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Archives of Business Review – Vol. 8, No.6

Publication Date: June 25, 2020

DOI: 10.14738/abr.86.8348.

Verma, N. M. P., Gaur, M., & Kant, R. (2020) GDP Movements in High and Moderate HDI Economies: An Empirical Investigation.

Archives of Business Research, 8(6). 19-31.

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GDP Movements in High and Moderate HDI Economies: An

Empirical Investigation

NMP Verma

Professor and Dean, School of Economics and Commerce,

Babasaheb Bhimrao Ambedkar University, Lucknow, India

Monika Gaur

Doctoral Fellow at Faculty of Management Studies,

University of Delhi, India

Ravi Kant

Assistant Professor at Sri Ram College of Commerce,

University of Delhi, India

ABSTRACT

Economists worldwide acknowledge the estimation and implications of

Gross Domestic Product (GDP) and Human Development Index (HDI) as

a measure of development across the globe. The analysis of GDP and its

various components are still useful in order to observe the financial

scenario of the economy. Since GDP does not include the various

relevant components of socio-economic and environmental activities,

it also does not reveal the real picture of economic progress. Several

efforts have been made by economists worldwide to quantify better

indicators of wellbeing. The Human Development Report, 1996,

pioneered the casual relationship between economic growth and

human development. There is a usual relationship between these two,

because economic growth creates the basis for human development via

providing financial benefits or monetary gains to the economy,

provided that the formulation of rational policies and their

implementation are appropriately executed. This study tries to

synthesize economic growth and human development. The research

employs Spearman rank correlation and Logistic regression of high and

middle human development countries across 1990 to 2017, to

determine the association mentioned above. The data is from the UNDP

database and various reports and articles related to human

development and economic growth.Policy implication is useful.

Keywords: economic growth, human development, well-being, gross

domestic product.

BACKDROP

The idea of estimating National Income was developed in the 1930s by a team of researchers led

by the economist Simon Kuznets, the Gross Domestic Product (GDP) measure was conceived in

response to the recognition that limited and fragmented economic information posed a challenge

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Verma, N. M. P., Gaur, M., & Kant, R. (2020) GDP Movements in High and Moderate HDI Economies: An Empirical Investigation. Archives of Business

Research, 8(6). 19-31.

URL: http://dx.doi.org/10.14738/abr.86.8348 20

to policymaking during the Great Depression, "GDP: One of the Great Inventions of the 20th

Century" (Bureau of Economic Analysis, 2015). In our world economic system, from about more

than six decades, the estimation of Gross Domestic Product (GDP) and its significance has been

widely acknowledged. The analysis of GDP and its various components has been still useful in order

to observe the financial scenario of the economy. The GDP is the sum of the value of all final goods

and services produced in a financial year. There are different methods of calculating GDP, such as

expenditure, value-added, and income method. Each of these methods has its own significance and

limitations. In most countries, the estimation of GDP compiles by Government agencies. In the

United States of America, the government collects and compiles data from the bureau of labor

statistics (BLS) then it goes to the Bureau of Economic Analysis (BEA), which is part of the

department of commerce. Similarly, in the Republic of China, The statistics bureau estimates the

GDP and its components through their surveys. In India, the Ministry of Statistics and Programme

(MOSPI) is responsible for estimates of the GDP through the National Sample Survey Office (NSSO).

Generally, GDP measures the flow of Goods and Services within the market in an accounting year.

More technically, in the case of India, the expenditure approach has been employed to determine

the GDP, which takes the market value of all domestic expenditures made on final goods and

services in a single year. Consumption expenditures, investment expenditures, government

expenditures, and net exports (export subtracted imports) are the major components of the

expenditure approach to calculating GDP. In the calculation of GDP, numerous limitations have

been identified by several economists and policymakers throughout the evolution of measuring

economic progress. For Instance, GDP does not estimate some essential activities such as volunteer

work, social capital formation within healthy family units, the cost of social unrest or crime, the

cost of environmental degradation and depletion of natural resources.

