4.26 - Measuring Development

The meaning of economic development

Economic development involves broad improvements in people's living standards within a country.

Key aspects of economic development:

• Higher income levels - Measured by increases in per capita income.
• Poverty reduction - Efforts to lower the number of people living below the poverty line.
• Improved access to services - Greater availability of healthcare and education for the population.
• More employment opportunities - Creation of jobs that provide stable incomes.
• Reduced inequalities - Narrowing gaps between different groups in society.

Single indicators for measuring economic development

Single indicators focus on one specific aspect of development, providing targeted insights into a country's progress.

Income-based indicators

Gross domestic product (GDP) or gross national income (GNI) per capita at purchasing power parity (PPP) measures average income adjusted for cost-of-living differences across countries.

Key features:

• PPP ensures that the figures reflect equal buying power in different nations.
• The World Bank classifies countries into four income groups by GNI per capita, calculated using its Atlas method. The bands below are the ones set for its 2027 financial year.

Limitations:

• Overlooks how income is distributed.
• Ignores environmental damage.
• Excludes non-market activities like subsistence farming.
• Does not consider what goods are produced.

Health-related indicators

Examples of health-related indicators:

• Health expenditure per capita - Amount spent on healthcare per person.
• Life expectancy at birth - Average years a person is expected to live.
• Infant mortality - Deaths per 1,000 live births.
• Prevalence of malnutrition - Proportion of the population undernourished.
• Maternal mortality ratio - Deaths per 100,000 live births during childbirth.
• Access to improved sanitation facilities - Percentage of people with safe water and waste disposal.
• HIV prevalence - Percentage of adults aged 15-49 affected.
• Physicians or hospital beds per 10,000 people - Availability of medical resources.

Education-related indicators

Examples of education-related indicators:

• Literacy rate - Percentage of adults who can read and write.
• Mean years of schooling - Average education received by adults.
• Pupil-teacher ratio - Number of students per teacher.
• School enrolment rates - Percentage of children attending primary, secondary, or tertiary education.

Inequality indicators

Examples of inequality indicators:

• Gini coefficient - A number between 0 and 1 showing income inequality.
• Robin Hood index - Proportion of total income that would need redistributing for complete equality.
• 20/20 ratio - Compares the income of the richest 20% to the poorest 20%.
• Social Institutions and Gender Index (SIGI) - Assesses discrimination against women in laws and customs.

Energy and environmental indicators

Energy indicators:

• Percentage of energy from traditional fuels - Reliance on sources like wood or coal.
• Household access to electricity - Proportion of homes with power.
• Energy consumption per capita - Average energy used per person.
• Ratio of energy use to GDP - Efficiency of energy in producing economic output.

Environmental indicators:

• Ecological footprint - Land and water required to support a population's lifestyle.
• Living Planet Index (LPI) - Tracks biodiversity and ecosystem health.
• Environmental Sustainability Index (ESI) - Overall environmental performance.
• Organisation for Economic Co-operation and Development (OECD) core environmental indicators - Key measures like air quality and waste.

Composite indicators for measuring economic development

Composite indicators combine multiple aspects of development into a single score, offering a broader overview. Five are in common use, and they differ both in what they capture and in the dimensions they combine.

How the HDI is scored

Each of the HDI's three dimensions is scored from 0 to 1, and the HDI itself is the average of the three, so every country ends up with a single score between 0 and 1.

Strengths and limitations of the HDI:

• It demonstrates that countries with moderate incomes can still achieve strong human development.
• Being an average, it hides differences within a country, and it ignores environmental effects.

Limitations of approaches to measuring economic development

While indicators help compare countries, they have drawbacks that can limit their accuracy and usefulness.

Challenges with single indicators

• They focus on one dimension, missing the multifaceted nature of development.
• Important interconnections, such as how education affects health, are overlooked.

Challenges with composite indicators

• Combining different elements can be difficult.
• They allow country rankings but offer limited guidance for specific policies.
• Environmental, social, and economic links may not be fully captured.

Economic growth compared to economic development

Economic growth and development are related but distinct concepts. Growth focuses on output increases, while development involves broader improvements.

Economic growth

Economic growth refers to rises in real GDP over time.

Types of growth that hinder development:

• Jobless growth - Output rises without creating jobs.
• Ruthless growth - Benefits the rich at the expense of the poor.
• Futureless growth - Damages the environment for future generations.
• Voiceless growth - Excludes groups from decision-making.

Relationship between growth and development

• Growth does not always lead to development, as increased output might not improve living standards.
• However, development typically requires some growth to fund services.
• In the short term, development can occur without growth by providing basic needs.
• Over the long term, developing countries need growth to sustain progress.