Ray, D. (1997), Development Economics, Chapter 2, especially sections 2.4 and 2.5

Chapter 2 Economic Development: Overview

By the problem of economic development I mean simply the problem of accounting for the observed pattern, across countries and across time, in levels and rates of growth per capita income. This may seem to narrow a definition, and perhaps it is, but thinking about income patterns will necessarily involve us in thinking about many other aspects of society too, so I would suggest that we withhold judgement on the scope of this definition until we have a clearer idea of where it leads us.

R. E. Lucas [1988]

We should never lose sight of the ultimate purpose of the exercise, to treat men and women as ends, to improve the human condition, to enlarge people’s choices… A unity of interests would exist if there were rigid links between economic production (as measured by income per head) and human development (reflected by human indicators such as life expectancy or literacy, or achievements such as self-respect, not easily measured). But these two sets of indicators are not very closely related.

P. P. Streeten [1994]

2.1. Introduction

Economic development is the primary objective of the majority of the world’s nations. To raise the income, well-being, and economic capabilities of peoples everywhere is easily the most crucial social task facing us today. How do we measure development?

Intuitively, we consider that the minimal requirement for a developed nation is that the physical quality of life should be high for everyone, not just a wealthy minority.

Further ideas for the ideal society might be political rights and freedoms, intellectual and cultural development, family stability, and low crime rate. However, we consider a high and equally accessible level of physical quality of life to be a prerequisite of most of the other advancements for a developed nation.

It might be tempting to only look at economic development with GDP or GNP as a measure for the quality of life. This is debatable.

Nobody is actually equating economic development with the level of growth of per capita income, but it does have a large influence on economic development. Other factors we consider are the removal of poverty and undernutrition (high quality of life should not be exclusively for the very wealthy, but everyone), increases in life expectancy, access to sanitation, clean drinking water, health services, reduction of infant mortality, increased access to knowledge and schooling, particularly in literacy. This multidimensionality is captured in Paul Streeten’s quote.

Robert Lucas’ quote seems more narrow. The focus is on economic development through the observations of patterns of income growth. It is important to note that he is not insinuating that this is the definition of economic development, but rather an approach to approximate it. The underlying belief is that the advanced features of economic growth follow in some natural way the growth of per capita income. The power of aggregate economic forces can positively affect other socioeconomic outcomes. However, there is no automatic correlation or the correlation may not be present at all. There is a view that per capita GNP fails as an adequate overall measure and must directly be supplemented by other indicators of economic development.

Looking at per capita GNP should really only be a beginning for studying true economic development, and it can be more useful than the aggregate of many small factors.

The first thing to consider is how average levels of economic attainment influence development. Another connection might be the influence of the distribution of economic attainment on development. We will start with these two, beginning with the historical experience of developing countries in the past few decades.

2.2. Income and growth

2.2.1. Measurement issues

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2.4. The many faces of underdevelopment

2.4.1. Human development

Income is especially unequally distributed in developing countries. This may mean that purely relying on GNP is dangerous, as a country might be relatively well off, which indicates high economic development, but not score as well on other indicators of development. The wealthy minority may inflate the GNP, which should not be confused with the true development of a nation.

Tables with data of per capita income in 1993 and income distribution for Sri Lanka and Guatemala show that while Guatemala has a higher income per capita than Sri Lanka, the income distribution in Sri Lanka is a lot less unequal.