Development Economics

Assignment No. 02
Topic: Summary on Research Paper Economic
Growth and Human Development

Submitted To: Dr. Ghulam Mustafa

Submitted By: Arsalan Ali + Hassan Khan
Class: MBA (1.5)
Date: 28th May, 2015

The University of Lahore

Islamabad Campus

Economic Growth and Human Development

Authors: Gustav Ranis, Frances Stewart,
Alejandro Ramirez (2000)
This study shows strong relationship between economic growth and human development. Other
Studies have shown a significant relationship between economic growth and human development
but in two chains, first economic growth result in human development, second human
development causes to economic growth.

1. Chain A: Economic growth to human development:

In this relation due to good economic growth, public expenditures on health and education
especially on female would be result in human development. When expenditure are made on
health and education, it will ultimately be in result of healthy and skilled labor force which lead
to good output. To prove this relation we have a good example here. Bolivia, Brazil, Chile, Cote
dIvoire, Ghana, India, Indonesia, Pakistan, Philippines, Malaysia, Nicaragua and Peru indicates
that positive effects of family income to change on child schooling.
When cash income is under control of female, we can see more expenditures on human inputs
i.e. food and education etc. In Philippine it has been shown that consumption of calories and
proteins increases with the share of income accruing directly to women.
The significance of public expenditure choice for improving human development is illustrated by
a comparison between Kenya and Malawi. In 1980s, a similar proportion of national income
went to public expenditure (27% in Kenya & 30% in Malawi). But Kenya had a significantly
higher social allocation ratio (47% compared to 35%) and social priority ratio (34% compared to
14%) so that the proportion of GDP going directly to human development-improving priorities in
Kenya was over three time that of Malawi (5.1% compared to 1.5%), which ultimately resulted
in better economic growth in Kenya as compared to Malawi.

2. Chain B: Human development to economic growth:

It is evident that as people become healthier, better nourished and educated, they contribute more
to economic growth. Higher human development leads to enhanced productivity of labor. A
similar study of Cali, Colombia found that a health and nutrition program increased the lifetime
earnings of individuals to from 2.5 to 8.9 times those of an illiterate worker.
In agriculture evidence show that educated former are more likely to use technology and use
latest methods which lead to more productivity. For example in Nepal, the completion of at least
seven years of schooling increased productivity in wheat by over a quarter, and in rice by 13%.

3. Empirical Findings:
For chain A, the variable chosen for human achievement were life expectancy and Social
expenditure in health and education for the timeline of 1970 to 1992. For every percentage point
increase in average share of GDP invested in health and education, the life expectancy shortfall
decreases about 1.75 %. Similarly 1% increase in the female primary gross enrollment rate is
estimated to reduce the life expectancy shortfall by 0.1%.
For chain B, the variable chosen were GDP per capita, level of HD and Gross domestic
investment. The relationship between HD and economic growth was stronger the higher
investment rate and the more equally distributed the income.

4. Virtuous and Vicious and Lop-sided development:

Countries performance can be classified in four categories. Virtuous, Vicious, HD-lopsided and
EG-lopsided. In virtuous condition good human development enhances growth, which in turn
promote human development. In vicious condition poor human growth tends to poor growth,
which also in result of poor human development. In HD-lopsided means strong human
development and weak growth. In EG-lopsided means strong growth with weak human
development. There are very few countries which remain in virtuous category. Maximum
countries fall under vicious condition. HD-lopsided is consider good condition to move into
virtuous category. EG-lopsided consider the dead end. To moving from EG-lopsided to virtuous
is difficult.