What is the Human Development Index (HDI)?

The Human Development Index (HDI) provides a comprehensive overview of human development and was created to emphasise that it should be people and their capabilities which are the best criteria for assessing development rather than economic growth alone. It is comprised of three dimensions:

1. Education. Education is measured by the mean years of schooling for adults aged 25 and over, as well as the expected years of schooling over the life of a current 5-year-old. 
2. Health. Health is assessed by life expectancy at birth. 
3. Standard of living. The standard of living is measured using the Gross National Income (GNI) per capita adjusted for purchasing power parity (PPP).

These dimensions are all equally weighted, and the dimensions are combined using a geometric mean to provide a single index score between 0 and 1.

0 shows that there is no development, and 1 reflects very high levels of development.

What are the advantages of using HDI to measure development?

1. International comparisons. The widespread use of HDI allows for comparisons between countries, revealing global development patterns.
2. Multiple dimensions. The HDI provides a holistic view of development as it takes into account multiple dimensions such as education and healthcare. 

What are the disadvantages of using HDI to measure development?

1. Fails to take into account qualitative factors. HDI fails to take into account more qualitative factors such as cultural identity and political freedoms. 
2. Quality of data. Data quality can vary between countries over time, potentially leading to inconsistencies and inaccuracies.
3. The GNI figure, and hence the HDI figure, does not take into account how income is distributed around the economy.

What are other indicators of development?

1. The Multidimensional Poverty Index (MPI) assesses poverty at the individual level, capturing severe deprivations in multiple dimensions including health, education and living standards.
2. The Inequality-adjusted Human Development Index (IHDI) adjusts the HDI to account for disparities in income distribution.
3. The Physical Quality of Life Index (PQLI) is a composite measure that assesses literacy rates, infant mortality and life expectancy.

What are some economic factors that limit growth and development?

1. Primary product dependency. At early stages of development, countries typically export a narrow range of goods, mostly comprising of primary commodities. These countries are typically dependent on their primary product exports, however, this leaves them vulnerable to volatile changes in global demand and prices for these primary products. Moreover, the Prebisch-Singer hypothesis states that, over the long term, there is a general decline in the price of primary goods relative to the prices of manufactured goods, meaning that primary product dependent countries are likely to see a fall in their terms of trade. Moreover, the sudden discovery of natural resources in a country may lead to a dramatic appreciation of the exchange rate as the country experiences a surge in demand for its exports and currency. This increases export prices, making the country less price competitive. This is known as the Dutch Disease. Thus, countries which are primary product dependent may not be able to sustain long-term growth and development. To overcome primary product dependency, these countries typically diversify into other industries where they can create higher value-added goods and services.
2. Volatility of commodity prices. As primary commodities typically have inelastic demand and supply, any changes in supply and demand will have a significant effect on commodity prices, hence commodity prices are normally volatile. Volatile commodity prices mean that commodity exporters often experience large fluctuations in export revenues. This is likely to impact government revenues and budgets which affects investment decisions, hindering long-term planning and economic growth and development efforts.
3. Savings gap. In developing countries, there are often high levels of poverty which results in a low level of saving. As a result of less saving, banks have less money to lend out, leading to less borrowing and less investment, likely leading to less growth and development. A savings gap is the difference between actual savings and the amount of savings required to boost growth. This increases reliance on aid and external borrowing. The Harrod-Domar model suggests that the rate of economic growth depends on the level of saving and the productivity of investment as savings provide the funds for investment. A savings gap can be overcome by a country employing behavioural nudges encouraging individuals in the economy to save more and by attempting to attract FDI.
4. Foreign currency gap. A foreign currency gap occurs when currency outflows are persistently larger than currency inflows. As a result, a shortage of foreign currency may mean that a country may not be able to purchase as many imports as it requires. This may constrain investment in infrastructure and technology and impede economic growth and development.
5. Capital flight. Capital flight is where large amounts of money are moved out of a country. This normally occurs as a result of a fall in the confidence of investors. This can lead to a depreciation of the currency which makes foreign debt more expensive. Moreover, capital flight reduces investment and capital accumulation. This may lead to reduced productivity, lower growth rates and reduced development as funds are transferred away to more profitable investments abroad.
6. Demographic factors. Demography relates to the size and composition of a population. Rapid growth in population sizes can lead to a strain on resources and infrastructure which is likely to have a negative impact on living standards. Furthermore, an ageing population is likely to lead to increased dependency ratios and may lead to labour shortages. Whereas, if a country has access to a more youthful, well-educated population in employment, the country is likely to experience large amounts of economic growth and development. 
7. Debt. Developing countries often take out large loans to overcome a savings gap. However, if the interest rate on these loans is high, this debt may impose a significant burden on the economy, as heavy debt servicing will mean that money is diverted away from essential services such as healthcare and education, which may limit a country's growth and development in the long run.
8. Access to credit. Many economic agents in developing countries have little or no access to finance. This constrains the ability of individuals and businesses to invest and innovate, limiting growth and development. The development of microfinance schemes has allowed some economic agents to generate an income from a small loan, which has helped to counteract the problem of limited access to credit. However, not all economic agents use the money from these microfinance schemes for entrepreneurial activities, and many have used the money from microfinance schemes to pay off expenses, leading to a debt spiral.
9. Infrastructure. Developing countries require adequate infrastructure in order to promote future economic growth and development. This is because good infrastructure facilitates the movement of goods and people, helping to reduce the costs involved with transportation, and enhancing competitiveness. Reliable infrastructure also attracts foreign direct investment (FDI) into the country, which can improve living standards and boost development and growth further. 
10. Education. In some developing countries there are large shortages of skilled labour. Investing in education and skills will build human capital in these countries, which will enhance labour productivity and innovation, leading to increases in competitiveness and increases in economic growth and development in the long run.
11. Absence of property rights. When there is an absence of property rights within a country, investors will not be incentivised to invest in this country as they can't secure their assets. Moreover, due to an absence of property rights economic agents may not have access to secured loans with a low-interest rate as they may not be able to prove to a bank that they own their assets. This leads to a lack of investment. Strengthening property rights frameworks will help to incentivise investment and boost economic growth and development.

