ECONOMIC GROWTH AND HUMAN DEVELOPMENT IN OECD COUNTRIES: A TWENTY-YEAR STUDY OF DATA 2000–2019

Abstract

The aim of the current research is to determine the factors and processes which influence economic growth and human development in relatively free societies and thereby provide a framework for policy formulation. Countries within the OECD grouping are committed to democratically elected government and market economies and fall into this category. The OECD group comprises 37 countries, including Colombia, and in 2019 accounted for 63% of real global GDP. This research focuses on the data of the thirty-seven countries over the twenty-year period of 2000-2019. Economic data is drawn from the World Bank and the IMF websites; whilst data on development indicators and income inequality is drawn from the UNDP (United Nations Development Programme) and WID (World Inequality database) websites. Analysis of the data in these countries provides insights into the factors and processes which influence economic growth and human development in economies with a democratic political regime. The estimated equation shows that economic growth in OECD countries was significantly higher when incoming investment as a proportion of the size of the economy and openness of the economy were higher, inflation, exchange rate changes and oil prices were lower. Smaller economies in the OECD also had higher economic growth. As the aim of a government is to increase not only the income but also the standard of living of its citizens, it is necessary also to assess the relationship between economic growth and the quality of life and wellbeing of its citizens. Five-year average cross-sectional regressions also show that economic growth in OECD countries is higher in the countries with lower HDI. This report further finds that economic growth has a bi-directional causality with changes in the human development index, and changes in life expectancy and a unidirectional causality with changes in the expected years of schooling (implying higher delivery of education) and changes in the standard of living. Another finding is that income inequality increases with economic growth; both in terms of the share of income of the top 10% and share of the lower 50%. Clearly investment in public goods, and social policies for education, skills training, healthcare and redistribution of wealth need more attention.