GDP and Economic Development

Readers Question: If there is a increase in GDP why is development often unseen?

Higher GDP means an increase in National Output and National Income but it doesn’t necessarily lead to economic development this is for the following reasons:

  1. Investment takes Time. It takes time for improvements in statistics like education and literacy rates. Higher GDP can be used to increase spending on education. But, it will take many years before education standards actually improve. Other types of investment like infrastructure and health care will also take a long time
  2. Inequality. Higher GDP may not ‘trickle down’ to the rest of society. Often increased GDP tends to benefit a small section of society. This problem is worse if corruption is a serious problem
  3. Environment. If Higher GDP causes environmental problems, living standards can seem to worsen, rather than improve.
  4. What is GDP spent? It depends on how the proceeds of Growth are used. There is no guarantee that the proceeds of growth will be used in areas which benefit economic development like education and infrastructure. If GDP is used for military spending or debt repayments, there may be little improvement.
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