Economic Development: Intro to Indicators

• A measure of the quantity and quality of economic growth within a country

Quantity: GDP / capita (GNI may be more telling)Quality: access to resources

living standards choicessustainability of growth, etc.

Development economics requires some normative thinking – value judgements and bias are inevitable and must be identified

Developed vs. Developing Economies

• Developed: most people have access to resources which satisfy their basic wants, the opportunity to improve their living standards (education, etc), the ability to make wider economic choices (where to live, work, etc)

• Developing: access to the basic essentials of life and choice for the majority of the population is limited by the need to focus on individual survival

Development Indicators – GDP/capita

• Total value of goods and services produced within a country / population

• The most important indicator of development – ↑incomes → ↑living stds

• GNI may be more informative and is often used for developing countries

Advantages Disadvantages

• Most gov’ts produce a GDP figure using internationally recognised calculation methods

• Easy to compare countries

• Easy to calculate from gov’t figures

• A good indicator of the relative state of the economy yr on yr

• Accurate figures difficult to obtain –unofficial activity & fraud (black mkt, subsistence farming, corruption, etc.)

• Cross comparison req’s conversion to common currency – exch. rate distortion may occur

• Hides inequalities

• Just a snapshot – trends more important

Development Indicators – Measures of Poverty

Absolute: inability to acquire goods necessary to satisfy basic human needs (nutrition, shelter, etc)

• Eg. “% of people living on less than equiv. $2 per day” – puts into terms developed countries can understand

• Probs with measure: data, costs of living vary vastly (climate, etc), income isn’t everything

Develop’t Indicators – Measures of Poverty

• Relative Poverty: measures poverty in relation to the average in the country

• Often defined as % of population below 60% of median income * Median income is the middle income in the country – half the population has income above that level and half has income below that level

• So, if a country has quite a sharp drop from that middle income to the lowest incomes, there can be a high percentage who are in ‘relative poverty’

Development Indicators - Life Expectancy

• Over past 40 years, life exp. at birth in developing countries has increased by 20%, but many countries in sub-saharan Africa are now falling due to AIDS

• Many factors contribute to differences (stability of food supply, incidence of war, disease, etc)

Life exp. at birth

GDP/capita

At the lowest levels of income, huge gains in life exp. can be made with just a little extra money

Development Indicators - Literacy Rates

• The % of those aged 15 and above who are able to read and write a short, simple statement on their everyday life

• Zambia’s lit. rate is higher than Saudi Arabia which has 14x higher GDP/capita

• More extensive definitions are available – eg. functional literacy (tests ability to understand printed text, interpret documents, and perform basic arithmetic)

Advantages Disadvantages

• Gives indication of access to education (many may not go to school even if it is free due to high opp. cost of leaving the farm)

• Shows potential of a workforce

• Takes no notice of other skills – eg. knowledge of farming techniques

• May be difficult to measure – some cultural bias

• Doesn’t indicate problems of access, poor teaching, cultural discouragement, etc.

• May be gender distribution issues

Development Indicators – Infant Mortality

• Deaths of children aged 0 – 1 per thousand of the total births

• Indicates state of health service, disease problems, food & water quality, accommodation, infrastructure, success of aid packages, etc.

Advantages Disadvantages

• An easy indicator to understand

• Focuses on one of the most basic aspects of development

• Hard to get accurate figure – births may be unregistered

• Complexities of disease may exist

• Hard to target / compare – what exactly is causing the deaths?

Development Indicators – % Employed in Agriculture

• Absolute poverty usually found in agriculture

• 2/3 of labour force employed in ag. in Asia & Africa

• Some theories on development linked to industrialisation

• BUT, may be an advantage to be in ag. in certain circumstances – live off the land (lots of poverty in cities as well)

Other Development Indicators

• Big Mac Index: Ranks countries according to how long ave. person must work to buy a Big Mac – gives some idea of PPP and the real exch. rate (Big Mac costing $6.81 in Switzerland is worth the same in GNI as one costing $1.62 in India)

• Quality of Life: eg. # of people per room, distance travelled to clean water, cars per person

Other Development Indicators

• Infrastructure: eg. paved roads as % of total roads (can give insight into growth potential)

• Disease: AIDS, TB, Malaria (indicates future workforce potential, access to drugs/healthcare, sanitation, etc) – may be distorted due to data collection problems

Composite or Aggregate Indicators

• Human Development Index (HDI) – introduced by UN to account for probs. of income based measures

• 3 components:- longevity (life expectancy at birth)- knowledge (number of years in school)- std of living (real GNI/capita adjusted for local cost of living, and PPP)

• Creates a league table of countries:- very high = 0.8 – 1- high = 0.7-0.8- medium = 0.7 – 0.55- low = below 0.55

• Amartya Sen video

Problems of HDI• All incorporated figures may have flaws

• Does not account for differences in gender, religion, region, etc.

Combining Indicators• Subtract HDI rank from GNI rank – gives indicator of

standards of literacy and health without income consideration

• Some countries are wealthy overall, but have poor standards for the average person – or vice versa