Two countries have the same income per head. In one, a child born today can expect to reach eighty, will finish school and can read. In the other, one child in twenty dies before their fifth birthday and half the adults cannot read. Both are equally rich by the only measure most people quote. Growth is about how much an economy produces; development is about what that production does for the people living in it, and the gap between those two ideas is the whole of this topic.
Economic development
An improvement in living standards and the quality of life, including health, education and freedom of choice, rather than an increase in output alone.
Growth and development are not synonyms and the difference is examined directly. Growth is a rise in real GDP, a quantitative change. Development is broader and qualitative, covering health, education, poverty and choice. Growth usually supports development by funding it, but a country can grow while development stalls, if the gains accrue to a small elite or are spent on things that do not improve most people's lives.
Because income alone is inadequate, composite measures exist. The Human Development Index combines three dimensions: income per head adjusted for purchasing power, life expectancy at birth, and educational attainment measured by years of schooling. Each is converted to an index between 0 and 1 and the three are averaged, giving a single figure between 0 and 1 where higher is better. Its advantage is that it captures outcomes rather than just means, and it is available for almost every country. Its weaknesses are that the three components are weighted equally for no particular reason, and that it ignores inequality, the environment and political freedom entirely.
Comparing two countries on income and on development
Country P has GDP per capita of $9,000, life expectancy of 62 years and a literacy rate of 58%. Country Q has GDP per capita of $8,000, life expectancy of 76 years and a literacy rate of 94%. Compare them, and suggest what might explain the pattern.
Countries differ in development for reasons that reinforce each other. Low income means low saving, which means low investment, which keeps productivity and income low: this is the cycle of poverty. Poor health and education limit what workers can produce. Weak infrastructure raises costs for every firm. Dependence on primary commodities exposes a country to volatile prices and to demand that grows slowly as world incomes rise. Rapid population growth means output must rise fast simply to hold income per head steady. Political instability, conflict and weak institutions deter the investment that would break the cycle. And high foreign debt diverts revenue into servicing rather than schools and roads.
Population
A population changes through three flows. The birth rate is live births per thousand people per year, the death rate is deaths per thousand per year, and net migration is immigration minus emigration. Natural increase is the birth rate minus the death rate, and total population change adds net migration to it. Birth rates fall as countries develop, because child mortality falls so families need fewer births to reach a desired family size, because women's education and employment raise the opportunity cost of childbearing, and because children shift from being contributors to family income to being expensive to raise and educate.
Age structure matters more than total size. A country with a high birth rate has a young population and a high dependency ratio, meaning many children per working adult, which strains spending on schools and healthcare and limits saving. A country with a low birth rate and long life expectancy has an ageing population, which strains pensions and healthcare and shrinks the workforce relative to those depending on it. Between the two lies a demographic dividend: a period when the large cohort born earlier has reached working age while birth rates have already fallen, so the dependency ratio is unusually low and growth can be rapid, provided the jobs exist.
Natural increase = birth rate - death rate Dependency ratio = (population under 15 + population over 64) / population aged 15 to 64 x 100A higher dependency ratio means each worker supports more non-workers, whether young or old. The two kinds of dependency have very different policy implications, so always say which is driving the figure. Formulae are not printed in any 9708 paper.
Calculating population change and the dependency ratio
A country of 50 million has a birth rate of 28 per thousand, a death rate of 9 per thousand, and net emigration of 100,000 a year. Of its population, 19 million are under 15, 2 million are over 64 and 29 million are aged 15 to 64. Calculate the natural increase, the total population change and the dependency ratio.
A country's GDP per capita rises by 5% while its Human Development Index is unchanged. The most likely explanation is:
Which is the main economic concern created by an ageing population?
Draw two population pyramids side by side, with age bands on the vertical axis and population on the horizontal. Draw one with a wide base narrowing sharply, typical of a country with a high birth rate and lower life expectancy, and one with a narrow base and thick upper bands, typical of an ageing developed economy. Label the dependent groups on each.
The shapes make the policy difference visible. The wide-based pyramid needs schools, child health services and, in fifteen years, a great many new jobs. The top-heavy one needs pensions, elderly care and either higher productivity, later retirement or immigration to sustain its workforce. Same measure, opposite problems.