World Development Vol. 28, No. 2, pp. 197±219, 2000 Ó 2000 Elsevier Science Ltd. All rights reserved Printed in Great Britain www.elsevier.com/locate/worlddev 0305-750X/00/$ - see front matter PII: S0305-750X(99)00131-X Economic Growth and Human Development

GUSTAV RANIS Yale University, New Haven, Connecticut, USA

FRANCES STEWART University of Oxford, UK

and

ALEJANDRO RAMIREZ * United Nations Development Program, New York, USA Summary. Ð The connections between economic growth (EG) and human development (HD) form two chains. Crosscountry regressions show a signi®cant relationship in both directions, with public expenditures on health and education, notably female, especially important in the chain from EG to HD; and the investment rate and income distribution signi®cant in the HD to EG chain. This gives rise to virtuous or vicious cycles, with good or bad performance on HD and EG reinforcing each other. Evidence over time has strong sequencing implications: countries initially favoring economic growth lapse into the vicious category, while those with good HD and poor EG sometimes move into the virtuous category. Where choice is necessary human development should be given sequencing priority. Ó 2000 Elsevier Science Ltd. All rights reserved.

Key words Ð human development, economic growth, income distribution, poverty, health, education

1. INTRODUCTION provides the resources to permit sustained improvements in HD. On the other, improve- Human development has recently been ments in the quality of the labor force are an advanced as the ultimate objective of human important contributor to EG. Yet, while this activity in place of economic growth. 1 Its two-way relationship between HD and EG may intellectual antecedents may be traced to the now be widely accepted, the speci®c factors earlier basic needs approach of the ILO and the linking them have not been systematically World Bank, as well as Sen's concept of capa- explored. Nor has the question of priorities in bilities. 2 Human development has been de®ned the phasing of policy. The purpose of this paper as enlarging people's choices in a way which is to sharpen understanding of the two-way enables them to lead longer, healthier and fuller links between HD and EG at both theoretical lives. 3 The de®nition of HD as ``enlarging and empirical levels. This in turn permits us to people's choices'' is very broad. For the analyze priorities in the phasing of policy and purpose of exploring the links between HD and to examine the usual assumption that EG must EG theoretically, and especially empirically, we precede progress on HD. 4 need to narrow it down. We shall consider the Section 2 identi®es the major links between HD of a country as consisting of the health and EG and HD. Section 3 presents some empirical education of its people, recognizing that this is very much a reductionist interpretation. Clearly, there exists a strong connection * We are grateful for very helpful comments on an between economic growth (EG) and human earlier draft from three anonymous referees. Final development (HD). On the one hand, EG revision accepted: 19 July 1999. 197 198 WORLD DEVELOPMENT crosscountry evidence on these links. Section 4 tion of income and its change over time. 6 The develops a typology of country cases, some way in which growth translates into income representing the mutual enhancement of HD distribution and poverty reduction depends on and EG and some demonstrating asymmetric the nature of the growth processÐin particular, performance. The ®nal section investigates the the extent to which it is based on the generation movement of countries from one category to of employment and on increasing rural another and re¯ects on the implications for incomes, e.g., if the output mix is labor inten- policy. sive and rural incomes rise rapidly income distribution is more likely to improve and poverty reduction to occur than if growth is 2. THE TWO CHAINS urban biased and capital intensive. 7 Expenditure on HD-related items is strongly We view HD as the central objective of a€ected by the rate of poverty reduction. Not human activity and economic growth as surprisingly, if poor households receive extra potentially a very important instrument for income, they increase their food expenditure and advancing it. At the same time, achievements in calorie consumption signi®cantly. 8 Empirical HD themselves can make a critical contribution evidenceÐfor example, for Bolivia, Brazil, to economic growth. There are thus two Chile, Cote^ d'Ivoire, Ghana, India, Indonesia, distinct causal chains to be examined: one runs Pakistan, Philippines, Malaysia, Nicaragua and from EG to HD, as the resources from national PeruÐalso indicates the positive e€ects of income are allocated to activities contributing family income change on child schooling. 9 For to HD; the other runs from HD to EG, indi- example, a crosscountry study of the determi- cating how, in addition to being an end in itself, nants of secondary education found that more HD helps increase national income. The two egalitarian countries had higher secondary chains are pictured in Figure 1. enrollment rates. 10 One estimate suggests that if the distribution of income in Brazil were as equal (a) Chain A: from EG to HD as Malaysia's, school enrollments among poor children would be 40% higher. 11 While the GNP contributes to HD mainly through evidence on the relations between income and household and government activity; civil soci- health is less extensive, studies in Brazil, Chile, ety, e.g., through community organizations and Cote^ d'Ivoire and Nicaragua suggest that other nongovernmental organizations (NGOs), household income also has a signi®cant e€ect on also plays a role. The same level of GNP can the demand for health, 12 some showing a much lead to very di€erent performance on HD higher relative response for low than for high- according to the allocation of GNP among and income households. 13 within these institutions and variations in their Where women control cash income, it behavior. appears that expenditure patterns are geared Households' propensity to spend their after- relatively more toward HD inputs, such as food tax income on items which contribute most and education. For example, among Gambian directly to the promotion of HD in poor coun- households, the larger the proportion of food tries, e.g., food, potable water, education and under womenÕs control the larger household health, varies, depending on such factors as the calorie consumption. 14 Similarly, in the Phil- level and distribution of income across house- ippines it has been shown that consumption of holds as well as on who controls the allocation calories and proteins increases with the share of of expenditure within households. In general, income accruing directly to women. 15 In the poor households spend a higher proportion of Cote^ d'Ivoire, an increase in womenÕs share of their incomes on HD items than those with cash income was associated with signi®cantly higher incomes, and similar results ¯ow from higher spending on food and reduced spending greater female control over household income. on alcohol and cigarettes. 16 When levels of poverty in a country are high, Turning to the government, the allocation of either because per capita income is low or badly resources to improving HD is a function of distributed, the expenditure of many house- total public sector expenditure, of how much of holds on HD is bound to be low. While evi- this ¯ows to the HD sectors, and of the way in dence 5 indicates that, in general, poverty is which it is allocated within these sectors. This reduced with economic growth, the extent of can be expressed in the form of three ratios: 17 the reduction varies greatly with the distribu- the public expenditure ratio, de®ned as the ECONOMIC GROWTH AND HUMAN DEVELOPMENT 199

Figure 1. The HD-GNP cycle.

proportion of GNP spent by the various levels across countries in each of these ratios, which of government; the HD-allocation ratio, means that the same level of GNP may be de®ned as the proportion of total government associated with very di€erent levels of govern- expenditure going to the HD-sectors; and, ment spending on HD priorities. 18 ®nally, the HD priority ratio, de®ned as the The underlying determinants of these three proportion of total HD-sector expenditure ratios are complex, but include the following: (i) going to ``priority areas.'' Within the HD-sec- the tax capacity of the system; (ii) the strength tors, some expenditures are clearly much more of the demand for military expenditure and for productive in terms of achieving advances in other non-HD priorities of the government; (iii) HD than others; for example, basic education, the varying interplay between bureaucratic especially at an early stage of development, is forces, vested interests and popular pressures. It generally recognized to have a larger impact on should be noted that all three ratios are a€ected HD than tertiary education. But the precise by the extent of decentralization of government: de®nition of what constitutes a ``priority area'' country evidence suggests that real decentral- will inevitably vary according to a country's ization, i.e. devolution, tends to increase the stage of development, rendering this third ratio total revenue available; it often raises the HD- more arbitrary and dicult to measure than the allocation ratio; and it almost always improves other two. There are very large variations the HD-priority ratios. 19 200 WORLD DEVELOPMENT

