3.2.6.5 - Measuring development and its barriers

Growth and human development

Economic growth is an increase in real output, whereas economic development is a broader improvement in people's living standards, opportunities and capabilities.

Growth can raise real income and the resources available for health care, education and infrastructure. Real output per person is more informative about average material living standards than total output when the population changes. However, an average does not reveal who receives the income or whether essential services improve.

A mining boom might increase real GDP while profits mainly accrue to foreign owners and a small domestic elite. Pollution can damage health and households may lose access to land. Measured output has grown, but this is weak evidence that most people's lives have improved. Conversely, better vaccination or access to safe water can improve welfare even when the immediate increase in measured output is small.

Development therefore asks what people can do with available resources: live healthy lives, acquire skills, find productive work and participate in society. Its environmental sustainability matters because present income can be increased by exhausting resources or imposing future costs. Growth and development often reinforce each other, but they are neither identical nor automatic consequences of one another.

Characteristics of less-developed economies

Less-developed economies often face several connected constraints, but there is substantial variation within and between countries.

Low average income and widespread poverty can limit nutrition, schooling and savings. Employment may be concentrated in low-productivity agriculture or an informal sector with insecure work and limited access to finance. A narrow export base, especially dependence on a few primary commodities, exposes incomes and foreign-currency earnings to volatile prices. Poor transport, unreliable electricity and weak health services raise the cost of producing and trading.

Some economies also have rapid population growth, high dependency ratios or weak administrative capacity. These can increase pressure on services, but are not defining features shared by every developing economy. A young population can support growth if education, health and employment opportunities improve. Resource abundance can finance development if revenues are managed well; resource scarcity need not prevent it.

The constraints can reinforce each other. Low income limits saving, reducing investment in machinery and infrastructure. Low productivity then keeps incomes low: a poverty trap. Banks may avoid small risky borrowers, even where an investment could be productive. At household level this is a finance problem; across many households it becomes a constraint on aggregate capital accumulation and potential output.

Avoid treating a development label as a complete explanation. Ask which constraints are actually present, who faces them and what evidence shows that they are binding. An urban export sector may be productive while remote rural communities lack basic services; national averages can conceal this dual structure.

HDI and other development indicators

Development requires several indicators because income, health, education and distribution capture different aspects of people's lives.

The Human Development Index (HDI) combines three dimensions: health, education and material living standards. Health uses life expectancy at birth. Education uses mean years of schooling among adults aged 25 and above and expected years of schooling for children entering school. The income dimension uses GNI per person adjusted for purchasing power. The dimension indices are normalised and combined using a geometric mean; the resulting index lies between zero and one. A higher value indicates higher average achievement in these dimensions, not a percentage of people who are developed. UNDP's HDI methodology, checked 1 October 2026, explains the measure.

HDI broadens the comparison beyond GDP, but it remains an average. It does not directly measure income inequality, political freedom, environmental damage or the quality of every year spent in education. Its income dimension also overlaps with income measures, so counting a higher GNI and a higher HDI as two wholly independent findings can exaggerate the evidence.

Use a set appropriate to the question, rather than assuming one rank settles every comparison. Income growth alongside falling poverty and improved health is stronger evidence of broad development than income growth alone.