Economic growth: a matter of perspective?

Financial global crisis has left in evidence that to be a developed or developing country does not necessary represent a direct correlation with high levels of GDP growth. In fact the fastest-growing economies are not among developed countries. On the contrary, countries that qualified as developing are having the highest rates of economic growth.

Is under this analysis that this two concepts: economic growth and developed country need to be readdressed and place it within the correct priorities.

By definition Economic growth is an increase in the production and consumption of goods and services. It entails increasing population and/or per capita consumption. It is indicated by increasing GDP. Economic growth literally refers to an economy that is getting bigger, not necessarily one that is getting better. [1]

That is precisely the point “getting better”, in current economic-financial process, developing countries with successful rates of GDP growth do not necessary correlate to their development. We have examples in countries like Rwanda or Tanzania with an average of poverty of 44.9% and 28.2% respectively but with GDP growth of 7%. Meanwhile countries considered “developed” as Spain or UK, experimented levels of economic growth of just around 2%.[2]

What it determines being a developed country is “…. the degree of economic development are gross domestic product (GDP), gross national product (GNP), the per capita income, level of industrialization, amount of widespread infrastructure and general standard of living”. “… a developed country is a sovereign state that has a highly developed economy and advanced technological infrastructure relative to other less industrialized nations…”[3]

If we have a look at this chart   GDPgrowt&Poverty  we will see the important disparities on economic GDP growth among “developing “ and “developed” with a clear advantage over the so-called developed countries. The differences go from 16% GDP growth (Papua New Guinea) to the very shy growth of Spain with 1.4%, and levels of poverty of 39.9% and 22% respectively.

On his visit to Mozambique J. Stiglitz has said: “I´ve seen a rich country with poor people”, which reflect perfectly the essence of our analysis. High rates of economic growth not necessary represents get people out of poverty. Is a contradiction in itself to categorize as “advanced economy” a country with considerable levels of people living under 1$ per day, perspectives of growth under stagnation and shocking cuts on essential services like health or education. The lack of sustainability of this situation makes a country more vulnerable for future shocks and could not be considered a reliable economy but a“stagnate country”.

The qualification of developed-developing country according to their GDP growth needs to be revised. In the past, even if GDP growth were not enough satisfactory were definitely more consistent with the category of developed-developing. There was a wide range of elements like infrastructure or education and health services that establish with no doubt the differences between each other. Currently these factors are not enough and we need to search for new criteria that could determinate if a country applies as developed or adecline economy.Torre Eiffel in perspective

UK, Spain, Greece or USA are just some examples of countries that despite being considered developed their infrastructure and essential services (mainly because of the application of austerity measures) have not gone along with their development and of course with a correct investment.

After financial global crisis developed countries from the Euro zone and USA have only reached a maximum of 2% growth and a grey forecast for the next 5 years that do not go further that this figure (for Euro zone and 2.6% for USA). Furthermore people leaving under poverty line become an issue in the Euro zone; 1 of 5 in Spain live under poverty line; and child poverty constitutes a national emergency. (Spain goes in second position after Rumania). Paradoxically that an economy grow faster do not represent a direct relationship with the well-being of their citizens or that could overcome levels of poverty index.

Meanwhile developing countries with good levels of GDP growth have experimented what it seems a contradictory process: high-income inequality, low levels GDP per capita, political instability and corruption, all factors that describe a deteriorated political-economic system but a growing economy. In fact, in a selection of the 13 fastest-growing economies, have shown that are not among developed countries[4]

Even if a country is considered developed, if it has the following negative factors: slow recovery, corruption, GDP growth of not more than 2%, high public debt with a logical negative impact on inequality and poverty, needs of investment on infrastructure and essential services (health and education) and high rates of unemployment (particularly young) could only be referred as developed but for statistical purposes.

Stagnation economic levels supposes reduction in their medium and long-term development levels as well as their capacity on building resilience to face uncertainties as climate change or future economic shocks.

Building resilience is a crucial factor to prevent financial future shocks hence, a sustainable economic growth.

If there are countries not able to fulfil certain requirements could not be considered developed but economies in decline that may enter in a new category different from just “developed countries” but “stagnate economy”, “economy in decline”, “former developed country”, etc.

The concept of developed and developing country is changing dramatically and we are not able to categorize it just through GDP growth index, we need to search for new categories that describes development and well-being in a more accurate form. The output of this search will help countries on their path to boost sustainable economic growth.

[1] http://bit.ly/1LkMA7O

[2] http://data.worldbank.org/country/

[3] http://bit.ly/1DsLh5F

[4] http://bit.ly/1FyYmq9.

Picture: Torre Eiffel in perspective

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