What are some non-economic factors that influence growth and development?

1. Political stability and governance. Effective governance and political stability create an environment which is conducive to investment and hence leads to economic growth and development. Poor governance with large levels of corruption is likely to lead to a fall in animal spirits and investment as there is a lack of transparency and trust, reducing economic growth and development.
2. Social factors. Social cohesion and inclusivity help promote economic stability, which can help create economic growth and development.
3. Geographical factors. If a country is particularly vulnerable to natural disasters, investors may be less willing to invest in the country due to uncertainty surrounding a natural disaster, leading to less economic growth and development.
4. Cultural factors. Cultural norms will influence attitudes towards risk and entrepreneurship which will have an impact on economic growth and development. 
5. Disease. The outbreak of disease is likely to lead to reduced labour productivity, labour shortages and hindered human capital formation. This is likely to exacerbate poverty and lead to a reduction in economic growth and development.

What are examples of market-orientated strategies that influence growth and development?

1. Trade liberalisation. Reducing trade barriers will mean that producers have a larger market to sell to, increasing export revenues, likely resulting in higher tax revenues for the government which the government can spend on areas such as education and healthcare to improve economic growth and development.
2. Promotion of FDI. Countries can attract FDI by lowering corporation tax rates, creating enterprise zones and improving infrastructure. Attracting FDI can lead to capital and technology being brought into the country which can help to boost domestic industries, allowing them to increase output and create more innovative goods and services, improving economic growth and development.
3. Removal of government subsidies. Removing government subsidies will help to reduce X-inefficiency, incentivising firms to improve their efficiency. This is likely to lead to a fall in costs, likely leading to improvements in competitiveness as firms can lower their prices due to lower costs. This will likely lead to an increase in exports as goods and services produced by firms are now more price competitive, leading to potentially increased revenues for these firms, likely leading to increased investment, potentially leading to increased output, hence improving economic growth and development.
4. Floating exchange rate systems. This means that governments do not have to be concerned about their foreign currency and gold reserves. Moreover, floating exchange rate systems can enhance economic flexibility, allowing these countries to better absorb external shocks without the need for intervention by monetary authorities.
5. Microfinance schemes. Microfinance enables individuals in the economy, who previously would not have had access to finance, to take out a loan which enables them to start a business, allowing them to generate an income, and hence reducing poverty. These schemes may also increase output as these schemes often help fund businesses, potentially resulting in economic growth.
6. Privatisation. Privatising state-owned industries can lead to these industries becoming more efficient, as they are incentivised to maximise profits by reducing costs. As a result, this can lead to increases in productivity levels and potentially more innovation in previously monopolistic sectors, leading to increased economic growth and development.

What are examples of interventionist strategies that influence growth and development?

