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HL IB Economics Your notes

4.8 Measuring Economic Development

Contents
4.8.1 Single Indicators of Development
4.8.2 Composite Indicators of Development
4.8.3 Evaluating the Di erent Approaches

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4.8.1 Single Indicators of Development

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The Multidimensional Nature of Economic
Development
The 17 Sustainable Development Goals demonstrate the complexity of the nature of economic
development
The di erent elements can be separated into three categories: economic, social and environmental
Sustainable economic development occurs at the intersection of all three and is represented in the
diagram below

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Sustainable economic development is a multi-dimensional concept incorporating economic growth,

environmental care and social progress
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Viable refers to the fact that the combination of economic and environmental progress is happening
with some care, however it is not sustainable in the long term
Bearable refers to the fact that the interaction of society and the environment is happening with some
thought, however it is still not sustainable in the long term
Equitable refers to the fact that the interaction of the economy and society is happening with some
attention to well-being, however it is still not sustainable in the long term
Due to this complexity, elements of economic development can be measured using single or
composite indicators

Single Indicators of Economic Development

A single indicator is one factor, such as GDP per person (capita), used to measure the development of a
country
Single indicators measures only one development characteristic within a country

1. GDP/GNI per person (per capita) at PPP

Real GDP is the value of all goods/services produced in an economy in a one-year period - and
adjusted for in ation
For example, if nominal GDP is £100bn and in ation is 10% then real GDP is £90bn

GDP per capita = GDP / the population

It shows the mean wealth of each citizen in a country
This makes it easier to compare standards of living between countries:
For example, Switzerland has a much higher GDP/capita than Burundi

Gross national income (GNI) measures the income earned by citizens operating outside of the
country + the GDP
Many citizens employ their resources outside of a country's borders - and then send the income
home

Purchasing power parity (PPP) is a conversion factor that can be applied to GDP, GNI and GNP
PPP calculates the relative purchasing power of di erent currencies

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It shows the number of units of a country's currency that are required to buy a product in the local
economy, as $1 would buy of the same product in the USA
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The aim of PPP is to help make a more accurate standard of living comparison between countries
where goods/services cost di erent amounts

Using real GDP/Capita provides better information than real GDP as it takes population di erences
into account
Using real GNI/capita is a more realistic metric for analysing the income available per person than
GDP/capita
Using GDP/GNI per person (per capita) at PPP allows for comparisons between countries which take
into account the substantial di erences in the cost of living

2. Health and education indicators

Multiple single indicators for health and education can provide useful data for comparisons between
countries
Typical single health indicators include:
Infant mortality rate
Life expectancy
Number of doctors per 1,000 of the population
Diabetes incidence
Typical single education indicators include:
Youth literacy rate
Adult literacy rate
Mean years in school
Ratio girls/boys in school
Math achievement 8th grade

3. Economic/social inequality indicators

Typical single economic and societal indicators include:
The Gini Coe cient
Murders per 1000 of the population

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Percentage of women in national parliaments

4. Energy indicators Your notes

Typical single energy indicators include:
Coal consumption per person
Electricity generation per person
Residential electricity usage
Oil consumption per person

5. Environmental indicators
Typical single environmental indicators include:
CO2 emissions per person
Total CO2 emissions
Agricultural water withdrawal
Primary forest area

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4.8.2 Composite Indicators of Development

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The Human Development Index (HDI)
Economic development is the sustainable increase in living standards for a country, typically
characterised by increases in life span, education levels, & income

Composite indicators include indicators such as the Human Development Index (HDI), the Gender
Inequality Index (GII), Inequality Adjusted Human Development Index (IHDI), and the Happy Planet index
(HPI)

Developed by the United Nations, the Human Development Index is a combination of 3 indicators

The components of the Human Development Index

. Health, as measured by the life expectancy at birth e.g.in 2019 it was 81.2 years in the UK

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. Education, as measured by a combination of the mean years of schooling that 25 year old's have
received, together with the expected years of schooling for a pre-school child
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. Income, as measured by the real gross national income per capita at purchasing power parity (PPP)
Each indicator is given equal weighting in the index
The index ranks countries on a score between 0 & 1
The closer to 1, the higher the level of economic development & the better the standard of living