The signi®cance of public expenditure choi- e€ectiveness of these expenditures in raising ces for improving HD is illustrated by a HD levels, i.e. what type of provision is most comparison between Kenya and Malawi. In the productive at what level of development, and 1980s, a similar proportion of national income how di€erent combinations e€ect a change in went to public expenditure (27% in Kenya; 30% HD. We shall call this link in the chain the in Malawi) but Kenya had a signi®cantly higher ``HD improvement function'' (HDIF); it social allocation ratio (47% compared to 35%) resembles a production function in that it and social priority ratio (34% compared to relates the inputs into HD, such as public 14%) so that the proportion of GDP going expenditure on health services or water, to the directly to HD-improving priorities in Kenya HD objective of achieving better health. An was over three times that of Malawi (5.1% illustration of the type of relationship repre- compared to 1.5%). 20 sented in the HDIF is whether and how far the The importance of economic growth for provision of safe water is complementary to or raising resources to promote HD is illustrated substitutes for education in contributing to by a comparison between Botswana and improvements in health. Another is what Sudan. In 1970 public expenditure on health combination of family planning expenditure, and education per person was similar in the two improved nutrition and immunisation levels countries ($96 in 1987 prices in Sudan, and $65 most e€ectively yield improvements in infant in Botswana). During 1970±92 per capita mortality. The relationships embodied in the expenditure increased more than seven times in HDIF are complex, depending on individual Botswana, while remaining practically and community behavior and local knowledge unchanged in Sudan. Hence, by 1992, Sudanese about relevant technologies. Moreover, the expenditure was less than a quarter of that in relevant arguments of the HDIF are bound to Botswana ($114 versus $466). This was not due di€er at di€erent stages of development. to di€erences in the public expenditure ratio, Some aspects of the HDIF have been greatly which was higher in Sudan during the 1970s illuminated by detailed empirical work. 22 An and equal to Botswana's during the 1980s, but example of the potential usefulness of an to the much faster income growth in Botswana. improved understanding of this production With a similar share of Botswana's GNP going function is the abundant evidence that educa- to health and education, real expenditure rose tion, especially female, tends to improve infant much faster there. survival and nutrition. 23 Another study, for Finally, NGO or other civil society activity, Brazil, showed that an increase in the nonlabor on which information is more scattered, is income of women increased the probability of typically heavily oriented toward HD objectives child survival by 20 times that of a comparable (e.g., generating incomes for the poor and on increase in the nonlabor income of men. 24 schools, nutrition and health projects). Research in Ghana has shown that in rural Resources are derived from private donations areas the provision of basic health services, and government, in each case including both including adequate drugs, increases child health foreign and domestic sources. There are and survival signi®cantly, while the evidence is considerable variations in the extent, vitality less clear on urban services. 25 and e€ectiveness of NGO activities across Conditions liable to bring about an countries, depending on their history, culture, improvement in the eciency of the HDIF tax laws and actual or perceived government include better information about available de®ciencies in providing services. In most technologies and the appropriate combinations contexts, NGOs play a supplemental or even of inputs; the generation of new and more marginal role, but in a few areasÐe.g., BRAC e€ective technologies; and the enhancement of and the Grameen Bank in Bangladesh, the the motivation to make use of available Harambee Schools in Kenya and the options, e.g., to send children to schools and ``Comedores Populares'' in PeruÐthey appear clinics. Such motivation appears to be in¯u- to represent a major source of HD-enhance- enced by education levels, the power structure ment. 21 within the family, incentives and the magnitude Expenditures on HD inputs are clearly not of the opportunity costs. objectives in themselves, but rather constitute It should be clear from this discussion of the instruments for achieving advances in various various links in the ED-HD chain that, in dimensions of basic well-being. A further general, we would expect important causal important link in Chain A, therefore, is the connections to exist between the economy and ECONOMIC GROWTH AND HUMAN DEVELOPMENT 201

