Living standard and economic growth : a fresh look at the relationship through the nonparametric approach

The relative role of economic growth vis-a-vis public action in \nraising living standards in developing countries has been a point of \ncontention for quite some time now. The arguments on both sides are \nusually based on some estimated relationship between indicators of \nliving standard and other variables. A critical review of the existing \nstudies throws up some methodological issues among which \nmisspecification of the model is most crucial. An alternative approach, \nviz. the nonparametric regression method, has been shown to be superior \nin taking care of this problem. Analysing the data for 88 developing \ncountries we note that per capita income has positive significant \neffect on the life-expectancy at birth. However, we have not observed \nany relationship between the improvement in life-expectancy and \nchange in income as well as the level of income, unlike some earlier \nstudies. This study has the implication that well-targeted public policies \nmay be successful in improving the standard of living in poor economies \nin the short-term. But for sustainability in the long-term, growth-based \nstrategies are necessary. \nJEL Classification : C14, I31 \nKey words: standard of living, model specification, nonparametric \nregression, public action vs. public expenditure.