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ECONOMIC GROWTH & HAPPINESS

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What is Economic Growth

Economic growth is the increase in market value of the goods and services produced by an economy over time. It is conventionally measured as the percent rate of increase in real gross domestic product, or real GDP. Of more importance is the growth of the ratio of GDP to population (GDP per capita, which is also called per capita income).

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• Intensive growth

• Extensive growth

• In economics, "economic growth" typically refers to growth of potential output, i.e., production at “full employment".

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Determinants of per capita GDP growth

Per capita output is determined by: output per unit of labor input (labor productivity), hours worked (intensity), the percentage of the working age population actually working (participation rate) and the proportion of the working-age population to the total population (demography). 1. Productivity2. Demographic changes

Demographic factors may influence growth by changing the employment to population ratio and the labor force participation rate

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3. Capital Refers to physical capital4. New products and services Create demand.5. Political institutions, property rights, and rule of law Transition to capitalism from earlier economic systems was

enabled by the adoption of government policies.6. Business cycle Short-run variation in economic growth is termed the business

cycle. Economists attribute the ups and downs in the business cycle to

fluctuations in aggregate demand.

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Economic growth means an increase in real GDP. This increase in real GDP means there is an increase in the value of national output / national expenditure.Economic growth is an important macro-economic objective because it enables increased living standards and helps create new jobs.

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Does economics growth bring increased living standards?

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Benefits of economic growth

1. Increased consumption2. Improved public services3. Reduced unemployment and poverty

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Why economic growth may not bring increased happiness

1. Diminishing returns2. Economic growth can cause increased

inequality3. Increase in crime and social problems4. Diseases of affluence

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Determinants For Economic Growth & HappinessMainly there are four determinants which help to determine relationship between happiness and economic growth in any country:1. Human development index2. Happiness3. Lorenz curve & Gini coefficient4. Income distribution among citizens

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Human Development IndexThe HDI was created to emphasize that people and their capabilities should be the ultimate criteria for assessing the development of a country, not economic growth alone. The Human Development Index (HDI) is a summary measure of average achievement in key dimensions of human development: a long and healthy life, being knowledgeable and have a decent standard of living. The HDI is the geometric mean of normalized indices for each of the three dimensions.

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The 2010 Human Development Report(HDI) combines three dimensions1. A long and healthy life: Life expectancy at birth (LEI)2. Education index: Mean years of schooling and Expected years of

schooling (EI)3. A decent standard of living: GNI per capita (PPP US$) (II)

HDI=LEI.EI.IIWhere,LE: Life expectancy at birthMYS: Mean years of schooling (Years that a person 25 years-of-age or older has spent in schools)EYS: Expected years of schooling (Years that a 5-year-old child will spend in schools throughout his life)GNIpc: Gross national income at purchasing power parity per capita

Source:http://hdr.undp.org/en/content/table-1-human-development-index-and-its-components

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HDI Rankings

Country (High Human Development)

HDI 2013 HDI 2012

Norway .944 .943Australia .933 .931Switzerland .917 .916Netherlands .915 .915United States .914 .912

Source:http://hdr.undp.org/en/content/table-1-human-development-index-and-its-components

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Country (Medium Human Development)

HDI 2013 HDI 2012

Kiribati .607 .606Tajikistan .607 .603India .586 .583Bhutan .584 .580Cambodia .584 .579

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What is Gross National Happiness (GNH)GNH is a unique and a very significant approach to national and global development, in which a country’s progress is not only dependent on the economic development but also on the non-economical factors of well-being. The World Happiness Report is a measure of happiness taken on the basis of six important factors that are accountable for a country’s well-being as well as happiness of the people. These factors are (a) GDP per capita, (b) good health and healthy life expectancy, (c) someone in the family to count on, (d) freedom to make choices in life, (e) freedom from corruption, and lastly (g) generosity

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Initially, there were four main pillars behind the concept of GNH1. good governance of the state2. sustainable state’s social and economic development3. cultural preservation of the state4. state’s environmental conservation and protection.