HD achievements, but these connections are important ingredient in a system's capacity to not automatic: the strength of the links in Chain borrow foreign technology e€ectively. A varies according to a large range of factors, Speci®cally, (i) health, primary and second- including the structure of the economy, the ary education and nutrition raise the produc- distribution of assets, and the policy choices tivity of workers, rural and urban; (ii) made. The richness of the so-called social secondary education, including vocational, capital 26 of a society presumably also a€ects facilitates the acquisition of skills and mana- these choices and the strength of links at each gerial capacity; (iii) tertiary education supports stage; when people act together to promote the development of basic science, the appro- their well-being, when public morality is high, priate selection of technology imports and the when the community monitors malfeasance, domestic adaptation and development of tech- and when it participates extensively in public nologies; (iv) secondary and tertiary education life, ceteris paribus, we can expect all the links also represent critical elements in the develop- in Chain A to be stronger. ment of key institutions, of government, the In summary, we would hypothesize from this law, the ®nancial system, among others, all review of the links in Chain A that the essential for economic growth. connection between GNP to HD is likely to be Empirical evidence at both micro and macro stronger: levels lends support to the importance of these A.iÐthe lower the proportion of the popula- relationships. tion below the poverty line; for a given level At a micro-level, numerous studies indicate of GNP per capita, this means the more that increases in earnings are associated with equally income is distributed; additional years of education, with the rate of A.iiÐthe more income households allocate return varying with the level of education. 28 to HD at a given income level; this may be While social rates of return (which deduct the related both to the level of female education publicly ®nanced costs of education but make and to female control over income within the no other adjustments to the private returns) are household. below the private, they are still typically greater A.iiiÐthe higher the proportion of GNP de- than returns to most physical investment. 29 voted to priority social expenditure by the These rate of return estimates are sometimes government; interpreted as indicating the magnitude of the A.ivÐthe more e€ective the contribution of impact of education on productivity; but this social capital, including community organi- view has also been challenged by the argument zations and other NGOs; that education performs a signalling function, A.vÐthe more ecient the HDIF. distinguishing among people of di€erent innate We shall test some of these hypotheses; others ability, rather than itself raising productivity. we do not test, either because of conceptual But, investigations in rural Pakistan, and in problems or data constraints, notably A.iv. and urban Kenya and Tanzania, di€erentiating A.v. between additional earnings due to cognitive achievement and those due simply to schooling, (b) Chain B: from HD to EG showed that cognitive achievement accounted for a high proportion of the extra earnings. 30 Turning our attention to the second chain, In agriculture, evidence suggests positive from HD to EG, ample evidence suggests that e€ects of education on productivity among as people become healthier, better nourished farmers using modern technologies, but less and educated they contribute more to economic impact, as might be expected, among those growth, although some important dimensions using traditional methods. 31 In Thailand, of HD, such as making the lives of the termi- farmers with four or more years of schooling nally ill tolerable, do not directly lead to were three times more likely to adopt fertilizer enhanced productivity. 27 Higher levels of HD, and other modern inputs than less educated in addition to being an end in themselves, a€ect farmers. 32 Similarly, in Nepal, the completion the economy through enhancing people's of at least seven years of schooling increased capabilities and consequently their creativity productivity in wheat by over a quarter, and in and productivity. Clearly, the health and edu- rice by 13%. 33 cation of a population are among the main Education is also an important contributor determinants of the composition and growth to technological capability and technical of output and exports, and constitute an change in industry. Statistical analysis of the 202 WORLD DEVELOPMENT clothing and engineering industries in Sri much more emphasized in the development Lanka, to cite just one example, showed that literature. the skill and education levels of workers and From a macro-perspective, the ``new growth entrepreneurs were positively related to the rate theories'' aim to endogenize technical progress of technical change of the ®rm. 34 Education by incorporating some of these same e€ects, alone, of course, cannot transform an econ- emphasizing education as well as learning and omy. The quantity and quality of investment, research and development (R&D). According domestic and foreign, together with the overall to Lucas (1988), for example, the higher the policy environment, form other important level of education of the workforce the higher determinants of economic performance. Yet the the overall productivity of capital because the level of human development has a bearing on more educated are more likely to innovate, and these factors too. The quality of policy-making thus a€ect everyone's productivity. In other and of investment decisions is likely to be models a similar externality is generated as the in¯uenced by the education of both policy- increased education of individuals raises not makers and managers; moreover, the volume of only their own productivity but also that of both domestic and foreign investment will others with whom they interact, so that total probably be larger when a system's human productivity increases as the average level of capital supply is more plentiful. education rises. 42 A complementary view is Improved health and nutrition have been that technical progress depends on the level of shown to have direct e€ects on labor produc- R&D in an economy. By investing labor and tivity, especially among poorer individuals. 35 capital in R&D a ®rm is able to improve not A range of labor productivity gains has been only its own pro®tability but also the produc- observed associated with calorie increases in tivity of the ®rms which consume its output. poor countries, 36 including studies of farmers Again, education plays a key role, both in in Sierra Leone, sugar cane workers in Guate- contributing to R&D and via interactive mala, and road construction workers in learning. 43 A number of empirical studies have Kenya. 37 In these cases productivity enhance- shown the positive e€ect of education on ment appears to follow fairly immediately as economic growth at a macro level, with its size current intakes of calories or micro-nutrients varying according to the measure of education are increased. In other cases the e€ects are and the particular macro growth model adop- medium-run (as re¯ected in weight) or long-run ted. 44 (as re¯ected in height), based on evidence from The impact of education on the nature and Bangladesh, Brazil, India, Sri Lanka, and the growth of exports, which, in turn, a€ect the Philippines. 38 A longitudinal study of a sample aggregate growth rate, is another way in which of children in Chile concluded that providing human development in¯uences macro perfor- nutritional supplements to children to prevent mance. The education and skills of a devel- malnutrition would generate bene®ts six to oping country's labor force in¯uence the eight times the cost of the intervention in terms nature of its factor endowment and conse- of additional productivity. 39 A similar study of quently the composition of its trade. It has Cali, Colombia found that a health and nutri- been argued that even ``unskilled'' workers in tion program increased the lifetime earnings of a modern factory normally need the literacy, individuals to from 2.5 to 8.9 times those of an numeracy and discipline which are acquired in illiterate worker. 40 primary and lower secondary school. 45 It is dicult to capture the e€ects of ill-health Theoretical models incorporating skills and (other than malnutrition) as there are few learning as important determinants of accurate estimates of the incidence of illness. comparative advantage have led to modi®ca- But studies in both Ghana and Cote^ d'Ivoire tions of the simple two factor Heckscher± show the negative impact of morbidity, with Ohlin model, helping to explain the Leontief men who reported that their activities had been Paradox and the dramatic success in the curtailed by illness having lower hourly wage manufactured export growth of some devel- rates, reduced hours of work and a smaller oping countries, notably those of East Asia. 46 probability of being in the labor force. 41 In Investigations have shown a signi®cant posi- some contexts the evidence even indicates tive correlation between the growth of manu- larger productivity e€ects arising from health factured exports and the growth of GDP, and nutrition than from formal schooling, although serious identi®cation problems although the impact of education has been remain. 47 ECONOMIC GROWTH AND HUMAN DEVELOPMENT 203

