Indicators and Measurement

of Economic Development
• What is Economic development?
Economic development is the process of improving economic
welfare in an economy. Economic development can involve a
stronger economy enabling a greater range of social services
that improve a nation’s welfare. For example, an undeveloped
economy will be primarily based on agriculture and very
limited social services such as health care and education.
Economic development involves an increase in real incomes,
higher life expectancy, lower poverty and a greater provision
of basic amenities.
Indicators of economic development:
• Physical quality of life index.
• Human development index.
• Gender inequality index.
• Multi dimensional poverty index.
• Sustainable development goal index.
Physical quality of life index:
The Physical Quality of Life Index was the most serious challenge to GNP per
capita as the index of development. It was invented by M.D. Morris in 1979.
He constructed a composite Physical Quality of Life Index (PQLI) relating to
23 developing countries for a comparative study. He combined three
component indicators to measure performance in meeting the most basic
needs of the people.
• Infant Mortality Rate
• Life Expectancy at Age One
• Basic Literacy Rate
This index represents a wide range of indicators such as health,
education, 6 drinking water, nutrition and sanitation.
The PQLI shows improvement in the quality of life when people enjoy
the fruits of economic progress with increase in life expectancy (LE), fall
in infant mortality rate (IMR) and rise in basic literacy rate.
• To find out the achievement level of the positive variable, its
minimum value is deducted from its actual value and the balance is
divided by the difference (range) between maximum value and
minimum value.
• To find out the achievement level for a negative indicator, its actual
value is deducted from its maximum value and the balance is divided
by the difference between maximum value and minimum value.
Human Development Index (HDI) :
• The HDI is a scoring system used to rank countries based on their
social and economic conditions.
• ‘The HDI is seen as a measure of people’s ability to live a long and
healthy life, to communicate and participate in the life of the
community and to have sufficient resources to obtain a decent living.’
• It has a range of values from 0.0 to 1.0
• The closer the 1.0, the higher the value of HDI and the better the
quality of life for that country.
• The HDI is based on people’s needs.
• Three areas are used as a way of measuring development:  Life
expectancy
• Literacy
• Standard of living – purchasing power adjusted to local costs
• GNI may also be included.
Problems using HDI as an indicator or development :
• HDI can hide inequalities in a country.
• There is not always a direct link between having a high HDI score and high level of GNP
• Long-term changes in development only
• The HDI is not a comprehensive measure.
Factors influencing HDI:
• Politics: Life expectancy is affected by the amount of resources governments direct
towards primary health care (preventative medicine), infant mortality and literacy levels
of mothers .
• Aids: Aids is decimating people’s health in many parts of the world, especially Africa,
partly because the political will does not exist to tackle the problem through an education
program.
• Water: Two billion people lack access to clean water. Even more do not have flush toilets.
This exposes them to typhoid, cholera and other major illnesses .
• War: Apart from the obvious effects from war, one of the long term effects is the non
removal of landmines.
• National Debt:
If a government has to cut any social program to pay off debt or
interest it has a significant affect on each person’s life and access to
services.
Gender inequality index:
• The Gender Inequality Index (GII) is an index for
measurement of gender disparity that was introduced in the
2010 Human Development Report 20th anniversary edition by
the United Nations Development Programme (UNDP).
• According to the UNDP, this index is a composite measure to
quantify the loss of achievement within a country due to 
gender inequality.
• It uses three dimensions to measure opportunity cost:
•  reproductive health,
•  empowerment, and 
• labor market participation.
• The new index was introduced as an experimental measure to
remedy the shortcomings of the previous indicators, the
•  Gender Development Index (GDI) and the 
• Gender Empowerment Measure (GEM), both of which were
introduced in the 1995 Human Development Report.
Multidimensional Poverty Index:
• The global Multidimensional Poverty Index (MPI) is an international measure
of acute multidimensional poverty covering over 100 developing countries.
• It complements traditional monetary poverty measures by capturing the acute
deprivations in health, education, and living standards that a person faces
simultaneously.
• The global MPI was developed by OPHI with the UN Development
Programme (UNDP) for inclusion in UNDP’s flagship Human Development
Report in 2010.
MPI=H*A
H= % of people who are MPI poor
A= Average intensity of MPI poverty across the poor.
 
Sustainable Development Goal Index:
• The Sustainable Development Goals (SDGs) or Global Goals are a
collection of 17 interlinked global goals designed to be a "blueprint to
achieve a better and more sustainable future for all".
• The 17 SDGs are:
(1) No Poverty,
(2) Zero Hunger,
(3)Good Health and Well-being,
(4) Quality Education,
(5) Gender Equality,
(6) Clean Water and Sanitation,
(7) Affordable and Clean Energy,
(8) Decent Work and Economic Growth,
(9) Industry, Innovation and Infrastructure,
(10) Reducing Inequality,
(11) Sustainable Cities and Communities,
(12) Responsible Consumption and Production,
(13) Climate Action,
(14) Life Below Water,
(15) Life On Land,
(16) Peace, Justice, and Strong Institutions,
(17) Partnerships for the Goals.
Niti Ayog has been assigned the role of overseeing the
implementation of SDG in country.
Measurement of Economic Development:
GROSS NATIONAL PRODUCT (GNP) :
• GNP is used as a measure of a country’s wealth.
• The GNP of a country is the total value of all goods and services
produced in a country plus the value of goods and services produced
by companies from that country which are located abroad.
• It is measured in US dollars, so that comparisons can be made. For
example, in Ethiopia US$1 will buy far more than in the USA.
• This is called Purchasing Power Parity (PPP). This converts a national
income to its equivalent in the USA.
• Gross Domestic Product (GDP) is closely linked with GNP.
• Value of goods and services produced in the country only.
• It includes all goods and services produced by foreign owned companies
It excludes all goods and services produced outside the country .
• The average GDP per person can be calculated by dividing the GDP by the
total population of the country.
Problems using GNP as an indicator of development :
• GNP can be misleading. It is an average figure, hiding uneven spread of
wealth and different standards of living.
• GNP is affected by the number of MNC’s in a country. It lowers the GNP
as profits from MNC’s are used elsewhere.
• GNP figures do not reflect living costs in different countries (unless PPP is
used).
Per Capita Income:
• Dividing GDP/GNP by the total population one gets per capita
GDP/GNP. Conventionally, per capita income is used as an index
of development. Economic development involves something
more than economic growth.
•   Increases in per capita income over a long period of time are
suggestive of economic development.
• Greater the income, higher the standard of living of people, and
lower the incidence of poverty and inequality.
• The only thing that has to be taken into account is that the
growth rate of per capita income should exceed the country’s
population growth—to have more growth and development.
• However, the reality is not so simple as it has ‘been painted here.
Human Poverty Index:
• The Human Poverty Index (HPI) was an indication of the
poverty of community in a country, developed by the 
United Nations to complement the Human Development Index
 (HDI) and was first reported as part of the Human Deprivation
Report in 1997.

• It was considered to better reflect the extent of deprivation in