Economic Growth Human Development Economics Essay

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The research will start up by defining economic growth and human development separately to demonstrate sequentially the relationship between both developments and necessity of economic growth to human development. The research will demonstrate two chains which are one from human development to economic growth as a collaborator for increasing the national income and the other economic growth to human development as of the resources generated from the national income that contribute to the human development. Conclusively, I will focus my main points on what Spence (2009) focused on and mentioned in his book "The Human Development and Capability Approach", the affiliation linking human development with economic growth is not simply a uni-directional relation but are relatively dependant on each others, but mostly, I will be focusing on the dependency and necessity of economic growth to human development.

Definition of Human Development and Economic Growth:

Human development is a development model way more than the increase or decrease of the nationwide income. It is concerned about generating an environment where people develop their energy to create a productive life based on their needs. The development of the nation is its people; therefore, development is about increasing the options for people to peruse their valued lives. Consequently, human development is more than economic growth; it is about increasing people's options (UNDP, 2009).

Additionally, as Sen (1992) and Sugden (1993) defined human development, it is the concept of broadening the citizens' options in an approach that facilitates and permits them to lead extensive and better lives became as forefront of the development objective. According to the Encyclopedia of Earth (2008), the definition of economic growth is the increase in real Gross Domestic Product (GDP), which is the percentage change in real GDP from one year to the next.

Relationship between Human Development and Economic Growth:

There is a straight affiliation among the human development and economic growth where economic resources supply the basis material for the improvement of human development. However, human resources also are considered as necessary inputs into economic growth (Stewart 2003, pp. 5). To elaborate more the connection between human development and economic growth, human development provides an enhancement and development to labor force quality for which contributes to the growth of economy, on the other hand, economic growth also contributes to human development by granting the resources to consent sustained improvements (Ramirez, Ranis and Stewart 1998, pp. 2).

The Two chains:

First Chain: Economic Growth to Human Development.

Gross National Product contributes to human development throughout family, governmental actions and civil society; i.e, throughout social and non governmental organizations. The equivalent plane of GNP can also contribute to various execution of the human development based on the distribution of the GNP between and within these organizations and change in their performance. The families' disbursement of their after tax income contributes to the human development directly such as food, water, education and health. Nonetheless, it differs depending on the factors such as level of income and the allocation across families and on who controls the allocation of the disbursement within the families. Mainly, poor families disburse a higher rate of their income on human development things than those with higher income as well as from those families in which women control the income (ibid: pp. 3).

To sum up, disbursement on human development items is influenced by the level of poverty. Ramirez, Ranis and Stewart (ibid: pp. 4) demonstrated some examples about the relationship between family income and child education. For example, if the income allocation in Brazil is equal to Malaysia's, then the average of poor student enrolment would be 40% higher than in the current situation. Another example in which is not as much of wideness is for the relation between the family's income and health in Brazil, Chile, Côte d'Ivoire and Nicaragua. To highlight more on the issue of women's control over the household income, it appears that disbursement is greatly on human development items such as food and education such as in Cambodia, Philippine and Côte d'Ivoire.

As for the governmental side of the issue, there are three types of ratios. The public disbursement percentage described as the fraction of GNP disbursed by many governments; the human development allotment percentage described as the amount of the governmental overall disbursement on the human development sector; and finally, the human development precedence percentage described as the amount of the overall human development sector disbursement on priorities. There are three main factors for the three ratios. First, there is the tax capability of the system; secondly, there are the military disbursements and non human development related priorities of the government; and finally, is the interaction between the bureaucratic services, vested welfare and trendy forces. Kenya and Melawi are an example case of the of human development improvement option. In the eighties, Kenya suffered 27% and 30% in Melawi of national income disbursement, whereas Kenya was of a higher ratio of 47% compared to 35% for social allocation with a social priority of 34% in Kenya compared to 14% to Melawi where a percentage of GDP goes directly to the human development enhancement priorities three times in Kenya (5.1%) compared to Melawi (1.5). Last but not least, is the organizations and civil society where the focus is directed on human development objectives such as the poor categories, schools and health plans and missions. Such of an example of the foreign and domestic sources is in the BRAC and the Grameen bank in Bangladesh the Harambee Schools in Kenya and the 'Comedores Populares' in Peru, where they are considered as a chief resource and foundations of human development improvement (ibid: pp. 4-7).