There is also a positive feedback from institutional framework. As pointed out earlier, improved education to greater income equality both domestic investment and direct foreign which, in turn, is likely to favor higher rates of investment are in¯uenced by a country's HD growth. As education becomes more broadly levelÐparticularly the education and skill levels based, low-income people are better able to of the workforce. 53 But di€erences in seek out economic opportunities. For example, economic growth across societies are again not a study of the relation between schooling, only due to the level of inputs but also by how income inequality and poverty in 18 countries e€ectively they are used and for what purpose. of Latin America in the 1980s found that one- One important in¯uence is the incentives set by quarter of the variation in workers' incomes economic policy. Another derives from people's was accounted for by variations in schooling motives and behavior patterns. attainment; it concludes that ``clearly education Income distribution again appears to be is the variable with the strongest impact on important in Chain B, as it was in Chain A. income equality.'' 48 Another study suggested Recent empirical evidence suggests that the that a 1% increase in the labor force with at distribution of assets and income has an e€ect least secondary education would increase the on economic growth, with a more equal share of income of the bottom 40 and 60% by distribution favoring higher rates of growth. 54 between 6 and 15% respectively. 49 An investi- Among the explanations put forward for this, gation of the determinants of income distribu- one is derived from the relationships in Chain tion in 36 countries found secondary A, i.e., that a more equal distribution of income enrollment rates to be signi®cant. 50 implies better nutrition and a stronger demand Finally, education may a€ect per capita for education and hence raises labor produc- income growth via its impact on the denomi- tivity. Others derive from political economy nator, i.e. population growth. For example, a considerations and relate to Chain B, e.g., that study of 14 African countries for the mid-1980s an unequal distribution of income may be showed a negative correlation between female associated with greater political and economic schooling and fertility in almost all countries, instability, more likely to interrupt economic with primary education having a negative progress. 55 impact in about half the countries and no In summary, the connection between HD signi®cant e€ects in the other half, while and GNP, represented by Chain B, is likely to secondary education invariably reduced fertil- be stronger: ity. 51 The three success countries in terms of B.iÐthe higher the investment rate; reduced fertility, Kenya, Botswana and Zimba- B.iiÐthe more equal the distribution of in- bwe, had the highest levels of female schooling come; as well as the lowest child mortality rates. 52 B.iiiÐthe more appropriate the economic As in Chain A, the strength of the various policy setting. links in Chain B varies considerably and there Because of diculties in de®ning and measur- is no automatic connection between an ing hypothesis B.iii we shall con®ne our tests to improved level of HD and increases in per B.i and B.ii. capita GNP. It is not enough to create a larger pool of educated people; there must also be opportunities for them to be productively 3. EMPIRICAL FINDINGS employed or it might simply increase the number of educated unemployed. Relevant to The discussion above led us to a set of the demand-side are the savings and investment hypotheses about the links between HD and rates, technology choice and the overall policy EG for both causal chainsÐfrom EG to HD setting. (Chain A) and from HD to EG (Chain B), Although high rates of saving and investment some of which we test with crosscountry by themselves, as shown by past East European regressions for 1960±92. Our sample consists of experience, do not guarantee high levels of 35 to 76 developing countries, according to the sustained growth, normally a positive rela- availability of data for particular variables. We tionship between investment and growth generally use lags of the original variables as prevails, with its strength depending on such instruments to reduce the simultaneity bias that factors as the policy environment, the quantity would have resulted from applying ordinary and quality of human resources, the availability least squares (OLS). Lagged values are of technology choices and the ¯exibility of the reasonable candidates as instruments since the 204 WORLD DEVELOPMENT correlation between the residuals in the two ment of life expectancy. We attribute this to the periods analyzed is not substantial. impact on household behavior of female income, knowledge and control within the (a) Chain A household. Moreover, it should be noted that when this variable is added, social expenditure For Chain A the variable chosen as a proxy becomes less signi®cant, which suggests that for achievement in human development was life much of the impact of social expenditure expectancy shortfall reduction, 1970±92, from a appears to occur through its e€ect on female maximum of 85 years. 56 education. According to equations (4), (5) and The explanatory variables selected were: (6), a 1% increase in the female primary gross Ðlagged GDP per capita growth rate (for enrollment rate is estimated to reduce the life 1960±70) as a measure of overall EG; expectancy shortfall by 0.1%. Ðsocial expenditure (de®ned as public The income distribution variables run coun- expenditure on education and health) as a ter to our expectations, i.e. a more equal percentage of GDP for the whole period distribution does not seem to advance human (1970±92), as well as lagged (1970±80). The development. hypothesis advanced earlier was that HD Both the African and Latin American improvement would depend in part on the dummies are negative and signi®cant through- proportion of GDP devoted to social expen- out, as we might have expected, given that the diture; priority social expenditure data were comparator is highly successful East Asia. In viewed as somewhat too arbitrary for each case the coecient is quite small. The deployment here; regional dummies include a number of region- Ðseveral measures of income distribution, speci®c features, including the level of per i.e. income share of the bottom 20% or capita income. 40%, 1960±92, and the ratio of income share of the top to the bottom quintile, 1960±92; (b) Chain B Ðfemale primary school gross enrollment rate in 1965; this is a proxy for the change For Chain B, the dependent variable chosen in the stock of educated females. The latter was GDP per capita growth, 1970±92. is likely to be associated with greater female The explanatory variables selected were: control over household expenditure, thus Ðlog GDP per capita in 1960, to test for tending to improve the HDIF; convergence of income levels as countries Ðregional dummies, with East Asia allo- approach high income levels; cated a zero value. Ðinitial levels of HD, using three di€erent Table 1 summarizes the results for Chain A. measures, log life expectancy in 1962, adult GDP per capita growth proved signi®cant and literacy 1970±72, and a combined index of quite strong in all of the equations, with higher life expectancy and literacy for 1970 growth of per capita income leading to better (HDI*); 57 HD performance. According to equation (1), a Ðchanges in HD over time for two of the one percentage point increase in the average measures of HD, the change in the log of life growth rate of GDP per capita is estimated to expectancy, 1962±82; and HDI* shortfall reduce life expectancy shortfall by more than reduction 1960±80; 58 three percentage points over the period. The Ðgross domestic investment as a % of GDP social expenditure ratio also proved signi®- for the period as a whole (1960±92); cantly positive in all but one case. For every Ðincome distribution, lagged, (1960±70), percentage point increase in the average share using three alternative measures, the ratio of GDP invested in health and education, when of the income share of the top to bottom lagged, the life expectancy shortfall decreases quintiles, the income share of the bottom by about 1.75 percentage points (equations (1) 40% of the population, and the income share and (3)). of the bottom 20%; An interesting ®nding is the mechanism Ðregional dummies, as in Chain A. through which the social expenditure ratio The results are summarized in Table 2. Our seems to a€ect human development. As measures of the initial level of human devel- regressions (4), (5) and (6) indicate, the female opment invariably proved signi®cant, although primary enrollment rate for 1965 has a signi®- with low coecients; i.e. the initial level of life cant but small impact on the rate of improve- expectancy in equations (10)±(12), as well as Table 1. Chain AÐordinary least squares regressions dependent variable: life expectancy shortfall reduction 1970±92 Variable 123456789 GDP/n Growth rate 1960±70 3.25à 1.66à 3.19à 1.27Ãà 2.65à 2.70à 2.10à 2.14Ãà 2.31à (4.09)a (3.61) (4.06) (2.56) (3.17) (3.17) (2.82) (2.52) (2.95)

Social Expenditures as a % of GDP ± 1.03Ã ±±±±±±± 205 DEVELOPMENT HUMAN AND GROWTH ECONOMIC 1970±92 (2.84) Social Expenditures as a % of GDP 1.73ÃÃ ± 1.75ÃÃ ± 1.36 1.51ÃÃÃ 1.28ÃÃÃ 1.54ÃÃÃ 1.36ÃÃÃ 1970±80 (2.37) (2.56) (1.64) (1.74) (1.91) (1.76) (1.91) Income share of bottom 40% 1960±92 0:004 ± ± 0:004 ± 0:002 ± ± ± (0.93) (1.29) (0.45) Income share of bottom 20% 1960±92 ±±±±±±±1:66ÃÃÃ 1:88ÃÃ (1.76) (2.26) Ratio of income share top to bottom ± ± 0.002 ± 0.002 ± 0.005Ã ±± 20% 1960±92 (1.19) (1.01) (3.02) Female primary gross enrollment rate ± ± ± 0.12ÃÃ 0.10ÃÃÃ 0.10ÃÃÃ ± 0.05 ± 1965 (2.59) (1.94) (1.85) (0.71) Latin America dummy ±±±±±±0:08ÃÃ 0:08ÃÃÃ 0:07ÃÃÃ (2.35) (1.98) (2.02) Africa dummy ±±±±±±0.16Ã 0.12ÃÃ 0.13Ã (4.34) (2.49) (3.63) South Asia dummy ±±±±±±0.003 0.003 0.02 (0.06) (0.50) (0.39) Middle East dummy ±±±±±±0:09 0:07 0:09 (1.01) (0.67) (0.97) Intercept 0.15 0.28Ã 0.06 0.23Ã 0.02 1.07 0.16Ã 0.25ÃÃ 0.30Ã (1.51) (6.09) (1.17) (3.36) (0.51) (0.68) (2.92) (2.08) (3.59) # of observations 41 76 41 54 38 38 41 38 41 Adj. R-squared 0.38 0.27 0.38 0.26 0.41 0.40 0.59 0.51 0.55 a T-Statistics are given in parentheses. * Signi®cant at 1%. ** Signi®cant at 5%. *** Signi®cant at 10%. 206

