4.2 Measuring Development

Question 1

What is a single indicator?

Answer 1

Refers to a statsical measure of economic development that uses one particular gauge, such as literacy rate, income per capital or life expectancy.

Question 2

How is real GDP per capita an indicator?

Answer 2

A single indicator of economic development that calculates the value of national output of a country its GDP divided by its population. it is the most used single indicator of standards of living within a country.

Question 3

How is real GNI per capita an indicator?

Answer 3

As an alternative single indicator this measure also calculates real GDP per person but includes the net values of what the country earns from overseas investment.

Question 4

What is the most common single measure of the standard of living of a nation?

Answer 4

To calculate its gross national income per capita adjusted for differences in the cost of living between countries.

Question 5

What does it mean if a country GDP is greater than its GNI?

Answer 5

It has debts owed to foreign creditors or it has productive assets owned by foreign individuals and firms. Hence GNI tends to be a better measure than GDP to measure development in LEDCs.

Question 6

Why can comparing GDP and GNI figures from different countries be meaningless?

Answer 6

Due to variations in exchange rates and costs of living hence purchasing power parity is used.

Question 7

What is purchasing power parity?

Answer 7

Th exchange rate that equates the price of a basket of the same traded goods and services in different countries. Hence PPP equates the cost of living across counties so that GDP per capita at PPP exchange rates enables a more meaningful comparison of differing costs o flying and hence standards of living across different countries.

Question 8

Why do LEDCs tend to have a higher GDP per capita when measured using PPP?

Answer 8

Because prices of similar goods and services and hence costs of living in these countries tend to be lower than in more developed countries.

Question 9

What are health indicators?

Answer 9

Measure health related measures of the quality of life such as life expectancy at birth, expenditure on healthcare as a percentage of GDP, mortality rates.

Question 10

What are education indicators?

Answer 10

Measure education related quality of life factors such as literacy rates and the mean average years of schooling.

Question 11

What are composite indicators?

Answer 11

A statistical method that combines single indicators of economic development into a combines index such as HDI.

Question 12

Why are composite indicators more complicated to compile?

Answer 12

As they include more than one measure of economic development, however they are considered to be better measures of economic development than single indicators as they are more comprehensive.

Question 13

What is the relationship between a country GDP/GNI per capita and its ranking of economic development using composite indicators?

Answer 13

There is often a direct correlation between them.

Question 14

What is the human development index?

Answer 14

A composite indicator of life expectancy, educational attainment and income used as an alternative to real GDP or GNI per capita as a measure of economic development.

Question 15

What does the HDI measure?

Answer 15

Healthcare - measures of life expectancy at birth, the better the healthcare in a county the greater social and economic wellbeing tends to be.
Education - the indicator measures the mean average years of schooling and the expected years of schooling in the country.
Income levels - the higher the national income of a country the greater human development tends to be.

Question 16

How is the HDI measured?

Answer 16

The three dimensions of the HDI are assigned equal statistical weighting in the index. The value of the index is between 0 and 1 where 0 is extreme underdevelopment and 1 is very high human development.

Question 17

How can economic development occur in terms of the HDI?

Answer 17

If there is a reduction in inequality and absolute poverty this improves the HDI but it does not mean that the country’s GDP/GN necessarily increases. Similarly although a country’s GDP/GNI can increase without any improvement in the provision of healthcare and education its HDI ranking will fall relative to its GDP/GNI ranking.

Question 18

What are the limitations to HDI?

Answer 18

Qualitative factors - ignores qualitative facts affecting standards of lining such as gender inequalities and human rights.
Income distribution - the HDI does not take account of inequitable income distribution and so is less accurate in measuring living standards and human development for the average person.
Environmental issues - the HDI ignores environmental and resources depletion as a consequence of economic growth. This includes the negative externalities associated with increased output and consumption such as pollution and environmental degradation.
Cultural differences - although the HDI is a composite indicator it ignores cultural differences an interpretations of the meaning of standards of living and quality of life both vital aspects of human development.
Sustainable development - the HDI ignored the concept of sustainable development ie. consuming more now can mean lower standard of living for future generations.