OCR A Level Economics: Development, alternative measures and international bodies (H460) – Revision Notes

These notes condense the development statements of “Economic growth and development” in Component 2 (Macroeconomics) of OCR A Level Economics (H460), Version 3.0 (June 2026), for first assessment in 2021. For fuller explanations and longer examples, use the study guide; test yourself with the practice questions. See also the OCR Economics hub, the printable checklist, the wider Macroeconomics revision notes and the free diagnostics. All data is invented.

Definitions to know

Term	Meaning
Economic development	Sustained improvement in living standards and wellbeing: income, health, education, poverty, freedom, economic structure
Sustainable development	Satisfying present needs without closing off later generations’ ability to satisfy theirs
Economic growth	Rise in real GDP (covered in a separate unit)
Natural capital	The stock of environmental resources that produces future flows
ODA	Overseas Development Assistance: official aid to developing countries to promote development
Terms of trade	Index of export prices against import prices (see formulas)
Easterlin Paradox	Richer people are happier at one point in time, yet average happiness does not rise much as a country grows
Conditionality	Conditions attached to a loan, such as spending or tax changes

Key formulas

Measure	Formula
Dimension index	(actual - minimum) / (maximum - minimum)
HDI	Cube root of (health index x education index x income index)
Terms of trade	(X price index / M price index) x 100
ODA share	ODA / donor GNI x 100
GDP per head growth	Divide 1 plus GDP growth by 1 plus population growth, then subtract 1
GPI	Consumption, adjusted for inequality, plus unpaid work, minus pollution, depletion and crime costs

Sectors and structure

• Primary: mining, fishing, forestry and farming. Secondary: making and building. Tertiary: services.
• Development usually moves output and jobs from primary to secondary to tertiary.
• Link to sustainability: higher productivity and tax revenue help; industrial phases can raise pollution; depleting natural capital flatters GDP.

Method boxes

Calculating an HDI

1. Turn each dimension into an index using the goalposts given.
2. Average the two schooling indices if the question does so.
3. Multiply the three indices.
4. Take the cube root.
5. Comment: which dimension holds the score down?

Evaluating growth versus development

1. Say what growth delivers (resources).
2. Say why that is not enough (distribution, spending choices, environment, wellbeing).
3. Give a case where development rises without much growth.
4. Judge: growth is usually necessary, rarely sufficient.

Evaluating a measure (GDP, HDI, GPI, others)

1. What does it include?
2. What does it leave out?
3. Can it be measured and compared reliably?
4. Judge which purpose it suits.

Evaluating an organisation

1. Its role.
2. Evidence of success.
3. Criticisms (conditions, fairness, scale, speed).
4. Judgement: for whom, and over what period?

Small worked reminders

• HDI: health 0.75, education 0.64, income 0.58. Product = 0.2784. Cube root = 0.653.
• Geometric versus arithmetic: indices 0.9, 0.9 and 0.3. Arithmetic mean = 0.700. Geometric mean = 0.624. A weak dimension pulls the HDI down more.
• Dimension index: life expectancy 60 with goalposts 25 and 85: (60 - 25) / (85 - 25) = 0.583.
• Terms of trade: export prices 118, import prices 92: 118 / 92 x 100 = 128.3, an improvement. Each unit of exports buys 28.3% more imports.
• Growth per head: GDP up 5%, population up 3%. 1.05 / 1.03 = 1.0194, so GDP per head rises about 1.9%. Rapid population growth erodes the gain.
• GPI: consumption 300, inequality -40, household work +50, pollution -20, depletion -30. GPI = 300 - 40 + 50 - 20 - 30 = 260.
• ODA: a donor with GNI of 500bn meets the 0.7% target by giving 500 x 0.007 = 3.5bn.
• Tariff cut: a good priced at 50 faces a 10% tariff (consumer price 55). The tariff falls to 4% (consumer price 52). Change = 52 / 55 - 1 = -5.5%.

Must-know distinctions

• Growth versus development: growth is one quantity (real GDP); development is many outcomes.
• Development versus sustainable development: the second adds the future. Present gains that use up natural capital fail the test.
• GDP versus GPI: GDP counts market output; GPI adjusts for distribution, unpaid work and environmental costs.
• HDI versus GDP per head: HDI adds health and schooling; income is logged, so each extra dollar counts for less at higher levels.
• Within-country versus over-time evidence: Easterlin’s point is that these two give different answers.
• IMF, World Bank, WTO:
  • IMF: macroeconomic stability and balance of payments lending.
  • World Bank: long-term project and development finance.
  • WTO: rules, negotiations and disputes on trade.
• Aid versus trade: aid is a transfer, which can create dependence; trade builds income through production and exports, but exposes a country to price swings.

