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Economic Development and Gross Domestic Product

What do you mean by economic development? Can Gross Domestic Product (GDP) reflect the reality of an economy? Explain.





Economic Development

"What is the meaning of growth if it is not translated into the lives of people?" - UNDP Human Development Report 1995

 "Development can be seen ….. as a process of expanding the real freedoms that people enjoy." - Amartya Sen, Nobel Laureate in Economics

"Our primary goal in development must be reduce the disparities across and within countries….. The key development challenge of our time is the challenges of inclusion." - James D. Wolfensohn, Former President, World Bank 

GDP as a Measure of Economic Development

GDP was first developed during great depression of 1930s. However, by 1960s majority of the economists have agreed that GDP is not self-sufficient indicator i.e. it is not an adequate measure of the economic progress of a nation. 

GDP does not consider actual mental well being and and conditions of  physical health of people, education and literacy, proper housing facilities of people.

The Limitations of GDP: Example

  • The higher the government expenditure the higher the GDP of an economy.
  • Suppose, it costs 5 crore to complete a project. The officials involved raise the cost to 50 crore and embezzle the additional money. The GDP of the economy will still increase.
  • The government has fixed the fee for conducting the covid-19 test. The more people are affected, the more tests there are, the more the GDP will increase. If you can push people into expensive treatment in private hospitals instead of going to government hospitals, again, GDP will increase. 
  • Making substandard roads at extra cost will increase GDP. Many people will face accidents on that road and have to be treated in hospitals, but GDP will still increase.

Sources




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