The Relationship between Human Development and Economic Growth. A Study in the Context of Aruba.

Abstract

Based on Sen’s capabilities approach, the UNDP’s Human Development Index is commonly used to measure development beyond income alone and includes indicators for other social aspects like health and education. In this thesis, I estimate HDI for Aruba based on Human Development Report Outlook Technical Notes, and explore the directional relationship between HD and EG. I use a VAR model and Granger causality test to establish the relationship in the context of Aruba. This research finds that a strong unidirectional flow exists from HD to EG, but not the other way around. In addition, I provide insights into the possible reasons for the results. Although this relationship is unstable over the studied period, and HDI does not capture all aspects of wellbeing, this study’s results are important for its implications for Aruban development policies and stakeholders interested in achieving sustainable economic growth and development in SIDS. The findings imply a focus on HD is essential to achieving sustained EG in the future.