GLOBAL
ECONOMICS
Measuring Economic Development
Joy Sameh
Phone Number: +201277522891
Economic Development: A Multidimensional Concept
What is Economic Development?
Economic development refers to:
A sustained increase in living standards involving improvements in:
• Income
• Health
• Education
• Equality
• Environmental quality
Economic development is broader than economic growth.
The Three Dimensions of Development
Economic development consists of three interconnected dimensions:
Dimension Meaning
Economic Income, employment, productivity
Social Education, health, equality, living conditions
Environmental Resource use, pollution, sustainability
Sustainable development occurs only when all three overlap.
Key Terms:
• Viable → Economic + environmental (not socially sustainable)
• Bearable → Social + environmental (not economically sustainable)
• Equitable → Economic + social (not environmentally sustainable)
Measuring Economic Development
Because development is multi-dimensional, it is measured using:
• Single indicators
• Composite indicators
Single Indicators of Economic Development
A single indicator measures one aspect of development only.
1. GDP / GNI per capita (at PPP)
o GDP (Gross Domestic Product) à Total value of goods and services
produced within a country
o Real GDP is adjusted for inflation
§ Example:
Nominal GDP = £100bn
§ Inflation = 10%
à Real GDP = £90bn
o GDP per capita
Formule = GDP / Population
• Shows average income per person
• Allows comparison of living standards
o GNI (Gross National Income)
§ GNI = GDP + income earned by citizens abroad
§ More accurate than GDP in countries with:
• Migrant workers
• Foreign investments
o Purchasing Power Parity (PPP)
§ PPP adjusts income figures to reflect cost of living diJerences.
§ $1 does not buy the same amount in all countries.
Examiners prefer:
Real GNI per capita at PPP
Because it:
• Adjusts for inflation
• Adjusts for population
• Adjusts for cost of living
Health Indicators (Single)
Common health indicators:
• Life expectancy
• Infant mortality rate
• Doctors per 1,000 people
• Disease incidence (e.g. diabetes)
à Reflect quality of healthcare and living conditions
Education Indicators (Single)
Common education indicators:
• Adult & youth literacy rates
• Mean years of schooling
• Gender ratios in education
• Test achievement (e.g. math scores)
à Education improves human capital
Inequality Indicators
Examples:
• Gini coeJicient (income inequality)
• Murder rates
• Women in parliament (%)
à High inequality = lower development
Energy Indicators
Examples:
• Electricity usage per person
• Oil and coal consumption
Indicates:
• Industrialisation
• Access to modern infrastructure
Environmental Indicators
Examples:
• CO₂ emissions per person
• Forest area
• Water withdrawal in agriculture
à Used to assess sustainability, not income
Composite Indicators of Development
They:
• Combine multiple dimensions
• Give a broader picture
• Are more suitable for IB evaluation
Human Development Index (HDI)
The HDI measures average human development using three indicators.
Components of HDI
Dimension Indicator
Health Life expectancy at birth
Education Mean + expected years of schooling
Income Real GNI per capita at PPP
à Equal weighting is given to each component
HDI Scale
• Ranges from 0 to 1
• Higher value = higher development
HDI Value Level
< 0.550 Low
0.550–0.699 Medium
0.700–0.799 High
≥ 0.800 Very high
Inequality-Adjusted HDI (IHDI)
Purpose
• Adjusts HDI for income, education, and health inequality
• Shows actual development, not average
Key Points
• IHDI = HDI only if inequality = 0
• Greater inequality → larger gap between HDI and IHDI
• Dijerence = loss in potential human development
Gender Inequality Index (GII)
Measures inequality between men and women using:
1. Reproductive health
2. Empowerment
3. Labour market participation
Scale
• 0→1
• Lower value = more gender equality
Useful when discussing:
• Inclusive development
• Social equity
Happy Planet Index (HPI)
What Does It Measure?
Sustainable wellbeing, not income.
Variables:
• Wellbeing
• Life expectancy
• Ecological footprint
Formula: HPI = Wellbeing x Life expectancy / Ecological footprint
Countries with low environmental damage score higher
Evaluation of HDI
Advantages
• Composite measure
• Includes health, education, income
• Allows global comparison
• Helps governments target weaknesses
Disadvantages
• Uses averages → hides inequality
• Does not measure poverty directly
• Data collection takes time
• Ignores environmental sustainability
Relationship Between Economic Growth & Development
Key Relationships
• Growth often leads to development
• BUT only if income is equitably distributed
Key Insight:
• Growth without equity = limited development
• Growth tied to polluting industries may reduce living standards
Example:
• Bangladesh improved development via microfinance despite low growth
Evaluating Development Indicators
Key Evaluation Points
o No single indicator is sujicient
o Composite indicators are generally better
o Qualitative data can be biased
o Data often lags reality
o Political manipulation of data is possible