1. Development of human capital. Investing in education can help to improve human capital within the economy. This will improve labour productivity, whilst also leading to more innovation. This will help the economy to produce more high-quality and low-cost goods and services, leading to increased economic growth and social development. 
2. Protectionism. Protectionism can help shield domestic industries which can help to protect jobs and livelihoods. However, domestic industries may become inefficient as they don't face as much competition due to protectionism being employed, potentially leading to a loss of potential output.
3. Managed exchange rates. Adopting a managed exchange rate will help to promote stability and reduce uncertainty surrounding currency fluctuation, which may lead to more investment and thus economic growth and development. However, interventions in the forex market may distort market mechanisms.
4. Infrastructure development. Improving the infrastructure of a country will help to reduce costs for producers. This will, ceteris paribus, lead to more profit which producers can use to reinvest in their business in order to expand output and create more innovative products, leading to economic growth and development.
5. Promoting joint ventures with global companies. Promoting joint ventures may help lead to transfers of technology and expertise to less developed economies which can help these economies to increase their output and expand. Moreover, the tax revenues generated from the joint venture can be used for development and growth.
6. Buffer stock schemes. Buffer stock schemes help to stabilise commodity prices which are usually very volatile. When the price of the commodity is too high, stored stocks of the commodity are sold to reduce the price, and when the price is too low, further stocks of the commodity are bought to increase the price. This helps to provide income stability for producers as buffer stock schemes reduce the volatility of commodity prices, which is likely to lead to an increase in confidence and investment, stimulating economic activity and economic growth and development.

What other strategies exist to influence growth and development?

1. Industrialisation. The Lewis model suggests that by transferring labour from the agricultural sector to the industrial sector, a country could achieve significant amounts of growth and development. This is because initially there is lots of labour in the agricultural sector so wages are low. This surplus labour is absorbed by the industrial sector. The Lewis turning point occurs when the surplus labour in agriculture falls, causing wages to rise, which leads to the adoption of more efficient technologies in agriculture and industry. This drive towards technological advancement fuels economic growth and development.
2. Development of tourism. Developing and investing in tourism will help to increase tourism, leading to an increase in demand for the country's currency as more tourists visit the country, leading to, ceteris paribus, an appreciation of the currency. This is likely to lead to cheaper imports, which lowers the cost of production for producers that source their raw materials from abroad. This likely leads to increased profitability, meaning firms can employ more workers to produce more output, improving economic growth and development.
3. Development of primary industries. Focusing on and developing primary industries can boost rural development by creating employment opportunities and can increase the supply of raw materials available for industry, supporting industrialisation and economic growth.
4. Fairtrade schemes. Fairtrade schemes aim to reduce the monopsony power of employers who often exploit workers. Fairtrade promotes equitable trade relationships and better working conditions for workers, creating sustainable development. Better working conditions may also lead to workers becoming more productive, leading to rising output levels and potentially contributing to economic growth.
5. Aid. Aid will help countries to overcome the savings gap, and as savings are required for loanable funds which is required for investment, aid will also help to improve investment. Improving investment in the country will help to improve infrastructure, healthcare and education, leading to economic growth and development.
6. Debt relief. Debt relief can reduce debt servicing burdens for developing countries that may be spending lots of money on servicing their debt rather than investing it into the economy to improve growth and development. 

What do international institutions and non-government organisations (NGOs) do?

The World Bank aims to reduce poverty and promote sustainable development by providing low-interest rate loans, interest-free credit and grants for education, health and infrastructure. The World Bank is composed of:

1. The International Bank for Reconstruction and Development (IBRD) lends to middle-income and creditworthy low-income countries. 
2. The International Development Association (IDA) supports the poorest countries through interest-free loans and grants.
3. The International Finance Corporation (IFC) is a development institution focused on the private sector.
4. The Multilateral Investment Guarantee Agency (MIGA) works to increase FDI into developing countries.
5. The International Centre for Settlement of Investment Disputes (ICSID) offers resources for the mediation and arbitration of investment disputes on an international scale.

The International Monetary Fund (IMF) works to promote the stability of exchange rates and international monetary cooperation. The IMF provides advice to countries in order to promote economic growth and development. The IMF often helps countries with high debts by providing them with short-term loans as long as they carry out economic reforms. However, many have argued that some countries lose their fiscal responsibility as the IMF tells them how to spend their money.

Non-government organisations (NGOs) don't aim to make a profit. They play a key role in fostering economic development. NGOs implement projects and programs to address various social, economic and environmental challenges. They work directly with communities to increase development and improve quality of life.