Table 2. Chain BÐordinary least squares regressions dependent variable: average real GDP/n growth 1970±92 Variable 10 11 12 13 14 15 16 17 Log GDP/n 1960 0.01Ã ± 0.01Ã 0.01Ã 0.01ÃÃ 0.009 0.01ÃÃ 0.01ÃÃ a (3.01) (3.04) (2.87) (1.87) (1.42) (2.38) (2.55) DEVELOPMENT WORLD Adult literacy rate 1970±72 ± ± ± 0.03ÃÃ ± ± 0.03ÃÃ 0.03ÃÃ (2.45) (2.19) (2.21) Log life expectancy 1967 0.06Ã 0.03ÃÃ 0.09Ã ±±±±± (3.79) (2.09) (3.90) Gross domestic investment as a % of 0.12Ã 0.14ÃÃ 0.12ÃÃ 0.12ÃÃÃ 0.13ÃÃ 0.06 0.12ÃÃÃ 0.12ÃÃ GDP 1960±92 (3.83) (2.72) (2.37) (1.99) (2.26) (1.06) (2.07) (2.09) Income share of bottom 40% 1960±70 ± ± 0.001 ± 0.001ÃÃÃ ± ± 0.001ÃÃ (1.52) (1.70) (2.20) Income share of bottom 20% 1960±70 ± ± ± ± ± ± 0.40ÃÃ ± (2.18) Ratio of income share of top to bottom ± 0:0007ÃÃ ± 0:0007ÃÃ ± 2:21 ± ± quintile 1960±70 (2.17) (2.06) (0.05) HDI* 1970 ± ± ± ± 0.06ÃÃ 0.07ÃÃ ±± (2.38) (2.58) Latin America dummy ± ± ± ± ± 0:02ÃÃ ±± (2.57) Africa dummy ± ± ± ± ± 0:01ÃÃÃ ±± (1.90) South Asia dummy ± ± ± ± ± 0:003 ± ± (0.31) Middle East dummy ± ± ± ± ± 0.01 ± ± (0.57) Intercept 0:17Ã 0:14ÃÃ 0:28Ã 0.12ÃÃ 0.03 0.04 0.07 0.07 (3.71) (2.30) (3.93) (2.74) (0.64) (1.08) (1.46) (1.54) # of observations 73 38 36 24 35 35 24 24 Adj. R-squared 0.34 0.29 0.45 0.37 0.30 0.41 0.38 0.38 Continued next page Table 2ÐContinued Variable 18 19 20 21 22 23 Log life expectancy 1962 0.06Ã 0.07Ã 0.05Ã 0.05ÃÃ 0.08Ã ± (5.48) (3.98) (3.04) (2.65) (2.88) Change in the log of life expectancy 0.13Ã 0.17ÃÃ 0.14ÃÃÃ 0.12 0.14ÃÃÃ ± 1962±82 (3.81) (2.48) (2.01) (1.65) (1.78) Gross domestic investment as a % of ± ± 0.12ÃÃ 0.13ÃÃ 0.06 0.13ÃÃ GDP (1970±92 average) (2.44) (2.39) (1.17) (2.42) Income share of bottom 40% 1960±70 ± 0.002Ã 0.002Ã ± ± 0.002Ã

(2.83) (3.16) (2.96) 207 DEVELOPMENT HUMAN AND GROWTH ECONOMIC Ratio of income share of top to bottom ±±±0:0008ÃÃ 0:0002 ± quintile 1960±70 (2.49) (0.62) HDI* 1960 ± ± ± ± ± 0:0007 (0.03) HDI* shortfall reduction 1960±80 ± ± ± ± ± 0.09ÃÃ (2.08) Latin America dummy ± ± ± ± 0:02ÃÃ ± (2.71) Africa dummy ± ± ± ± 0:005 ± (0.57) South Asia dummy ± ± ± ± 0.003 ± (0.29) Middle East dummy ± ± ± ± 0.004 ± (0.34) Intercept 0:27Ã 0:33Ã 0:29Ã 0:23Ã 0:33Ã 0:03Ã (5.37) (3.96) (3.56) (2.81) (2.81) (3.84) # of observations 79 39 38 38 38 37 Adj. R-squared 0.27 0.30 0.38 0.32 0.44 0.33 a T-Statistics are given in parentheses. * Signi®cant at 1%. ** Signi®cant at 5%. *** Signi®cant at 10%. 208 WORLD DEVELOPMENT

