Why higher economic growth cannot always enhance human development

This paper studies why higher economic growth cannot always enhance human development. In general, these two dimensions have a strong and positive relationship, but some countries appear unable to balance this relationship. As a consequence, there are some countries with high economic growth but sluggish human development progress. This paper studies how other factors besides GDP – women labor force participation, urbanization, and inequality - are correlated to human development. I construct a cross-country panel data from 1990 to 2015 to empirically test the correlations. Using both modeling and experiments as a basis, the main result of this analysis shows that GDP has a positive effect on human well-being as measured by HDI, but this correlation becomes smaller when GDP becomes higher. I also examine how these factors correlate to the two sub-indexes of HDI– education and life expectancy – separately. GDP has a similar result on the health and education indexes. Women’s labor force participation rate and urban population share are positively correlated with HDI. Both women’s labor force participation and urbanization are positively correlated with education, whilst the correlations with life expectancy are weaker. However, when also including the GINI index as an explanatory variable GDP largely loses its explanatory power. This is a striking result as it indicates that progress in average well-being is more about reducing inequality than about generating economic growth. GDP growth can be counterproductive if it comes together with inequality. These findings suggest that economic growth may have a positive but gradually declining influence on human development, while women empowerment and urbanization are also important factors for human development, especially for education