With time, GNH has also included other domains for a more holistic approach such as psychological well-being, good health, proper education for all, right use of time, community’s strength, ecological diversity and resilience, and raising living standards

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Can we follow GNH policy in India?In the name of globalization, liberalization and economic reforms, our country has progressed and India is today one of the major G-20 economies of the world. But at the same time, India also needs to change its policy reforms to benefit the poorer and under-privileged sections of the country. A development system should be framed to attack poverty in the country.• GNH aims at improving the conditions of all people in the society,

irrespective of caste, creed, gender, religion and economic background, which in turn can improve the entire economy.

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• Peace and happiness are the two essences of GNH. • Gross Happiness measures socio-economic development by

emphasising Economic, Environmental, Physical, Mental, Workplace and Political Wellness.

• So India can adopt this policy of Gross National Happiness, which can increase the number of people who are happy and at the same time decrease the inadequate and poor conditions of people to make them happy.

• Combining GDP with GNH will not be a bad idea at all, after all every Indian has a right to happiness!!!

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Where Does India Rank In GNHGNH Ranking

Ranking Country On Scale Of 0-10 1 Switzerland 7.5872 Iceland 7.5613 Denmark 7.5274 Norway 7.5225 Canada 7.4276 Finland 7.4067 Netherlands 7.3788 Sweden 7.3649 New Zealand 7.286

10 Australia 7.284117 India 4.565

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Income Inequality• Income inequality refers to the extent to which income is distributed in an uneven manner among a population.

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• The gap between the rich and poor.

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Factors Responsible For Income Inequality• Growth factor

• Highly unequal assets distribution

• Inadequate employment generation

• Differential regional growth• Globalization

• Gender pay gap 

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According to a 2011 report published by the Organisation for Economic Cooperation and Development (OECD), income inequality has doubled in India since the early 1990s. The richest 10 percent of Indians earn approximately 12 times as much money as the poorest 10 percent, compared to roughly six times in 1990. India's economy is one of the fastest-growing emerging economies of any newly industrialized nation in the world, but other countries have made significantly more progress in addressing income inequality.

"Brazil, Indonesia and, on some indicators, Argentina have recorded significant progress in reducing inequality over the past 20 years," according to the OECD report. "By contrast, China, India, the Russian Federation and South Africa have all become less equal over time."

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Measures Of Income Inequality

•Lorenz Curve

•Gini Coefficient

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Lorenz Curve• In economics, the Lorenz curve is a graphical representation of the cumulative distribution function of the empirical probability distribution of wealth or income.

• It was developed by Max O. Lorenz in 1905 for representing inequality of the wealth distribution.

• The curve is a graph showing the proportion of overall income or wealth assumed by the bottom x% of the people, although this is not rigorously true for a finite population.

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• It is often used to represent income distribution, where it shows for the bottom x% of households, what percentage (y%) of the total income they have. The percentage of households is plotted on the x-axis, the percentage of income on the y-axis. It can also be used to show distribution of assets. In such use, many economists consider it to be a measure of social inequality.

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• A perfectly equal income distribution would be one in which every person has the same income. In this case, the bottom N% of society would always have N% of the income. This can be depicted by the straight line y = x; called the "line of perfect equality.“

• By contrast, a perfectly unequal distribution would be one in which one person has all the income and everyone else has none. In that case, the curve would be at y = 0% for all x < 100%, and y = 100% when x = 100%. This curve is called the "line of perfect inequality."

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Gini Coefficient• It is a measure of statistical dispersion intended to represent the

income distribution of a nation's residents, and is the most commonly used measure of inequality.

• It was developed by the Italian statistician and sociologist Corrado Gini and published in his 1912 paper "Variability and Mutability" .

• A Gini coefficient of zero expresses perfect equality, where all values are the same (for example, where everyone has the same income).

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• A Gini coefficient of one (or 100%) expresses maximal inequality among values (for example, where only one person has all the income or consumption, and all others have none).

•  a value greater than one may occur if some persons represent negative contribution to the total (for example, having negative income or wealth)

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Conclusion• That there is no relation between economic growth and Happiness.

• Economic growth is just a small part by this happiness cannot be measured.

• It also has income inequality and other factors.

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Thank You

Efforts By:Udit Goel