Theory question 107
Economic Growth and DevelopmentThe economy of Country X grew by 5% annually over the past five years, with gross domestic product (GDP) rising from $80 billion to over $100 billion. However, per capita income was low at $838; poverty rates remained high at 37% and unemployment stood at 23%. The government launched an economic plan to improve education and healthcare, but it faced a lot of challenges. As a result, living standards did not significantly improve for many citizens, and the execution of the economic plan was deemed unsuccessful.
Using the scenario above, (a) explain the relationship between economic growth and economic development in Country X;
(b) explain how economic growth relates to the standard of living in Country X;
(c) state any four possible reasons the economic plan of country X was not successfully implemented.
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(a) Economic growth is the rise in output (GDP from $80 billion to over $100 billion); economic development is growth plus improvements in welfare – lower poverty and unemployment, better education and health. Country X had growth without development, since poverty (37%) and unemployment (23%) stayed high.
(b) Growth raises living standards only if the extra income is shared widely and outpaces population growth; in Country X per capita income stayed low ($838), so most people's living standards did not improve.
(c) Any four: inadequate funding; corruption and misuse of funds; political instability or change of government; poor data and planning; shortage of skilled manpower; poor implementation and monitoring; rapid population growth; over-dependence on foreign aid; unrealistic targets.
Growth is about output; development is about people's welfare.