The Human Development Index scores from 1990 to 2021 (Source: UNDP Data Centre)

A value of < 0.550 is considered low development e.g. Senegal was at 0.514 in 2021
A value of 0.550−0.699 is considered medium development e.g.Bangladesh was at 0.667 in 2021
A value of 0.700−0.799 is considered high development e.g Thailand was at 0.777 in 2021
A value ≥ 0.800 is considered very high development e.g. Austria was at 0.918 in 2021

Inequality adjusted Human Development Index (IHDI)

Created in 2010 to deal with the lack of information that the HDI provides on inequality
The IHDI will be equal to the HDI value when there is no inequality, but falls below the HDI value as
inequality rises
This means that the IHDI measures the level of human development when inequality is accounted for
The di erence between the HDI and IHDI can be expressed as a percentage and represents the loss in
potential human development due to inequality

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It provides greater insight into the di erences in human development that exist in a country as
opposed to the average human development
Gender Inequality Index (GII) Your notes

The Gender Inequality Index (GII) measures gender inequality using three dimensions:
Reproductive health
Empowerment
The labour market
Countries are graded on a scale of 0→1
The lower the value the better the inequality between men and women, and vice-versa

Sweden, Peru and Yemen all score vastly di erently on the GII index with Sweden the most equal and
Yemen the least equal (Source: UNDP Data Centre)

Happy Planet Index (HPI)

The Happy Planet Index (HPI) attempts to measure sustainable wellbeing
Countries are ranked by how e ciently they deliver long, happy lives using the earth's scarce
resources in a sustainable way
The HPI scores countries with a lower ecological footprint higher than countries with more
environmental degradation
The HPI measures a country's progress using three variables
Wellbeing

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Life expectancy
Ecological footprint Your notes
wellbeing × life expectancy
HPI Score =
ecological footprint

The top 3 and bottom 3 countries on the HPI in December 2022 (Source: Happy Planet Index)

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4.8.3 Evaluating the Di erent Approaches

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Evaluating the Di erent Approaches used to Measure
Development
All development indicators have limitations
Due to the multi-dimensional nature of economic development, it is necessary to use a range of
indicators in order to gain insights into the many dimensions of quality of life, well-being, human
development and happiness
Composite indicators provide better insight than single indicators
Single indicators can be useful in targeting just one aspect - or in prioritising di erent aspects of
development
Qualitative data is used to measure many aspects of economic development and this can be subject
to bias and errors in data interpretation
It requires time to gather qualitative data and this means that the data often lags reality by several years
Data collection and statistical reporting is subject to political agendas and often the data presented
has to be questioned in light of these e.g. many Middle East countries moved from the bottom third to
the top third in the Gender Inequality index (GII) in 2017, a very unlikely transition in such a short time
period

The Advantages and Disadvantages of Using the HDI

Advantages Disadvantages

It is a composite indicator which provides a more It does not measure the inequality that
useful comparison metric than single indicators exists as it uses the mean GNI/capita
do
It does not measure or compare the levels
It incorporates three of the most important of absolute and relative poverty that exist
metrics for households i.e. health, education and
income For many countries it does not provide
useful short-term information as gathering
It is widely used all over the world which provides the data required for the calculation is
an opportunity for meaningful comparisons di cult. This means the data often lags
reality by several years
It provides a goal for governments to use when
developing their policies e.g. it may help identify

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that the education levels are holding back

improvements to the HDI and government policy
can target that Your notes
It provides citizens with an understanding of how
their quality of life compares to other countries

The Relationship Between Economic Growth &

Economic Development
Data shows that economic growth often has a very positive impact on economic development
Economic growth can lead to higher income, however, the equity in the distribution of this income
in uences the level of economic development that occurs as a result
Where the equity in distribution is higher, economic development is greater
Where the equity in distribution is lower, economic development is lower
In most cases growth precedes development, but his is not always true e.g. Bangladesh used a range
of strategies (including micro- nance) to transform the quality of life for many households
In some cases (usually in developing countries) economic growth is tied to one industry & generates
so many negative externalities of production that the standard of living decreases for many even as
growth increases

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