Economic Growth and Human Development in Developing Countries: Virtuous or Vicious Circle?

Abstract

The paper analyses the relationship between economic growth and human development indeveloping countries. While the former is often perceived as a necessary precondition for successful human development, the latter is regarded to be the main development objective. However, the link between economic growth and human development seems to be more complex. According to Ranis et al. (2000) the relationship is two-sided and mutually reinforcing, so in the long run the countries usually end up either in the vicious circle of bad economic growth and human development performance, or in the virtuous circle of positive results in both areas. The authors also suggest that the emphasis on economic growth does not lead to desired human development outcomes. Our work builds on their research and improves the methodology: we have introduced two new classifications based on countries' outcomes in areas of human development and economic growth that allow us to obtain better and more precise results. We have investigated data for 71 developing countries in three periods of time within 1980–2012. Our main findings are in some respects in line with Ranis et al. (2000) and suggest that countries with high paceof human development appear to achieve and retain high economic growth in the future, thusheading towards the virtuous circle of fast economic growth and human development. On theother hand, countries with low pace of human development tend to fall into vicious circle of slow economic growth and human development.