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Emerging economies are making big leaps in ‘real’ development

By John Calverley, Head of Macroeconomic Research at Standard Chartered Bank

Over the last decade emerging economies have made huge strides in ‘real’ development. By ‘real’ development, we mean not just increased national output, or gross domestic product (GDP), which is the traditional measure, but also progress across other key aspects of development, including life expectancy, years of education and access to clean water and sanitation.

A few economies, such as China, have clearly grown at an ultra-rapid rate in recent decades. But GDP is only a partial measure of development. The good news is that even countries that have not grown GDP as fast have made major improvements across the other measures of development. Our recent study has found that, on these other key indicators, some of the fastest developers have been in Africa and the Indian sub-continent.

One of the first attempts to track progress beyond GDP was the Human Development Index, introduced by the UN in 1990, which added longevity and years of education to income growth as a summary measure of well-being. In recent years, a greater emphasis on environmental issues has focused attention on the idea of sustainable development, though this is hard to define and means different things to different people.

At least a dozen new measures of sustainable development have been proposed, including the Environmental Performance Index, the Sustainable Society Index and the Happy Planet Index. But most offer only a snapshot, comparing country rankings at a point in time. At Standard Chartered we wanted to look at progress and change over an extended period. So, just as we can say that China has been the out-and-out leader in the GDP stakes – GDP per capita in purchasing-power-parity terms has grown an astonishing 9.7% p.a. since 2000 – we can identify which countries are ‘developing’ the fastest if we use a broader range of measures.

To gauge this, our study put together five different measures, where data is now available for a decade or more. We used the change in GDP per capita, the improvements in life expectancy and years of education, together with two components from the Environmental Performance Index (EPI) from Yale University to arrive at the Standard Chartered Development Index (SCDI). The EPI includes a sub-index of environmental health that covers issues that impact human health directly, such as access to clean water and sanitation, air quality and child mortality and also a sub-index called ‘ecosystem vitality’ which measures man’s impact on the environment, including air and water pollution, climate change and habitat loss.

Ghana, Uganda, Korea, Bangladesh and Singapore emerged as the best performers in our index with Egypt, Nigeria, India, Brazil and Indonesia making up the remainder of the ‘Top 10’. China comes lower down on the list. Its performance on GDP per capita is outstanding and it has also invested heavily in improving access to education but in other areas it does not do so well.

Several of the `Top 10’ markets in our index have added four or five years or more to life expectancy just since 2000, and many have added between two and four years to the years of education available for children. While we find most of the top-performing countries are low-income (it is easier to make rapid progress from a low base) there are also some impressive examples of high-income countries doing very well. Korea and Singapore for example, already developed countries in terms of income per head, have made impressive gains in improving general well-being over the last decade, even while their GDP growth has slowed from past rapid rates.

The one area which is proving difficult is the environment. Most emerging economies are putting huge pressure on their environment, adding to air pollution, growing CO2 emissions and losing forests and other habitats. In fact, in some environmental aspects developed countries are doing better than emerging countries. Slower growth helps, but also in developed countries, the pressure to clean up the environment and avoid degradation is stronger. This is not to say that all objectives are being met, but there are at least signs of movement in the right direction on measures such as CO2 emissions and habitat protection.

Dealing with environmental degradation is the most challenging area of development, because countries with higher income per capita, as well as countries growing GDP fast, tend to have the greatest impact on the environment. Poor countries want to develop, of course, and people in richer countries don’t want to give up what they have. So something has to give, and it is most often the environment.

GDP is still an important measure of progress. Higher incomes empower people to spend on what they choose and are correlated over time with better education, better human health and greater longevity as these issues become higher priorities for wealthier societies. Still, the correlations between GDP growth and `real’ development are far from perfect; progress also depends on policy and our research clearly shows that some governments have done a better job than others. New indicators can help with identifying the areas that need attention and we hope our development index provides some pointers. Finding the way forward on the environment is likely to be the greatest challenge for the future.

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