Worked example 1
Country B's real GDP grows at 6% per year but its HDI rank falls from 145 to 152. Life expectancy is stagnant at 58 years, literacy is 52%, and 40% of the population lacks clean water access.
Explain why GDP growth may not indicate development and evaluate two policies to promote sustainable development. [12 marks]
Show solution outline
Why GDP growth ≠ development:
- HDI falling despite 6% GDP growth → gains not reaching health, education, or income per capita broadly.
- Stagnant life expectancy (58) → healthcare, nutrition, sanitation failing — GDP may reflect extractive industries (mining) with limited spillovers.
- Low literacy (52%) → human capital not building — limits future productivity.
- Clean water access (60%) → basic welfare unmet — multidimensional poverty persists.
- Possible causes: inequality (GDP concentrated), environmental degradation, informal economy excluded from data but households suffer.
Policy 1 — Human capital investment (education + health):
- Free primary education, teacher training → literacy rises → productivity, LRAS shifts right.
- Clean water and vaccination programmes → life expectancy rises → direct HDI improvement.
- Evaluation: fiscal cost high; benefits long-term; requires governance to prevent corruption.
Policy 2 — Sustainable infrastructure:
- Renewable energy, rural water systems → raises productivity and reduces environmental damage.
- Evaluation: may need foreign aid or FDI; avoids resource-depleting growth path.
Judgement: 6% GDP growth is misleading — development requires targeted social investment and sustainable practices, not aggregate output alone.