(18)±(22) were all highly signi®cant. Adult restricted the de®nition of HD in our Chain A literacy 1970±72 was signi®cant in equations regressions to life expectancy shortfall reduc- (13), (16) and (17); and the HDI* for 1970 was tion which is mainly a€ected by public expen- signi®cant in equations (14) and (15), all with ditures on health and education, particularly low coecients. The change in life expectancy, female, and less by household expenditures. 1962±82, was positive and signi®cant in all For Chain B, the relationship between HD and cases but one (see equations (18)±(22)). The economic growth was stronger the higher the change in HDI* shortfall reduction, 1960±80, investment rate and the more equally distrib- was signi®cant in equation (23), but the initial uted the income. The regional dummies were level of HDI* was not signi®cant. generally negative for both Africa and Latin The domestic investment rate was always America in both chains but with small coe- signi®cant except when the regional dummies cients. Since, on average, Africa experienced a were included (equations (15) and (22)). The decline in GDP per capita over the period, this lagged income distribution variables virtually indicates that the fall in per capita incomes was all gave results with the expected sign (i.e. a not proportionately translated into a slowdown more equal income distribution is associated or reversal in HD improvements. 59 with higher economic growth), and were almost always signi®cantÐif with very low coe- cientsÐexcept when the regional dummies were 4. VIRTUOUS AND VICIOUS CYCLES included. Moreover, income distribution is AND LOP-SIDED DEVELOPMENT apparently more strongly related to GDP growth when changes as well as levels of human The existence of two chains linking HD and development, however measured, are included. economic growth is thus strongly supported by The ratio of income shares of the top to bottom both our framework, drawing on micro and quintiles, 1960±70, showed signi®cance in macro studies in the literature, and our empir- equations (11), (13) and (21); the share of the ical results. This means that an economy may bottom 40% was signi®cant in equations (14), be on a mutually reinforcing upward spiral, (17), (19), (20) and (23), but the lagged income with high levels of HD leading to high growth distribution variable was not signi®cant in and high growth in turn further promoting HD. equations (12), (15) and (22), although the signs Conversely, weak HD may result in low growth were in the ``right'' direction. Regional and consequently poor progress toward HD dummies for Latin America were signi®cantly improvement. The strength of the links in the negative in both instances when deployed and, two chains in¯uences the extent of mutual in one case, also for Africa. In all equations, reinforcement between HD and EG, in either except when the regional dummies were intro- direction. duced (equation (15)), the initial level of GDP Country performance can therefore be per capita was signi®cant, with a negative sign, usefully classi®ed into four categories, virtuous, indicating weak convergence, i.e. with a low vicious and two types of lop-sidedness, i.e. coecient. lopsided with strong HD/weak growth (called In summary, the two chains, taken as a HD-lopsided); and lopsided with weak HD/ whole, showed a signi®cantly positive e€ect of strong growth (EG-lopsided). In the virtuous economic growth on HD and a signi®cantly cycle case, good HD enhances growth, which in positive e€ect of HD on economic growth. turn promotes HD, and so on. In the vicious With respect to speci®c links in each of the cycle case, poor performance on HD tends to chains, our ®ndings broadly con®rmed the lead to poor growth performance which in turn tested hypotheses, except for income distribu- depresses HD achievements, and so on. The tion in Chain A. For Chain A, the higher social stronger the linkages in the two chains descri- expenditure, the higher adult literacy, and the bed above the more pronounced the cycle of higher the female education enrollment for a economic growth and HD, either in a positive given level of GNP per capita, the larger the or dampening direction. Where linkages are improvement in HD. The most surprising weak, cases of lop-sided development may ®nding, counter to our expectations, was that a occur. On the one hand, good economic growth more equal distribution of income did not may not bring about good HD, if, for example, improve HD performance; indeed, in some there are such weak linkages as a low social equations the opposite result obtained. One expenditure ratio; on the other hand, good HD explanation of this may well be that we performance may not generate good EG if ECONOMIC GROWTH AND HUMAN DEVELOPMENT 209 there is a dearth of complementary resources lopsided quadrant, i.e. 10 of the 13 are from because of low investment rates. Such cases of that region. In the EG-lopsided category there lop-sided development are unlikely to persist. are just four countriesÐEgypt, Pakistan, Either the weak partner in the cycle eventually Mauritius and Lesotho. acts as a brake on the other partner, leading to The important issue for policy purposes is a vicious cycle case, or, if the linkages are how a country may move towards inclusion in strengthened, possibly by policy change, a the virtuous cycle category. Much can be virtuous cycle case results. learned about this by looking at the ways in One way of classifying countries into the four which countries moved across categories over categories is to compare their performance on time. Taking the movements of countries over HD and EG with the average performance of the three decades 1960±70, 1970±80 and 1980± all developing countries. Figure 2 presents this 92 (see Table 3 and Figure 3), we ®nd the classi®cation for 1960±92 for all developing following: countries for which data were available. The ÐOver half the countries in the vicious-cycle vertical and horizontal grid lines represent the category in 1960±70, i.e. 18 out of 35, re- average performance for the period, with mained in that category throughout. Most countries weighted by their populations in of these countries were in sub-Saharan Afri- 1992. Most developing countries appear as ca, which started with very low levels of HD, either virtuous (NE quadrant), or vicious (SW handicapping their growth potential; their quadrant); a signi®cant number showed an low growth rates and, subsequently, the debt HD-lopsided pattern, and very few an EG- crisis prevented them from generating the re- lopsided one. A strong regional pattern emer- sources necessary for improvements in HD. ges, with East Asia heavily represented in the ÐSix countries moved from vicious cycle to virtuous cycle case (seven out of the eight cases EG-lopsided between the 1960s and the are East or South East Asian, the eighth being 1970s, but four of them fell back to the vi- Botswana). Of the 37 countries in the vicious cious cycle category in the 1980s. Three cycle quadrant, 21 are from sub-Saharan moved from vicious to HD-lopsided, includ- Africa, nine from Latin America. Latin ing Honduras, Algeria and Madagascar, and America is also strongly represented in the HD- only Madagascar returned to the vicious

Figure 2. Classi®cation of country performance (1960±92). Note: The horizontal and vertical lines de®ning the four quadrants represent developing country averages weighted by population. 210 WORLD DEVELOPMENT

Table 3. Virtuous, vicious and lop-sided performance 1960±92 1960±70 1970±80 1980±92 Africa Benin Vicious Vicious Vicious Botswana Vicious Virtuous Virtuous Burkina Faso Vicious Vicious Vicious Burundi Vicious Vicious Vicious Cameroon Vicious EG lop-sided Vicious Central African Republic Vicious Vicious Vicious Chad Vicious Vicious Vicious Congo Vicious EG lop-sided Vicious Cote^ d'Ivoire EG lop-sided Vicious Vicious Gabon EG lop-sided Vicious Vicious Ghana Vicious Vicious Vicious Kenya Vicious Virtuous Vicious Lesotho Virtuous EG lop-sided Vicious Madagascar Vicious HD lop-sided Vicious Malawi Vicious EG lop-sided Vicious Mali Vicious Vicious Vicious Mauritius HD lop-sided EG lop-sided EG lop-sided Niger Vicious Vicious Vicious Nigeria Vicious Vicious Vicious Rwanda Vicious Vicious Vicious Senegal Vicious Vicious Vicious Sierra Leone EG lop-sided Vicious Vicious South Africa Virtuous Vicious Vicious Sudan Vicious Vicious Vicious Tanzania Vicious Vicious Vicious Zaire Vicious Vicious Vicious Zimbabwe Vicious Vicious Vicious Latin America & Caribbean Argentina Vicious Vicious HD lop-sided Barbados Virtuous HD lop-sided HD lop-sided Bolivia Vicious Vicious HD lop-sided Brazil EG lop-sided EG lop-sided Vicious Chile HD lop-sided HD lop-sided Virtuous Colombia HD lop-sided Virtuous HD lop-sided Costa Rica HD lop-sided HD lop-sided HD lop-sided Dominican Republic HD lop-sided EG lop-sided Vicious El Salvador HD lop-sided Vicious HD lop-sided Guatemala HD lop-sided EG lop-sided Vicious Haiti Vicious Vicious Vicious Honduras Vicious HD lop-sided HD lop-sided Jamaica Virtuous Vicious Vicious Mexico Virtuous Virtuous HD lop-sided Nicaragua Virtuous Vicious HD lop-sided Panama Virtuous Virtuous HD lop-sided Latin America & Caribbean Paraguay Vicious EG lop-sided Vicious Peru HD lop-sided Vicious HD lop-sided Togo EG lop-sided Vicious Vicious Trinidad & Tobago Vicious EG lop-sided HD lop-sided Uruguay Vicious Vicious HD lop-sided Venezuala HD lop-sided HD lop-sided Vicious South Asia India Vicious Vicious EG lop-sided Nepal Vicious Vicious Vicious Pakistan EG lop-sided Vicious EG lop-sided Sri Lanka Vicious Virtuous Virtuous Bangladesh Vicious Vicious Vicious Continued next page ECONOMIC GROWTH AND HUMAN DEVELOPMENT 211

Table 3Ðcontinued 1960±70 1970±80 1980±92 East Asia China HD lop-sided Virtuous Virtuous Hong Kong Virtuous Virtuous Virtuous Indonesia HD lop-sided Virtuous Virtuous Korea Republic Virtuous Virtuous Virtuous Malaysia Virtuous Virtuous Virtuous Myanmar HD lop-sided Vicious Vicious Philippines HD lop-sided EG lop-sided Vicious Singapore Virtuous Virtuous Virtuous Thailand Virtuous Virtuous Virtuous Middle East Algeria Vicious HD lop-sided HD lop-sided Egypt EG lop-sided EG lop-sided Vicious Morocco Vicious EG lop-sided HD lop-sided Turkey Virtuous HD lop-sided HD lop-sided

