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Can Economic Growth help Development?

AS, A-Level, IB
AQA, Edexcel, OCR, IB, Eduqas, WJEC

Last updated 20 May 2017

Sustained growth can spur development in several ways:

  • Lifts per capita incomes and raises people out of extreme poverty
  • Increased per capita GDP/GNI gives households and businesses greater financial resources to save (see the Harrod Domar growth model)
  • Creates new jobs providing a flow of incomes for people in work
  • Higher incomes can also reduce income and wealth inequality 
  • Faster economic growth generates higher profits which can then be reinvested – promoting increased productivity and capacity
  • Growth can accelerate changes in patterns of production e.g. a shift away from a dual economy towards investment in manufacturing and services such as business services and tourism
  • Economic growth can generate higher tax revenues for the government – providing more funds to finance public and merit goods and welfare spending

However – it is  important to realise that there are disadvantages from economic growth i.e. economic and social costs.

Growth is probably a necessary but insufficient condition for sustained human development – it can underpin gains in health, education and per capita incomes but many factors determine the development process.

Countries whose HDI ranking is better than their GNI per capita ranking in 2016

Countries whose HDI ranking is lower than their GNI per capita ranking in 2016

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