The three organisations at a glance

Body	Main job	Tool	Development strength	Main criticism
IMF	Monitor the world economy; support members in balance of payments difficulty	Surveillance, loans, technical help	Stability, confidence, a bridge through crises	Conditions that deepen recessions; one-size-fits-all
World Bank	Finance and advise on development	Loans, grants, expertise	Long-term finance for schools, health, roads, water	Debt burdens; voting power tied to donors; project failures
WTO	Rules and negotiation for trade	Agreements, dispute settlement, monitoring	Market access; predictability	Slow progress; uneven gains; agriculture disputes

When writing about these, name the mechanism (for example “conditionality reduces government spending, lowering aggregate demand”) rather than just labelling the body good or bad.

Evaluation chains

• ODA works when it funds projects with high returns (vaccination, roads, schools). It fails when tied, diverted by corruption or when it replaces local tax effort. Judge on how it is used.
• Trade promotes growth through markets, technology and scale. Risks: reliance on a few primary exports, falling terms of trade, competition that overwhelms young industries.
• Easterlin: possible reasons are comparison with others, adaptation, and growth not improving security, health or relationships. Counter: data issues, and income matters a great deal where people are poor.
• ONS Measuring National Well-being (launched 2010): ten areas, with personal well-being questions on life satisfaction, feeling worthwhile, happiness and anxiety. A dashboard approach: richer picture, but harder to rank or compare.
• IMF: stabilises and restores confidence, but conditions may deepen recessions. World Bank: finances projects, but may add debt. WTO: opens markets, but the gains may go to those able to compete.

Quick self-test

1. Define sustainable development in your own words.
2. Calculate the HDI for health 0.70, education 0.50, income 0.60.
3. A country’s export price index is 90 and its import price index 120. Calculate the terms of trade and say what has happened.
4. A donor gives ODA of 12bn from GNI of 2,000bn. What percentage is this, and how much more is needed to reach 0.7%?
5. GDP rises 6% while population rises 2%. Calculate the rise in GDP per head, to one decimal place.
6. Give two things GDP omits that GPI tries to include.
7. State the Easterlin Paradox.
8. Name two of the four personal well-being measures in the ONS programme.
9. Give one criticism of IMF conditionality.
10. State one way in which the WTO can help a developing country.
11. Give one reason why growth may not lead to development.

Answers

1. Progress that meets needs today without closing off the ability of future generations to meet theirs.
2. 0.70 x 0.50 x 0.60 = 0.21. Cube root = 0.594.
3. 90 / 120 x 100 = 75. Terms of trade have worsened: exports now buy a quarter fewer imports.
4. 12 / 2,000 = 0.6%. Target = 14bn, so 2bn more is needed.
5. 1.06 / 1.02 = 1.0392, so 3.9%.
6. Any two: unpaid household work, income inequality, pollution costs, resource depletion, crime costs, volunteering.
7. Within a country at one time richer people report higher happiness, but over time average happiness does not rise much as the country’s income grows.
8. Any two: life satisfaction, feeling that what you do is worthwhile, happiness, anxiety.
9. Cuts to spending as a condition can deepen a recession and reduce spending on health and education.
10. It provides a rule-based system and disputes process, and negotiations that can open export markets, with some special treatment for developing members.
11. Gains may go to a small group; revenue may not be spent on health and schooling; growth may damage the environment.

Where marks are usually lost

• Using “growth” and “development” as if they were the same.
• Describing the HDI but not saying what it omits.
• Assuming an international organisation is either good or bad, with no judgement about whom it helps.
• Forgetting working in a calculation, or giving a percentage change with the wrong base.
• Treating ODA as always helpful, or as always wasted.
• Writing about a diagram that is not drawn or described, rather than describing the curves and where they meet.
• Citing the Easterlin Paradox without saying what the evidence shows.
• Giving a list of measures with no statement of which is best for what purpose.

Official syllabus

OCR A Level in Economics (H460), Version 3.0 (June 2026), first assessment 2021, published by OCR. Component 2: Macroeconomics, Area of Study “Economic policy objectives and indicators of macroeconomic performance”, topic “Economic growth and development”.