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IB Economics
Notes
Understanding
Economic
Development
(2022 Syllabus)
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18.1 Sustainable Development
Sustainable development has become a key consideration in economic policy-making
worldwide. It ensures that the pursuit of economic growth does not compromise the
well-being of future generations.
● Sustainable development refers to development that meets the needs of the present
generation without compromising the ability of future generations to meet their own
needs.
● UN’s 17 Sustainable Development Goals – link
● Three pillars of sustainable development:
○ Economic development: Sustainable development requires economic growth
that is inclusive and benefits all members of society.
○ Social development: It involves promoting social equity, human rights, and
access to essential services like education, healthcare, and sanitation.
○ Environmental protection: This aspect emphasizes conserving natural
resources, reducing pollution, and mitigating climate change to ensure the
long-term health of the planet.
● Relationship between the three pillars: The three pillars of sustainability are
interdependent and mutually reinforcing. Economic development can provide the
resources needed for social progress and environmental protection, while social
well-being and a healthy environment are essential for sustained economic growth.
● Key principles of sustainable development:
○ Intergenerational equity: Meeting the needs of the current generation should
not come at the expense of future generations.
○ Intragenerational equity: Ensuring fairness and equal opportunities within the
current generation.
○ Precautionary principle: Taking preventative action to avoid potential
environmental harm, even in the absence of complete scientific certainty.
○ Polluter pays principle: Holding polluters accountable for the environmental
damage they cause.
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○ Integration of economic, social, and environmental considerations: Policy
decisions should take into account the interconnectedness of these three
dimensions.
● Importance of sustainable development:
○ Ensuring long-term economic growth: By protecting natural resources and
promoting social equity, sustainable development creates a stable and
resilient economy that can support growth over the long term.
○ Preserving the environment for future generations: It helps to mitigate climate
change, reduce pollution, and conserve biodiversity, ensuring a healthy planet
for future generations.
○ Improving human well-being: Sustainable development contributes to
improved health, education, and living standards, leading to a better quality of
life for all.
○ Promoting social justice: It aims to reduce poverty, inequality, and
discrimination, fostering a fairer and more just society.
● Challenges to achieving sustainable development:
○ Short-termism: Economic and political systems often prioritize short-term
gains over long-term sustainability.
○ Conflicting interests: Different stakeholders may have conflicting priorities,
making it difficult to balance economic, social, and environmental goals.
○ Lack of awareness: A lack of public understanding and political will can hinder
progress towards sustainable development.
○ Poverty and inequality: Poverty and inequality can create a vicious cycle that
makes it difficult to break free from unsustainable practices.
○ Population growth: Increasing global population puts pressure on resources
and makes it more challenging to meet the needs of everyone sustainably.
● Relationship between Sustainability and Poverty:
○ Pollution of Affluence → When environmental damage arises because of
industrial production based on use of fossil fuels (such as oil) and using up
common pool resources, leading to climate change.
○ Pollution of Poverty → When environmental damage occurs due to economic
activities pursued by very poor people in an effort to survive.
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18.2 Measuring Development
● Economic Growth refers to increases in output (real GDP) and incomes over time,
often measured on a per capita basis.
● Economic Development refers to a multidimensional process that leads to improved
standards of living for a population as a whole.
○ More formally, it refers to a process where increases in real per capita output
and incomes are accompanied by improvements in standards of living of the
population and reductions in poverty and increased access to goods and
services that satisfy basic needs.
○ Economic Development is multidimensional because ‘standards of living’
encompasses many factors.
● In theory, Economic Growth should lead to Economic Development. It delivers
increasing levels of output and incomes, hence societies can better satisfy the needs
and wants of their populations and secure improvements in their standards of living.
But this relationship does not always hold true.
● Indicators measure economic development. Indicators can be single or composite
indicators.
● Economic indicators:
○ Gross Domestic Product (GDP) per capita: This measures the total value of
goods and services produced in a country divided by its population. It
provides a basic indication of a country's average income and economic
output.
○ Gross National Income (GNI) per capita: This represents the total income
earned by a country's residents, including income from abroad, divided by its
population. It reflects the overall income of the nation's citizens.
● Limitations of GDP and GNI per capita as measures of development:
○ Income distribution: They do not account for income inequality within a
country. A high GDP per capita may mask significant disparities in wealth
distribution.
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○ Non-marketed activities: These indicators do not capture the value of
non-marketed activities, such as subsistence farming or household work,
which can be substantial in developing countries.
○ Quality of life: They fail to reflect important aspects of quality of life, such as
health, education, and environmental quality.
○ Sustainability: GDP and GNI per capita do not consider the environmental
impact of economic activities or the depletion of natural resources.
● Health indicators:
○ Life Expectancy at Birth: Average number of years of life in a population.
○ Infant Mortality: Number of infant deaths from the time of birth until the age of
one, per 1000 live births.
○ Maternal mortality: Number of women who die per year as a result of
pregnancy-related causes, per 100000 live births.
● Education Indicators:
○ Adult Literacy Rate: Measures the percentage of people aged 15 or more in
the population who can read and write.
○ Primary school enrolment: Measures the percentage of school-age children
who are enrolled in primary school (elementary school).
○ Lower secondary school enrolment: Measures the percentage of children
enrolled in the lower years of secondary school (high school).
● Economic Inequality Indicators:
○ Gini Coefficient (and Lorenz Curve)
○ Poverty Lines
○ Minimum Income Standards
● Composite Indicators include:
○ Human Development Index (HDI): This composite index combines three
dimensions of development: health (life expectancy), education (mean and
expected years of schooling), and income (GNI per capita, US$ PPP). It
provides a broader measure of well-being than income alone.
○ Inequality-adjusted Human Development Index (IHDI)
○ Gender Inequality Index (GII): This index measures gender disparities in three
dimensions: reproductive health, empowerment, and economic participation.
It highlights the disadvantages faced by women in various aspects of life.
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○ Happy Planet Index (HPI): This index measures the ecological efficiency with
which human well-being is achieved. It considers factors such as life
expectancy, well-being, and ecological footprint.
○ Genuine Progress Indicator (GPI): This alternative measure attempts to
adjust GDP for the costs of negative social and environmental impacts, such
as pollution, crime, and resource depletion. It aims to provide a more
comprehensive and sustainable measure of progress.
● Importance of using multiple indicators:
○ Relying solely on economic indicators like GDP per capita can provide an
incomplete picture of development.
○ Using a combination of indicators that encompass economic, social, and
environmental aspects offers a more holistic understanding of a country's
progress.
○ This approach helps identify areas where progress is lacking and allows
policymakers to formulate more targeted and effective development policies.