Measuring Development

The Multi-Dimensional Nature of Economic Development

• As discussed before, economic growth, which is an increase in real GDP over time, is relatively easy to measure.
• However, economic development, which is a multi-dimensional concept encompassing wellbeing, education, healthcare, equality, empowerment, access to services and a good living environment, is far more difficult to measure.
  • Several tools are used to measure economic development, called indicators.

Indicators

• Development is a complex and intricate thing to measure.
  • To classify and compare countries, economists use a variety of indicators.
• An indicator is a certain characteristic.
  • For example, it could be the birth rate per 1000 people in a country, or the accessibility of cheap or free healthcare.
  • Indicators are measured numerically, often as an index or percentage of some kind.

Single Indicators

• A single indicator is the measure of a single characteristic of development.
  • They use only one factor to measure development, so aren't very useful to gain a holistic picture, but can highlight specific issues.

Examples

• Income
  • GDP/GNI per capita at purchasing power parity (PPP)
  • Absolute and relative poverty headcounts

• Health and education
  • Life expectancy at birth
  • Infant mortality rate
  • Average years of schooling
  • Expected years of schooling
    • Typically until a specific age, such as until 12 or 17 years old for example.
  • Adult literacy rate

• Economic or social inequality indicators
  • Income inequality
    • Most commonly using the Gini coefficient
  • Access to resources by social group
  • Gender ratio for average years of schooling
  • Gender representation in the government

• Energy indicators
  • Source of energy
    • The proportion of energy that comes from renewable sources such as hydropower, solar or wind compared to the energy that comes from non-renewable sources such as coal or gas.
  • Renewable energy usage
  • Energy consumption per capita

• Environmental indicators
  • Carbon footprint
  • Ecological footprint

Composite Indicators

• The measure of multiple characteristics of development.
  • Composite indicators are often created by multiplying or summing different single-indicators, to create an indicator that represents multiple different aspects.

Examples

• Human Development Index (HDI)
  • Used by the UN to determine the quality of life.
  • 3 main factors include:
    • GDP per capita - economic well-being
    • Life expectancy - healthcare
    • Average and expected years of schooling - education
  • The factors are multiplied together to create the index.

• Gender inequality index (GII)
  • Main factors include:
    • Reproductive health
      • Infant mortality, adolescent birth rate
    • Empowerment
      • Government seats, gender ratio in education
    • Economic status
      • Labor force participation gender ratio

• Inequality-adjusted human development index (IHDI)
  • Similar to HDI, but taking into to account the inequalities for life span at birth, education and income.
    • This ensures that a rich minority isn't making the HDI of a country seem far greater than it actually is by inflating the average.

• Happy planet index (HPI)
  • Divides the components of the HDI by the country's ecological footprint to determine its sustainability.
  • Many developed countries score high HDI but not a high HPI because they overuse resources.
  • In contrast, many countries in Asia and Latin America, such as Costa Rica, score very high in HPI.

Using Indicators to Measure Development

Strengths

• Provides data over time to analyze progress and act as a point of comparison.
• Data can determine which specific sectors of development are in urgent need of improvement.
• Data can guide government policy and determine the effectiveness of legislation.

Limitation of Indicators to Measure Development

• Indicators presented as an average are flawed by hiding extreme conditions.
• Gathering data is difficult financially and logistically.
• Informal economic activity is hidden, and not easily shown by indicators.
  • This could lead to misleading data for poorer countries, which tend to have a large amount of informal economic activity.
• Cannot capture the complexity of development.
  • As development is a multi-dimensional concept that tackles various areas, condensing it all into a single composite indicator, or a collection of single indicators, can be a huge simplification at times.
  • Focusing too much on indicators could detract from the human-side of what the indicators are representing, such as the struggles of living in poverty or being unable to access education or healthcare.