Step 1: What Is Development?
MatchesA-level economic development · IB Economics development unit · AP Macroeconomics growth · undergraduate development economics
In 30 seconds
- Economic growth is a rise in real output (real GDP). Economic development is a broader rise in living standards: health, education, freedom and choice.
- GDP per capita is the most used measure, but it ignores distribution, unpaid work, the environment and wellbeing.
- The Human Development Index (HDI) combines income, life expectancy and years of schooling into one score from 0 to 1.
- Comparisons across countries use purchasing power parity (PPP) to allow for different price levels.
- “Beyond GDP” measures include green GDP, the Multidimensional Poverty Index and Bhutan’s Gross National Happiness.
Growth is not the same as development
A country can grow fast and still leave most people no better off, if the gains go to a few, if pollution damages health, or if spending goes on things that do not improve lives. Amartya Sen describes development as an expansion of people’s capabilities: the real freedoms to live a life they value. On this view income matters because of what it lets people do.
Key termsEconomic growth is an increase in real GDP over time. Economic development is a sustained improvement in living standards and wellbeing, including income, health, education and freedom. PPP adjusts incomes so that one dollar buys the same basket of goods in every country.
Measuring development
| Indicator | What it measures | Main weakness |
|---|---|---|
| GDP per capita (PPP) | Average output and income per person | Ignores distribution, unpaid work and environmental damage |
| HDI | Income, life expectancy, schooling | Only three dimensions; equal weights are a judgement |
| Inequality-adjusted HDI | HDI after allowing for unequal spread | Needs detailed survey data |
| Multidimensional Poverty Index | Overlapping deprivations in health, education and living standards | Choice of indicators and cut-offs |
| Green GDP | GDP minus resource depletion and pollution costs | Valuing nature is hard and contested |
| Gross National Happiness | Wellbeing across nine domains | Subjective; hard to compare across countries |
Worked example
Country A has GDP per capita of $12,000 (PPP) and life expectancy of 62. Country B has $9,000 and life expectancy of 76. Which is “more developed”?
1On income alone, A is richer by a third.
2On health, B’s people live 14 years longer, a very large gap.
3An HDI-style measure would likely rank B higher, because the health gap outweighs the income gap.
ResultThe ranking depends on the indicator. A good answer says which measure is used and why, and notes what it leaves out (for example, how income is shared).
Case studies for this step (in the 100 Case Studies pack)
- Case 59: Bhutan’s Gross National Happiness. Can a country measure wellbeing instead of output, and should we all do the same? Use it for any “limitations of GDP” or “beyond GDP” question.
- Case 20: China’s Air Pollution Crisis. The hidden cost of the world’s fastest growth: why GDP overstated welfare, and the case for green GDP.
Read the full Bhutan and China cases, plus 98 more: 100 Economics Case Studies for $9 (was $15).Get the 100 cases · $9
Common mistakeTreating a rise in GDP as proof that people are better off. Always ask: who received the extra income, and what did it cost in health, environment or leisure?
Exam tipIn “evaluate GDP as a measure of development” questions, give at least two limitations, an alternative (HDI or MPI) with its own weakness, and a real example such as Bhutan or China. Conclude that indicators work best together.
Practise: 6 questions
Try each one on paper first, then check the worked answer.
EasyQ1. State the difference between economic growth and economic development. Show worked answer
Growth is an increase in real GDP. Development is a broader, lasting improvement in living standards, including health, education and freedom, not just income.
EasyQ2. Name the three dimensions of the HDI. Show worked answer
A long and healthy life (life expectancy), knowledge (expected and mean years of schooling) and a decent standard of living (GNI per capita, PPP).
MediumQ3. Why are PPP exchange rates used to compare incomes across countries? Show worked answer
Prices differ between countries. Market exchange rates understate what incomes buy in low-price countries. PPP converts incomes so that one dollar buys the same basket everywhere, giving a fairer comparison of living standards.
MediumQ4. Give two reasons why GDP per capita may overstate welfare. Show worked answer
Any two of: it ignores pollution and resource depletion (China’s air pollution); it ignores inequality, so the average may not reflect the typical person; it counts “defensive” spending such as cleaning up damage; it ignores lost leisure.
MediumQ5. What is one strength and one weakness of Gross National Happiness as a measure? Show worked answer
Strength: it captures wellbeing, community and environment, which GDP misses. Weakness: it relies on subjective survey answers and Bhutan-specific domains, so it is hard to compare across countries or over time.
ExamQ6. Evaluate the view that GDP per capita is the best indicator of development. [10] Show worked answer
For: easy to measure, widely available, strongly linked to health and education [2]. Against: ignores distribution [1], environment (China case) [1], non-market work [1] and wellbeing (Bhutan case) [1]. Alternatives: HDI adds health and education but uses only three dimensions [2]. Judgement: GDP is a useful starting point but not the best on its own; a dashboard of indicators gives a fuller picture [2].
Check yourself
1. The HDI does NOT include
The basic HDI uses income, health and education. Inequality is added only in the inequality-adjusted HDI.
2. Green GDP subtracts
Green GDP adjusts output for the natural capital used up and the pollution produced.
3. Amartya Sen defines development as
Sen’s capability approach focuses on what people are able to be and do.
Your score: 0 out of 3
The short version
- Growth is more output; development is better lives.
- Use PPP for comparisons; use several indicators, not GDP alone.
- HDI, MPI, green GDP and GNH each fix one gap in GDP and add their own.
- Cite Bhutan (case 59) and China (case 20) as evidence.
Want real examples you can quote in every answer?
100 case studies with data, theory, evaluation and exam guidance, 21 of them on development.