, sanitary sewers, electricity, WiFi. Standards of what is developed change over time. The U.S. economy today will one day (centuries from now) be considered undeveloped. There is no “endpoint” to economic development.
II. How do we measure economic development?
We want to have measures for tracking economic development. Such measures allow us to make comparisons across time and space in economic development. There are many measures/characteristics that we could use to study economic development.
A. Measures of economic development in the current period
The World Bank lists over 1000 “World Development Indicators” in an on-line resource available through OSU Libraries.
“Basic Indicators” of development include the following measures:
GDP per capita, both level and average annual growth
Dollar value of output (FINAL GOODS & SERVICES)in society:
GDP = C + invest + Govt Purchases + (X-M) Primary measure of welfare.
Average annual rate of inflation ----
Measurement of the stability of the govt. a country with a high and volatile inflation rate is generally also politically unstable and often run by dictators who print money for their benefit to the detriment of their citizens. On the other hand, deflation is also a sign of economic trouble.
Life expectancy at birth ---
Unambiguous measure of well being. Long life a sign of good nutrition and medical care, lower stress, etc.
Adult literacy, both female and total ---
Like average education attainment, literacy is a human capital measure. A literate workforce