ways of measuring development Flashcards
Sen’s definition of economic development
- the process of improving people’s well-being and quality of life, involving improvement in standards of living, reduction in poverty, improved health and education
- increased freedom and economic choice
Todaro definition of economic development
- availability and distribution of life sustaining goods
- an increase in standards of living
- expansion and economic and social choices
why is growth beneficial for development
Higher Incomes Lead to More Jobs
- Economic growth boosts AD and production, creating job opportunities. This reduces unemployment and helps families achieve better living standards.
Improved Quality of Life
- With higher GDP, governments and individuals can invest in health, education, and infrastructure, improving citizens’ quality of life.
Increased Corporate Profits for Technological Investment
- Firms experiencing growth generate higher profits, allowing reinvestment in technology and innovation. improves productivity and global living standards
Fiscal Dividend for Public Services
- Growth leads to higher government revenue through taxation without increasing tax rates. This fiscal dividend allows for increased spending on public services, such as education and healthcare.
Reduction in Poverty and Inequality
- Sustained economic growth raises average incomes, lifting people out of absolute poverty, improving living conditions for millions.
why is growth beneficial for development
- higher incomes lead to more jobs
- economic growth increases AD, prompting business to expand and hire more workers
- this reduces unemployment, providing individuals with stable incomes and improving living standards - Higher Incomes Improve Quality of Life
- Growth raises household incomes, enabling access to better housing, education, and healthcare.
- This alleviates poverty and enhances human capital, contributing to a more productive workforce.
- Reduced income inequality fosters social cohesion and stability. - Higher Profits Enable Technological Advancements
- Businesses benefit from increased profits during economic growth, providing resources for R&D.
- This encourages innovation and improves productivity, leading to better goods and services.
- Technological advancements can address societal challenges like energy efficiency or healthcare.
Higher Profits Increase Employment Opportunities
- Profitable firms expand their operations, creating new jobs across various sectors.
- This diversifies the economy, reduces dependency on one industry, and stabilizes employment rates.
- More jobs contribute to economic stability and reduce reliance on government welfare programs.
Fiscal Dividend Boosts Public Spending
- Economic growth increases tax revenues without raising tax rates due to higher incomes and profits.
- Governments can invest these funds into critical sectors like healthcare, education, and infrastructure.
- Improved public services enhance social welfare and support long-term economic development.
why might growth NOT be beneficial for economic development
- No Guarantee of Progressive Income Distribution
- Economic growth does not inherently ensure equitable income distribution.
- Wealth may concentrate among the rich, exacerbating income inequality and social divides.
- This limits the trickle-down effect, leaving marginalized groups behind in development progress. - Negative Externalities and Sustainability Issues
- Growth often comes at the cost of environmental degradation, such as pollution and deforestation.
- This undermines long-term sustainability and imposes health costs on populations.
- Unsustainable growth harms future generations by depleting natural resources. - Growth in One Dominant Sector
- Economic growth concentrated in a single sector, such as oil in Nigeria, can lead to resource dependency.
- This limits economic diversification, making the country vulnerable to sector-specific shocks.
- A lack of investment in other industries stifles balanced development and job creation. - Growth as a Necessary but Insufficient Measure of Development
- GDP growth does not capture social indicators like healthcare access, education quality, or happiness.
- Development requires inclusive policies that address inequality, infrastructure, and basic needs.
- Focusing solely on growth may overlook human welfare and broader social objectives.
characteristics of developing countries
- low standards of living due to low incomes, low job creation
- low levels of productivity due to lack of investment/capital
- low levels of saving, so hard to get out of poverty trap because of bad education
- high population growth
- primary sector dominance eg oil in nigeria
- incomplete markets
- high unemployment and underemployment
- low economic power on the international stage - eg have less of a say in wto
what are single indicators
indicators that look at one thing in isolation
single indicators of development
GDP/capita - outdated, GNI usually used more
Health measures
education measures
what is gdp/capita
the average income per person in the economy
gdp/pop
Advantages of Using GNI to Measure Development Rather than GDP Per Capita
→ Includes income from abroad
GNI includes net income received from overseas (e.g., remittances, foreign investments), which is particularly important for developing countries with large diasporas.
→ This gives a fuller picture of national income and potential spending power.