Since GDP does not include the various relevant components of socio-economic and environmental

activities, it also does not reveal the real picture of economic progress. In 1934, Simon Smith

Kuznets, an American Economist and statistician who considered as the chief architect of the

United States national accounting system, caveated against equating GDP growth and economic

and social wellbeing. Kuznets's work to estimates the socio-economic wellbeing is allowed to

analyze the structure of the national income his theoretical development in the field of measuring

well being still significant. Later he awarded by Noble Prize in economic sciences for his prominent

work. According to U.S. Bureau of economic analysis, the purpose of GDP estimation GDP is to

reflect the economic growth in term of finance; what is the pattern of consumption of goods and

services; what percent of the change in production is due to inflation or deflation and, how much

of the income produced is being used for consumption and as opposed to investment or savings.

The estimation of GDP throughout the globe has been a measure of economic progress, which

further strengthens in the Bretton woods Conference. Most countries were facing socio-economic

turmoil after World War II. The economic crisis just after the WWII in terms of the higher

unemployment rate, declining the value of currencies or high level of inflation, lower economic

growth, higher trade deficit, fiscal deficit and social crisis in terms of rising crimes had been

responsible for developing an international unity for the economic corporation. The establishment

of the International Bank for Reconstruction and Development (IBRD) was the resultant of the

socio-economic crisis. In the first meeting, 44 leaders of allied nations gathered in Bretton Woods

Meeting with the intent of reaping the benefits of international trade, political stability, and foster

peace. Throughout the evolution of estimating economic welfare and progress, the leading

economist, policymakers, and political leaders of the globe have been considered GDP as a wise

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Archives of Business Research (ABR) Vol.8, Issue 6, June-2020

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measure of economic progress in financial terms. The GDP and its trends have the strength to

measure the value of goods and services produced in a year; it also reflects the consumption

savings and investment scenario of the economy. The rise in GDP growth is an intrinsic factor in

expanding economic wellbeing. With the expansion of knowledge in the area of calculating

economic progress, there have been numbers of different indexes developed during the last three

decades. In the next section, the study moved towards measuring more realistic economic progress

by analyzing the difference between GDP and Welfare.

CONCEPTS OF GROSS DOMESTIC PRODUCT (GDP) AND HUMAN DEVELOPMENT

The Bureau of Economic Analysis (BEA) gives a clear definition of GDP:

"Gross domestic product (GDP) is the value of the goods and services produced

by the nation's economy less the value of the goods and services used up in

production. GDP is also equal to the sum of personal consumption

expenditures, gross private domestic investment, net exports of goods and

services, and government consumption expenditures and gross investment

(Bureau of Economic Analysis, 2015).

There are numerous approaches to measure GDP, the "expenditure approach" measures GDP as

the sum of consumption, investment, government spending, and net exports, which is the most

familiar to many people. The expenditure side of the national accounts includes estimates of these

items as well as their components. Secondly, the "income approach" measures GDP by adding up

all of the income earned by various factors of production.

GDP (Y) = C + I + G + NX.

The components of this measure of GDP (Y) are;

1. Consumption (C): All household purchases of goods and services

2. Investment (I): All purchases by businesses of buildings, machinery, and tools, plus

purchases of new housing. The market value of changes in inventory also forms the part of

the investment component.

3. Government expenditure (G): All purchases of goods and services by local, State, and

Central governments. It includes the "purchase" of the services of all government employees

(including the military), but it does not include transfer payments like Social Security

benefits. Transfer payments do not form the part of government expenditure and hence

because they do not represent income from current production.

4. Net exports (N.X.): Net exports or a country's total exports less total imports.

Several attempts have been made by economists worldwide to quantify the better indicator of well- being. The formulation of policies based on GDP and its components has not cumulated into

welfare. Today, around the globe, several issues persist in terms of high unemployment, abject

poverty, higher income inequality, lower health status, low education level, and numerous

environmental degradation activities. Prof. Amartya Sen, in his seminal work Development as

Freedom (1999) observed, "constructed that the remarkable economic progress and wealth

created in the last century to the devastating deprivation, destitution, and oppression suffered by

billions of people worldwide, especially women and children." He argues for an integrative

framework in the economics that moves the focus from market expansion to the improvement of