Figure 3. Country HD-EG quadrant changes over three decades. Note: The country movements indicate the quadrants in which countries are placed over the three decades but not their actual location relative to the axes.

cycle category. Kenya, which moved from ÐOf the eight countries which were EG-lop- vicious to virtuous in the 1970s, also subse- sided in 1960±70, none stayed in that cate- quently fell back to vicious. Only two coun- gory throughout, but all moved into the tries managed to move from the vicious to vicious category. OneÐPakistanÐreverted virtuous category on a sustained basisÐi.e. to EG-lopsided in the 1980s. Brazil and Sri Lanka and Botswana. Egypt enjoyed relatively fast growth during 212 WORLD DEVELOPMENT

the 1960s and 1970s (over 3% in the 1960s Our analysis suggests that it is not possible to and about 6% in the 1970s) but did not uti- move to virtuous via EG-lopsidedness, as this lize this opportunity to improve the levels of proved a dead end. HD substantially. In the case of Brazil the Hence the process we need to examine more highly unequal income distribution (with a closely is that leading to a movement from Gini of 0.634, one of the worst in the world) vicious to HD-lopsided, from HD-lopsided to was one reason why growth did not translate virtuous, or the very unusual case, undoubtedly into HD improvements. In both Pakistan dicult, of taking the direct route from vicious and Egypt, public expenditure on health to virtuous. and education was low, partly due to heavy Our earlier review of the links in the two expenditure on the military, while Pakistan's chains suggests that to move from vicious to HD performance su€ered especially from HD-lopsided one needs to strengthen the links discrimination against females. in Chain A, which may be achieved by adopt- ÐOf the 13 HD-lopsided countries in the ing some of the following policies: 1960s, only Costa Rica stayed in that cate- Ðthose leading to a shift in resource alloca- gory throughout: four moved into a virtuous tion toward education and health services, cycleÐChile, China, Colombia and Indone- especially those serving the majority of the sia (Colombia later falling back to HD-lop- people, as apparently occurred in Argentina sided). In these cases, early progress in with enhanced decentralization. human development meant that they were Ðthose generating a more equitable income able to take advantage of policy reforms distribution (for example, through land and for generating growth. Egalitarian income tax reform or a move toward a more distribution also assisted the movement to- employment-intensive pattern of output). ward a virtuous cycle. Four moved initially Algeria is an example, with land reform in from HD-lopsided into the vicious category the 1960s and some large-scale employment (Venezuela, Myanmar, Peru, and El Salva- programs in the 1970s. 64 dor 60Ðthe latter two moving back into Ðthose providing extensive opportunities HD-lopsidedness in the 1980s). 61 ThreeÐ for the unemployed, for example Bolivia's Dominican Republic, Guatemala and the Social Fund in the 1980s, which received PhilippinesÐinitially moved to EG-lopsided substantial support from donors. and subsequently fell back into the vicious Movement from the HD-lopsided to the category. Among the reasons for the failure virtuous category requires strengthening the to move into high economic growth were links in Chain B by, for example: the debt situation, poor economic policies Ðtaking advantage of an improved HD to and internal disturbances. Consequently, promote economic growth through policy they were unable to maintain the rate of pro- reform; gress in HD because of slow economic Ðincreasing the investment rate, possibly growth. assisted from the outside; ÐThirteen countries were in the virtuous cy- Ðimproving the distribution of income. cle category in the 1960s; ®ve retained this Chile is an example where strong economic position throughout; and ®ve fell back to reforms, combined with a high level of HD, the HD-lopsided and three to the vicious accounted for improved economic growth. category. 62 Mostly, the countries that fell Relatively good income distribution in China, back were subject to the depressing e€ects along with policy reform and very high invest- of the 1980s debt crisis on economic growth. ment rates, led to accelerated economic growth. It is important to note that lopsidedness was In Indonesia, a similar process was heavily a temporary condition in all cases except Costa supported by external capital ¯ows. Rica. 63 Our most signi®cant ®nding is that, We do not wish to argue here that any while HD-lopsidedness permitted movement particular set of policies would achieve a towards a virtuous cycle (occurring in about a particular movement across categories; rather third of the cases), in the case of EG-lopsided- we want to emphasize an important conclusion ness, all the cases reverted to a vicious cycle. about the sequencing of policy change, i.e. that Very few countries managed to go directly from HD must be strengthened before a virtuous vicious to virtuous; but some succeeded in cycle can be attained. Policy reforms which moving to HD-lopsided, from where it was focus only on economic growth are unlikely to possible to move into the virtuous category. succeed. Countries in a virtuous cycle category ECONOMIC GROWTH AND HUMAN DEVELOPMENT 213 may well slip back into HD-lopsidedness, if, for In summary, we have demonstrated the some reason, growth slows down, but as long existence of an iterative process between the as HD stays high such cases have a good ultimate objectiveÐimprovements in HDÐ chance of resuming their virtuous cycle pattern. and economic growth as a necessary but not Whenever either or both chains appear to be sucient condition for achieving such weak, leading to lop-sided or vicious cycles, it is improvements. Moreover, by investigating the important to identify where the weak links are relative importance of various links connect- and what the appropriate policies might be to ing HD and EG we have identi®ed the strengthen such links. These policies must, direction policy might take to strengthen such moreover, be viewed in an evolutionary links. One important conclusion concerns the context. Even countries initially successful in desirable phasing of policy change. Economic both HD and EG will need to change their and social policy has tended to focus priority policies as development proceeds in order to on getting the economic fundamentals ``right'' sustain their success. In an early phase, for as a necessary precondition for economic example, priority should be given to primary growth, while arguing that HD improvement education and some comprehensive health must await such economic growth. Our interventions, both from the perspective of ®ndings do not deny the importance of improving HD and that of increasing economic economic reforms, but emphasize that a growth. At a later stage, the roles of science and focus on HD must be included from the technology institutions and higher education beginning of any reform program. Economic become more important for strengthening growth itself will not be sustained unless Chain B, while, along Chain A, hospitals preceded or accompanied by improvements in assume a greater role than before. HD.

NOTES

1. See especially the UNDP's Human Development 8. Strauss and Thomas (1995). Of 38 studies in Reports, starting in 1990. di€erent countries one-third indicate that at least one- half of additional income is spent in this way. See also 2. See, e.g., Sen (1984); Streeten, Burki, ul Haq, Hicks Bouis and Haddad (1992). and Stewart (1981); Fei, Ranis and Stewart (1985). 9. E.g., Alderman, Behrman, Khan, Ross and Sabot (1995, 1996a); Behrman and Wolfe (1987a,b); Birdsall 3. The ®rst UNDP Human Development Report stated (1985); Deolalikar (1993); King and Lillard (1987). that: ``The basic objective of development is to create an enabling environment for people to enjoy long, healthy 10. Williamson (1993). and creative lives'' (UNDP, 1990, p. 9), and de®ned human development as ``a process of enlarging people's 11. Birdsall, Ross and Sabot (1995). choices'' (p. 10). 12. Blau (1986); Harbert and Scandizzo (1982); 4. One notable exception is Adelman and Morris Thomas, Strauss and Hanriques (1990, 1991); Thomas, (1973) who argued that educational investment should Lavy and Strauss (1992). be given sequencing priority. 13. Gertler, Locay and Sanderson (1987). 5. E.g. Fields (1989); Deininger and Squire (1996). 14. von Braun (1988). 6. Bruno, Ravallion and Squire (1995), for example, in a study of 20 developing countries, show that a 10% 15. Garcia (1990). increase in average income per capita, 1984±93, was associated with a 20% fall in the proportion of people 16. Hoddinott and Haddad (1991). living on less than $1 a day. See also Ravallion and Datt (1991). 17. See UNDP (1991).