→ GDP, in contrast, may understate income in these countries.
→ Therefore, GNI can better reflect the true standard of living.
→ Reflects ownership of income
GNI reflects income earned by a country’s residents, regardless of where the activity takes place.
→ In contrast, GDP may include income generated by foreign firms operating domestically that is sent abroad.
→ This matters in countries with high levels of FDI, where GDP may look high, but residents don’t benefit as much.
→ Hence, GNI is often more relevant to measuring development.
→ Better for comparing aid/debt sustainability
For donor agencies and international lenders, GNI is often used to assess how much aid a country needs or how much debt it can handle.
→ This is because it better reflects the economic capacity of residents.
→ GDP may overstate a country’s fiscal strength if profits are being repatriated abroad.
→ GNI helps give a more realistic idea of development needs and ability to repay.
→ May show slower/higher growth than GDP
Changes in GNI may reflect changing patterns of income flows, which could be more relevant for development policy.
→ For example, if GDP rises due to foreign firms but GNI doesn’t, this signals limited domestic benefit.
→ Governments may then be prompted to rethink foreign investment or repatriation policies.
→ Thus, GNI may align better with development goals.
what does what does GDP and GNI not tell us
how far money can go (use ppp for this)
how do we make comparisons between countries development
- GDP/capita or GNI per capita is calculated for a currency
- that income is then converted that is accepted worldwide(eg US dollar)
- that allows us to make comparisons between GDP/capita or wealth
disadvantages of GNI
- Does Not Account for Income Distribution
- GNI measures average income but does not reflect how income is distributed within a country.
- A country with a high GNI may still have significant income inequality, with wealth concentrated among a small elite.
- This limits GNI’s ability to provide insight into poverty levels and the standard of living for the majority of the population. - Excludes Non-Monetary Aspects of Development
- GNI focuses purely on income and ignores non-monetary factors like access to education, healthcare, political freedom, and environmental sustainability.
- This means GNI cannot capture the broader dimensions of development that affect well-being and quality of life.
- For example, a country with a high GNI but poor public services may not be as developed as its income suggests. - Vulnerability to Exchange Rate Fluctuations
- When GNI is measured in a common currency (e.g., USD), it can be distorted by changes in exchange rates.
- Sudden currency devaluations can make a country’s GNI appear lower, even if its actual income levels have not changed.
- This makes international comparisons less reliable, especially for developing countries with volatile currencies. - Ignores Informal Economy
- In many developing countries, a significant portion of economic activity occurs in the informal sector, which is not captured in GNI statistics.
- This can result in an underestimation of actual income and economic activity, particularly in low-income nations.
- For example, subsistence farming or unregistered small businesses may contribute to livelihoods but are excluded from GNI measurements. - Inclusion of Foreign Income May Be Misleading
GNI includes income from abroad, which might not always benefit the wider population.
For example, income from foreign investments may go to a small group of elites rather than being distributed widely.
This can inflate GNI figures without genuinely improving the living standards of the majority.
Not always a good indicator of individual welfare 😟
GNI aggregates income across a whole country, but it doesn’t necessarily reflect the actual welfare or standard of living of individuals.
For example, a high GNI might not reflect widespread access to health care, education, or other public services.
This can lead policymakers to focus on boosting GNI without addressing underlying issues like health disparities or inadequate infrastructure.
Ultimately, economic development may not translate into better quality of life for citizens.
what is the multidimensional index
- measure the percentage of the population that is multidimensionally poor
- a tool used to measure poverty by looking beyond just income, focusing on the multiple deprivations people face in health, education, and living standards
what is the genuine progress indicator
- calculated from 26 different countries
- grouped into 3 categories: economic, environmental and social
- alternative measure of economic progress compared to the commonly used Gross Domestic Product (GDP).
