Economic Growth and Quality of Life
Expert reviewed • 22 November 2024 • 10 minute read
What is Economic Growth?
As we know from the chapter in the economic issues module, we see Economic growth is typically measured by the increase in a country's real Gross Domestic Product (GDP) or real GDP per capita over time. As a reminder,
- Gross Domestic Product is a measure of the economic performance of a country.
- GDP per capita is the overall GDP divided by the population, indicating the average economic output per person.
Thus, we know that sustained economic growth is associated with higher living standards, increased employment, and greater national income.
For example, Australia's GDP growth rate averaged around 2.5% annually over the past decade. In 2023, the GDP was approximately $2 trillion, reflecting the country's economic expansion. This growth can be attributed to prominent sectors in Australia, such as technology and renewable energy. These sectors have contributed significantly to economic growth, providing jobs and driving innovation. In the graph below we can visualise Australia's recent growth coming out of the Covid-19 pandemic period.
This growth has come as a result of Australia's rapid economic recovery, compared to the rest of the world, alongside an increased demand in its commodity exports like iron ore.
What are Quality of Life Indicators?
Quality of life encompasses various aspects beyond economic output, including health, education, environmental quality, and social relationships.
Key Indicators:
- Human Development Index (HDI)
- Better Life Index (OECD)
- Genuine Progress Indicator (GPI)
- Happiness Index
Australia's Performance:
- HDI Rank (2022): 5th globally
- OECD Better Life Index: Australia ranks above average in many dimensions, including income, jobs, education, and health
Definition and Explanation
Quality of life includes various factors that contribute to overall well-being, such as health, education, income distribution, and environmental quality. It is often measured using indicators like the Human Development Index (HDI), which combines life expectancy, education level, and per capita income. As we know from the module on Economic Development, HDI is a composite index measuring average achievement in key dimensions of human development. This combined with other key indicators such as the Better Life Index (OECD) and the Gini-Coefficient, allows economists to determine the overall quality of life of an economy.
For example, Australia's HDI is among the highest in the world, reflecting high life expectancy, educational attainment, and income levels. In 2023, Australia's HDI was 0.939, placing it in the very high human development category. Additionally, as of 2023, Australia's Gini Coefficient was 0.32, indicating a moderate level of income equality.
What is the Relationship Between Economic Growth and Quality of Life?
While economic growth often correlates with improvements in quality of life, the relationship is not always straightforward.
Positive Correlations:
- Higher Incomes and Living Standards: Economic growth leads to higher incomes, allowing individuals to afford better healthcare, education, and housing, thus improving their quality of life.
- Increased Employment Opportunities: Growth generates jobs, reducing unemployment and providing more people with a stable income.
- Increased Public Services: Higher GDP increases government revenues, enabling more investment in public services like healthcare, education, and infrastructure.
Potential Downsides
- The potential for Increased Income Inequality: Growth can sometimes worsen income inequality if the benefits are not evenly distributed across society. This generally occurs due to corrupt governments, unevenly distributing income.
- Environmental Degradation: Rapid economic growth can lead to environmental damage, affecting quality of life through pollution and resource depletion.
- Social Stress: The pursuit of economic growth can sometimes lead to social stress, including increased work hours and reduced work-life balance.
How are Objectives of Growth Balanced with the Overall Quality of Life?
Policymakers must balance the pursuit of economic growth with measures that ensure improvements in quality of life. This involves promoting inclusive growth, investing in sustainable development, and addressing income inequality. For example, Australia's policy initiatives such as the National Disability Insurance Scheme (NDIS) and renewable energy investments aim to ensure that economic growth translates into improved quality of life for all citizens.
Additionally, by focusing on sustainable development, governments can ensure that economic growth does not come at the expense of environmental degradation. Policies promoting renewable energy, conservation, and sustainable practices are essential. For example, Australia's commitment to reducing carbon emissions by 43% by 2030 is a step towards balancing economic growth with environmental sustainability.