Wednesday, July 6, 2011

Does economic growth help people to thrive?

Yes! The proportion of people who are thriving tends to be higher in countries that have experienced greatest economic growth over the longer term. It may take several decades, however, for economic growth to be fully reflected in subjective measures of well-being. The proportion of people who are suffering also tends to be lower in countries that have experienced greatest economic growth, but there are quite a few countries that do not fit that pattern.

These observations are based on the definitions of ‘thriving’ and ‘suffering’ used in the Gallup World Poll. Gallup classifies respondents as "thriving," "struggling," or "suffering," according to how they rate their current and future lives on a ladder scale, based on the Cantril Self-Anchoring Striving Scale, where the bottom rating is ‘the worst possible life’ and the top rating is ‘the best possible life’. Further information on the survey and classification method is available here.

The following charts show the percentages of people who are thriving or suffering in 122 countries relative to per capita GDP levels in those countries. It is clear that the percentages thriving tend to be higher and the percentages suffering to be lower, in countries with relatively high per capita incomes i.e. those which have experienced greatest economic growth in the past.

The countries that do not fit the general pattern are interesting. Several former communist bloc countries are outliers in terms of lower percentages of the population thriving and a higher percentages suffering than would be expected on the basis of per capita income levels. Some African countries have much better outcomes and some much worse than would be expected on the basis of income levels. The outcomes that are worse than expected can be explained by factors such as civil unrest. Better than expected outcomes for African and Latin American countries in studies such as this are often attributed to national characteristics, such as a positive outlook on life (but that is not necessarily irrelevant to emotional well-being). The lower than expected percentages of people thriving in China, Singapore, Hong Kong and Taiwan might also be attributable to some extent to a more reserved outlook on life by Chinese people.

Another factor relevant to considering China, Singapore etc. is the rapid economic growth of these countries. As discussed in my last post, to the extent that well-being is affected by wealth (reflected in quality of housing, financial assets, human capital, public infrastructure, social capital etc.) as well as current income, countries with relatively high growth rates could be expected to have lower levels of well-being than other countries with similar per capita incomes. Regression analysis, comparable to that reported in my last post, suggests that growth prior to 1970 makes a substantially greater contribution to the percentage of people thriving than does growth in the periods 1970 to 1990 and 1990 to 2009. The results provide support for the view that is that it takes time for economic growth to be translated into forms of wealth that enhance well-being, rather than for the ‘unhappy growth’ hypothesis which I have discussed previously. The unhappy growth hypothesis implies that the estimated coefficients on growth in the most recent period could be expected to be negative, but I found the estimated coefficients on growth to be positive in respect of all periods. (The estimated coefficient for 1990 to 2009 is not significantly greater than zero at the 95% significance level, but the standard error is smaller than the estimate. Anyone who would like to see the results is welcome to email me.)

It would be appropriate to round off this discussion with a profound statement stressing the importance of economic growth to reducing human suffering and allowing more people to thrive, while acknowledging that wealth does not guarantee that anyone will thrive. However, I’m not in the right mood for writing profound statements.


Dave Giles said...

Thanks for another nice post. Liked your last sentence, too!

Winton Bates said...

I appreciate your comments, Dave.