- It aims to provide a more holistic view of a country’s well-being by considering not only economic production but also social and environmental factors.
advantages of the MPI
1️⃣ More holistic view of poverty
→ The MPI identifies individuals experiencing multiple deprivations, such as being undernourished, lacking safe drinking water, or having limited access to education
→ Captures non-monetary deprivations like poor nutrition or lack of sanitation
→ Reflects actual living standards beyond just income
→ Makes poverty-reducing policies more targeted and effective
2️⃣ Highlights the intensity of poverty
→ MPI shows not just who is poor but how poor they are
→ Measures how many deprivations an individual faces at once
→ This helps identify the most vulnerable populations
→ Supports more precise and impactful interventions
3️⃣ Better for policy design
→ Helps policymakers focus on specific deprivations like education or electricity
→ Unlike income measures, it can guide multi-sectoral policy
→ Encourages coordinated efforts between departments (e.g., health + education)
→ Improves the design of long-term development strategies
4️⃣ Applicable even in informal economies
→ Many developing countries have large informal sectors, making income data unreliable
→ MPI uses observable factors like school attendance or access to clean water
→ Offers more consistent and accurate insights than income-based poverty lines
→ Increases data credibility for governments and NGOs
disadvantages of MPI
- Complexity and Data Requirements
- The MPI relies on comprehensive data collection, which can be challenging in developing countries with weak statistical systems.
- Incomplete or inaccurate data can lead to unreliable results, limiting its usefulness.
- For example, rural areas with limited record-keeping may not provide accurate information on living conditions. - Difficulties in Interpretation
- The composite nature of MPI makes it harder to interpret compared to single measures like income poverty.
- Policymakers may find it challenging to prioritize interventions when faced with multiple dimensions of deprivation.
- For instance, deciding whether to focus on healthcare or education first might not be straightforward. - Neglects Income as a Key Driver of Poverty
- Although multidimensional, the MPI may underplay the significance of income in alleviating poverty.
- Low income often underpins other deprivations, such as poor housing or inadequate access to education.
- This could lead to policies that overlook income generation as a poverty-reduction strategy. - Does Not Fully Address Inequality
- While the MPI highlights disparities, it does not measure inequality directly within each dimension.
- For example, it might show average improvements in education but fail to reflect persistent gaps between urban and rural areas. - Limited Applicability in Richer Countries
- The MPI may lose relevance in high-income nations where poverty is more nuanced and relative rather than absolute.
- For instance, it might not capture issues like housing affordability or mental health challenges prevalent in developed economies. - May Overlook Regional Specificities
- Global comparisons may obscure local cultural and contextual factors influencing poverty.
- For example, deprivation in education may look similar across countries but have vastly different causes and solutions in rural India versus urban Brazil. - Static Snapshots
- MPI often provides a snapshot of poverty at a particular time but may not fully capture how poverty evolves dynamically.
- For example, seasonal variations in income or health shocks might not be reflected, limiting its real-time usefulness.
advantages of genuine progress indicator
Accounts for environmental costs
GPI includes the negative impacts of economic activity, like pollution or resource depletion.
This gives a more accurate picture of a country’s true wealth and sustainability.
By factoring in environmental degradation, policymakers can adjust for the long-term health of ecosystems.
Encourages sustainable economic policies by highlighting the costs of growth that aren’t captured by traditional measures like GDP.
Considers social well-being
GPI incorporates factors like income inequality, crime rates, and health levels.
A rise in inequality or social unrest reduces the GPI, even if GDP grows.
Encourages governments to focus not just on output, but also on improving the quality of life for citizens.
Helps in addressing societal issues, leading to policies aimed at improving overall happiness and quality of life.
Reflects changes in income distribution
Unlike GDP, which measures total output, GPI adjusts for how wealth is distributed.
A more equal distribution of wealth boosts the GPI, while rising inequality decreases it.
This creates incentives for policymakers to work toward more equitable income distribution.
Promotes inclusive growth that benefits all sectors of society, rather than concentrating wealth in the hands of a few.
Highlights the costs of crime and social instability
GPI adjusts for the negative impacts of crime, including the costs of policing and loss of security.
If crime rates increase, the GPI will fall, even if economic activity is up.
This provides a clearer picture of the quality of life and the social costs of economic decisions.
It encourages investments in law enforcement, social programs, and community-building activities.
Captures the depletion of natural resources
GPI subtracts the costs of resource depletion from economic output.
It recognizes that extracting resources reduces future wealth, encouraging sustainable use.
This prevents the misleading interpretation of growth based solely on resource extraction.