7. Lipton (1977); Ranis (1979); Stewart (1977); Lipton 18. See UNDP (1991) Chapter 3, and UNDP (1996) and Ravallion (1995). Chapter 3. 214 WORLD DEVELOPMENT

19. Decentralization of publicly provided services which do not allow for this may understate the total recently has been introduced in a wide range of returns. countries. Tentative conclusions about their e€ectiveness are mixed, with apparent relative success in promoting 30. Boissiere, Knight and Sabot (1985); Alderman, eciency and contributing to HD in Indonesia, Malay- Behrman, Khan, Ross and Sabot (1996b). sia, Chile and Karnataka in India, but less so in Argentina, Bangladesh and Brazil. Mostly, local govern- 31. Schultz (1975); Welch (1970); Rosenzweig (1995); ments have been severely constrained in their ability to Foster and Rosenzweig (1994); Behrman, Rosenzweig raise taxes as well as in the freedom of allocative and Vashishtha (1995). decision-making, and full democratic devolution has been rare. See Behrman (1995b); Prud'homme (1995); 32. Birdsall (1993). Klugman (1995); Ranis and Stewart (1994); Tanzi (1995). 33. Jamison and Moock (1984). A similar level of education was estimated to increase farm productivity 20. UNDP (1996, p. 71). These calculations adopt a by 10% or more, according to studies in India and narrow de®nition of social priority expenditure, includ- Pakistan (Azher, 1991; Butt, 1984; Duraisamy, 1992). ing pre-primary and ®rst-level education plus primary Studies in Malaysia, Ghana and Peru show that, on health care only. average, an extra year of schooling of a farmer is associated with an annual increase in output of 2±5% 21. Riddell, Robinson deConinck, Muir and White (Birdsall, 1993). Examination of the early stages of (1995). India's Green Revolution indicates that the bene®ts from schooling arose more from conferring on farmers 22. See, e.g., the review by Strauss and Thomas (1995). the capacity for learning from their own experience or from those of others, rather than from providing them 23. See e.g., Rosenzweig and Schultz (1982); Wolfe and with an initial information advantage (Foster & Rose- Behrman (1987); Barrera (1990). nzweig, 1995).

24. Thomas (1990). 34. Deraniyagala (1995).

25. Lavy, Strauss, Thomas, deVreyer (1995). 35. See Behrman and Deolalikar (1987) and surveys in Behrman (1993, 1996). 26. A term used broadly to describe civil society networksÐsee Coleman (1988); North (1990) and Helli- 36. See Cornia and Stewart (1995). well and Putnam (1995) for the development of the concept and some empirical evidence. Tendler and 37. Strauss (1986); Immink and Viteri (1981); Wolge- Freedheim (1994) provide evidence. muth, Latham, Hall and Crompton (1982).

27. This clearly does not detract from the intrinsic value of improving the lives of the unemployable, who 38. Behrman and Deolalikar (1989); Behrman and may account for a signi®cant proportion of the popu- Lavy (1995); Deolalikar (1988); Foster and Rosenzweig lation. (1993); Haddad and Bouis (1991); Pitt, Rosenzweig and Hassan (1990); Sahn and Alderman (1988); Strauss and Thomas (1996). 28. See surveys in Behrman (1990a,b,c, 1995a); Behr- man and Deolalikar (1988), King and Hill (1993); King and Bellew (1988); Psacharopolous (1994); Schultz 39. Selowsky and Taylor (1973). (1988, 1993a,b); Strauss and Thomas (1995). 40. Selowsky (1981). 29. Following the work of Psacharopolous, the conclu- sion that the returns to education are highest for primary 41. Schultz and Tansel (1993). education has become part of the accepted wisdom; but in fact this is by no means always the caseÐsee, e.g., 42. Perotti (1993). Schultz (1993a,b). However, since secondary education necessarily requires prior attendance at primary school, 43. See Romer (1990); Grossman and Helpman (1991); the usual measures of returns to primary education Gemmell (1995). ECONOMIC GROWTH AND HUMAN DEVELOPMENT 215

44. E.g., Barro (1991); Barro and Lee (1993, 1994). 57. HDI* is a modi®ed version of the Human Devel- opment Index of UNDP, including only the nonincome 45. Wood (1994); Owens and Wood (1995). components, i.e. educational attainment as measured by a combination of adult literacy (2/3 weight), mean years 46. See Kenen (1965); Keesing (1966); Pack and of schooling (1/3 weight), and longevity as measured by Westphal (1986); Leamer (1993). life expectancy at birth.

47. E.g. Michaely (1977); Krueger (1978); Ram (1985); 58. When changes over time were introduced, the dates Rana (1988); Edwards (1993). of the initial level of HD were also changed, so that log life expectancy was for 1962 and HDI* for 1960. 48. Psacharopolous, Morley, Fiszbein, Lee and Wood (1992, p. 48). 59. One explanation is that there were important speci®c interventions (notably immunization) that a€ected HD positively throughout the world in the 49. Bourgignon and Morrisson (1990). 1970s and 1980s. In a sense these weakened the links in Chain A by rendering HD improvements more indepen- 50. Bourgignon (1995). dent of incomes. In Africa, this would translate into a reduced negative impact on HD of falling incomes. 51. See Birdsall, Ross and Sabot (1995); Jayaraman (1995); Strauss and Thomas (1995); Thomas, Strauss 60. Iraq made the same move between the 1960s and and Henriques (1991); Behrman and Wolfe (1987a). 1970s, but data are not available for the later period, when con¯ict is likely to have damaged both HD and growth. 52. Ainsworth, Beegle and Nyamete (1995). 61. The Philippines moved from HD-lopsided to EG- 53. OECD/DAC (1995); World Bank (1995a). lopsided and then returned to HD-lopsided in the 1980s.

54. Alesina and Rodrik (1994); Alesina and Perotti 62. Lesotho moved from virtuous to vicious by way of (1994); Persson and Tabellini (1994); Birdsall et al. EG-lopsided. (1995). 63. One of the explanations of why Costa Rica was 55. Alesina and Rodrik (1994). able to sustain HD achievements despite low economic growth resides in its early, strong and sustained 56. As incorporated in the Human Development commitment to HD, exempli®ed by abolition of its IndexÐsee UNDP (1995). We also tried regressions army in 1948 and its heavy investment (at 10% of GDP) with changes in adult literacy rates and a combined, on health and education during 1970±92. equally weighted, measure of the two. The results were similar but the number of observations more limited. 64. El-Ghonemy (1990).

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