Multi-dimensional process of human development and ways to measure
Different countries of the world are classified according to their level of social and economic development. Levels of development are dependent on physical or environmental, economic, demographic, socio-cultural and political factors. Development involves complex series of interlinked processes (refer to the development cable diagram).
A quick look at the development indicators from BBC bitesize
Purely Economic Measures:
Gross Domestic Product (GDP) is the total economic output of a country in a year. It is the total value of all final goods and services produced within an economy over a period of time, usually a year. GDP is an indicator of the local/national economy.
GDP per capita to understand how the wealth is distributed within the population, however as it is an average, extreme rich and poor will be neutralized by the result. GDP per capita is the total output divided by the total number of people or population, i.e. the average amount of money each person makes.
Gross National Product (GNP): GNP is the total value of all the goods and services produced domestically and abroad by the citizen’s of a country. GNP represents how the nationals of a country are contributing to the country’s economy giving importance to citizenship but overlooks location.
Gross National Income (GNI): The total value of goods and services produced in a country (i.e. GDP), together with the balance of income and payments from or to other countries (including interest payment and dividends). GNI per person provides a better picture of the wealth distribution.
Better solution to GNI measure is to consider GNI at PPP:
Purchasing power parity (PPP): Is the measure of the average earnings in relation to local prices (i.e. how much one can buy in local currency equivalent to 1 dollar). PPP is a macroeconomic approach to compare economic productivity and standards of living between countries. It is based on “basket of goods” approach to compare the buying power of a local currency. The GNI of a country is converted into US dollars on the basis of how the value of a currency can be compared to other countries in relation to the buying power of the currency. PPP is calculated by comparing the price of good ‘X’ in different countries. To make a meaningful comparison of prices across countries, a wide range of goods and services must be considered. The popular “Big Mac Index” (the price of Big Mac hamburger across many countries) is popularly used to compare PPP in many cases.
Why only economic indicator is not reliable to measure development or disparities?
- These measures are purely economic and are not composite indicator. They do not provide any idea of human capital formation (education, training, health condition), gender equality, and condition of human rights. Even as an economic indicator it is not a holistic one as it does not include the income generated by the informal economy, which plays a significant role in many developing countries.
- There are alternative well developed composite measures available since 1990s like HDI including GDI etc that measures average achievements of the population in terms of health, education and access to goods and services.
Click here to see Ranking of world’s Economies based on GDP and PPP
HDI was devised by the United Nations Development Programme (UNDP) in 1990s and has been in use in its current form since 2010. HDI is a composite indicator that ranks countries from 0 to 9 index values based on the following criteria.
Economic Criteria : Gross National Income per capita adjusted for purchasing power parity
Social Criteria: life expectancy and literacy.
With more than 0.9 index value Norway, Switzerland, Australia, Ireland and Germany are the top rankers in 2018 HDI report. On the other hand, with 0.3 HDI index values Niger, Central African Republic, South Sudan, Chad and Sierra Leone rank the lowest.
The origins of the Human Development Index (HDI)
- First incorporated in the UNDP annual Development report developedby Pakistani economist Mahbub ul Haq in 1990 with the explicit purpose “to shift the focus of development economics from national income accounting to people-centered policies”.
- He was influenced by Nobel laureate Amartya Sen’s work on welfare economics who visualizes Development as the expansion of people’s freedom.
Strength of HDI
- A composite index measuring average achievement in three basic dimensions of human development
- Life expectancy index: Life expectancy at birth
- Education index: Mean years of schooling and expected years of schooling
- A decent standard of living measured by considering GNI per capita adjusted to PPP in US$
HDI is even stronger composite index since 2010:
In the 2010 Human Development Report a further Inequality-adjusted Human Development Index (IHDI) was introduced, proving a greater stress to measure gender inequality by incorporating GDI (Gender related development index) which is basically HDI adjusted for gender inequality.
- It allows comparison between countries with changes in these components over time since 1990. Therefore, the Human Development Index (HDI) is a comparative measure of life expectancy, literacy, standards of living, and quality of life for countries worldwide.
- It is a standard means of measuring human well being. It is frequently used to distinguish whether the country is a developed, a developing or an underdeveloped country, and also to measure the impact of economic policies on the quality of life.
Comparative analysis of the HDI (based on UNDP report, 2018)