Encourages a shift toward renewable resources and the development of sustainable industries.
disadvantages of genuine progress indicator
🔸 Subjectivity in measurement
→ GPI includes non-market variables like environmental degradation or leisure time
→ These are difficult to quantify and rely on value judgments (e.g. how much is clean air worth?)
→ This can lead to inconsistencies between countries or time periods
→ Reduces reliability and credibility of GPI as an objective measure of progress
🔸 Data limitations and availability
→ GPI requires detailed data on social, environmental, and economic factors
→ Many developing countries may lack the infrastructure to collect such data
→ Leads to gaps or inaccuracies in GPI figures
→ Makes it difficult to compare across nations or track long-term trends accurately
🔸 Complexity in interpretation
→ GPI combines diverse variables (crime, income inequality, resource depletion, etc.)
→ Stakeholders may struggle to interpret what a rise or fall in GPI actually means
→ Limits its usefulness for guiding clear policy decisions
→ Could reduce its influence on public and political decision-making
🔸 Not widely accepted or used
→ GPI is not officially adopted by most governments or international organisations
→ Policymakers and markets still focus on GDP and traditional economic indicators
→ Limits its real-world impact on economic planning
→ May hinder investment or reform based on GPI-led insights
disadvantages of HDI
- Ignores Qualitative Measures 📊
HDI focuses on quantitative data such as life expectancy, education, and income levels.
However, it does not consider qualitative aspects like personal freedoms or the quality of life.
This leads to a skewed understanding of development, as two countries may have the same HDI but vastly different living conditions.
The lack of subjective measures can lead to an incomplete picture of overall well-being.
- Ignores Broader Metrics Such as Gender Inequality 🚺
HDI does not explicitly account for gender inequality.
Even if a country has a high HDI, women in that country may still face significant socio-economic challenges.
This can distort the true development status of a nation, as gender-based disparities are ignored.
As a result, HDI may understate the barriers to progress faced by marginalized groups.
- Ignores Income Distribution 💸
HDI measures the average income, which does not reflect the disparity in income distribution within a country.
A country may have a high average income but a large income gap between the wealthy and the poor.
This inequality can negatively affect social cohesion and access to resources, which HDI fails to highlight.
A more equal income distribution is important for sustainable development, which is overlooked by HDI.
- PPP Accuracy 💰
HDI uses purchasing power parity (PPP) to compare income levels across countries.
However, PPP is not always accurate because it assumes that the cost of living is the same across all countries, which is not true.
Inaccurate PPP estimates can lead to a misrepresentation of the real income levels and quality of life in different nations.
This reduces the reliability of HDI as an indicator for comparing development across countries.
advantages of HDI
1️⃣ Comprehensive measure of development
HDI considers multiple aspects of development, including income, education, and life expectancy.
This gives a more rounded view of a country’s well-being.
It accounts for both economic and social factors.
Offers policymakers a better overall understanding of national development.
2️⃣ Better comparison across countries
HDI standardizes measurements, allowing for direct comparison between countries.
It’s an internationally recognized metric.
It simplifies complex development data into one number for easier analysis.
Governments can track their progress against global benchmarks.
3️⃣ Focuses on human well-being
Unlike GDP, HDI takes into account quality of life and not just income levels.
Encourages policies that improve health and education, not just wealth.
Promotes social and environmental goals, rather than purely economic ones.
Supports a more holistic view of progress and human flourishing.
4️⃣ Encourages international aid and development support
Lower HDI rankings often attract international aid and development initiatives.
Donor countries and organizations may direct resources based on HDI levels.
It can lead to targeted interventions in countries with low human development.
Helps focus global development efforts on where they’re most needed.
what is the hdi
a composite index that measures a country’s level of human development.
- It incorporates three dimensions: health, education and standard of living .
- These dimensions are combined to give a single score that allows for comparison of development levels between countries.
how are the three dimensions of HDI measured
Health: Measured by life expectancy at birth, which reflects the overall health and longevity of a population.
Education: Measured by two indicators: mean years of schooling (the average number of years of education received by people aged 25 and older) and expected years of schooling (the number of years of schooling a child of school-entry age is expected to receive).
Standard of living:
- Measured by Gross National Income (GNI) per capita, adjusted for purchasing power parity (PPP), which accounts for the average income level and the cost of living in different countries.
HDI formula
health index + education index + living standards index / 3
