The costs of economic growth

While growth improves a country’s chances of development, it also creates a number of economic and social costs.

Negative externalities

As growth increases, production and consumption increase and there are likely to be considerable external costs as a result, such as deforestation, and the knock-on effects such as increased flooding; desertification of regions suffering over-production; pollution of rivers; depletion of non-renewable resources and long term climate change.

Exhaustion of environmental capital

The environment is a scarce resource and a factor of production, which resembles capital. If the environment is over-exploited and miss-used, future development prospects will be restricted. A lack of property rights over often vast areas of land means that there is no incentive to conserve such resources. This impacts on the poor, who suffer most from polluted drinking water and loss of agricultural land.

Urban squalor

Urbanisation tends to go hand in hand with economic growth and an exodus from the land to the cities, as can be witnessed in much of India, China, and Latin America. The resulting squalor is one of the most widely recognised costs of rapid economic growth. The urban slums that exist in many parts of the developing world today closely resemble those that existed in large cities in the UK, and across Europe, at the end of the 18th Century because of rapid industrialisation.

See: Measures of Economic Welfare