As we already saw, economic growth could happen without causing an economic development, however is it true that other way around?
Can economic development happen without economic growth?
To answer this question we can use a Production Possibilities Curve(PPC) model:
In the Figure 1 above we can see a PPC curve with manufacturing goods on the Y axis and merit goods on X axis:
- Assume that currently the economy is producing at point A on PPC1.
- We know from previous chapters that growth in the production possibilities of the economy will cause a rightward shift of the PPC1 curve to the PPC2 curve.
- Moving from point A to C/D/E, the economy will experience economic growth.
- However, if the economy moves towards point B, where the quantity of merit goods produced (education, healthcare services...) increases:
- There is no economic growth, since the economy has stayed producing along its PPC.
- However, there is a high chance of economic development as the society shifts production towards more desirable goods.
- Therefore, there can be some short term economic development without economic growth, if the amount of merit goods provided is enough to affect a change.
Note however that this increase in economic development may be only short term, and not be very influential.
Long-term economic development tends to be accompanied with an increase in the production possibilities, and hence economic growth.
Case studyBhutan’s focus on economic development without significant economic growth
When: Early 2000s – Present
Where: Bhutan
What: Bhutan has prioritized economic development through social well-being and sustainability without relying heavily on rapid economic growth. The country measures progress using Gross National Happiness (GNH) instead of GDP, focusing on education, healthcare, and environmental conservation rather than industrial expansion.
Why:
- Bhutan’s government believes that improving quality of life is more important than increasing economic output.
- Policies focus on healthcare accessibility, education investment, and environmental sustainability rather than industrial or manufacturing growth.
- Despite low GDP growth (around 4% annually), Bhutan has made significant strides in social development, such as increasing life expectancy from 50 years in 1990 to over 72 years in 2023 and achieving nearly universal primary school enrolment.
How:
- Bhutan invests heavily in merit goods like education and healthcare without necessarily expanding overall economic output.
- Strict environmental policies prevent over-exploitation of natural resources, prioritizing sustainability over industrial expansion.
- Government initiatives emphasize mental well-being, cultural preservation, and equitable resource distribution rather than maximizing economic output.
So?:
- Yes, economic development can happen without economic growth.
- Bhutan’s focus on merit goods, sustainability, and well-being has improved living standards, even though GDP growth remains modest.
- This case aligns with the Production Possibilities Curve (PPC) model, where shifting resources towards merit goods (point B) results in economic development without increasing total output.
- However, long-term sustained development may eventually require some level of economic growth to support rising public service demands.