Second Chain: Human Development to Economic Growth

There is a clear improvement in people's life concerning health, nutrition and education for which they have gained all these benefits that contributed to the economic growth. Conclusively, having a higher plane of human development influence economy by improving people's capacities and abilities, therefore, their inventiveness, efficiency and production. Education and health of people characterizes the main component of the growth of production and export that represent an important component to make use of abroad technology efficiently and successfully.

Health, primary and secondary education as well as nutrition raised the productiveness of labor in urban and rural areas. Moreover, secondary education including professional training smooths the progress of gaining talents and management abilities. Furthermore, higher education supports the development of basic science and the suitable assortment of technology trade in, local adaption and technological development. In addition, secondary and higher education also represent the significant elements in developing the main organization, government, law, and financial system for which are all essential for the economic growth.

There are two types of levels that are considered as evidence for the type of relationship between human development and economic growth. First, there is the micro level where profit increase is related to additional years of education with the return rate differentiated with the educational level. The social rate of return is less than the private sector, which is still higher than the returns to the most physical investment. The returns of primary education are higher than the return of the secondary and higher education. The ratio of return indicates the large effect of education on production. For example, in rural Pakistan, and in urban Kenya and Tanzania, distinguishing among other income due to cognitive accomplishment and education accounted for a high percentage of the additional earnings.

On the agricultural point of view, education influences the productivity of farmers in case of the availability of modern technologies. For example, in Thailand, famers who are more educated (four years and more) are usually those who use the most modern utilities and technology than those who are less educated. Another case is Nepal; farmers with at least seven years of schooling enlarged the wheat output by 13%. Education is also an important contributor to the technological capability and technical change in the industrial field. There are some statistic studies of the clothing and engineering industry in Sri Lanka pointing to the positive relation of the proficiency level, labor education and industrialists to the technical change of the company. [1] 

Education by itself cannot transform any economy. The quantity and quality of local and foreign investment aside with the public political policy shaped other important identifiers for the economical performance. Despite that, human development level has also an impact on these factors as well. The quality of the decisions and decision making process in the field of investment is perpetually influenced by the education of policy makers and directors. Most probably, local and foreign investment is bigger when the human capital is overflowing. To add another component of human development; health and nutrition have a straight effect on industry efficiency and output and particularly among the poorest. Colombia realized that a health and nutrition plan and project enhanced the uneducated worker individuals' lifetime income from 2.5 to 8.9 times. [2] 

Second, there is the macro level. Lucas (1988) highlighted in his book the fact that the more workforce education the greater is the total capital output for the reason that more people are educated, the more they are expected to be innovative and have an effect on production. As education spreads, people with low income seek better opportunities for which lead to greater income equality. In the 1980s, a study made in 18 countries in Latin America showed that there is a real relation between education, income disparity and poverty and that one quarter of the income difference occurred due to the difference in education. [3] With secondary education along with an increase in one percent of labor force would increase the income from 40 to 60 percent. [4] (Ramirez, Ranis and Stewart 1998, pp. 9-14).

The following figure shows a clearer relation between the human development and economic growth.

Source: Gustav Ranis, HD Insights, UNDP Human Development Report Office, Issue 6, March 2007;


Ranis et al (2000) categorize the nation's performance to four groups, which are the virtuous, vicious, the human development unbalanced (powerful human development, weak economic growth due to a lack of harmonizing resources occurring from low investment rates) and the economic growth unbalanced (powerful economic growth, weak human development). To broaden with the virtuous phase, human development improves growth that endorses human development. On the other hand, in the vicious phase, the underprivileged and weak performance on human development leads to a bad and weak growth performance for which lowers human development accomplishments. Therefore, nations can move in all ways excluding from economic growth unbalanced to the virtuous phase, except if the human development is integrated in the strategies intending to endorse economic growth, thus, human developments can not take place in the long run (Deneulin and Shahani 2009).

In the economic growth to human development chain, the strength of the different relations in the human development and economic growth chain differs significantly where there isn't any regular correlation between an enhanced human development level and enhancement in per capita Gross National Product. Accordingly, having more educated people is not the only solution, but at the same time, there should be chances for those educated people to be effectively employed. Related are the savings and investment rates as well as the of the social system capital. Even though high saving and investment do not assure high sustainable growth, but an affirmative connection and bond between investment and growth succeeds with its power of the regulation, human resources the quantity and quality, the accessibility of technology options and the elasticity of the organizational structure (Ramirez, Ranis and Stewart 1998, pp. 14).