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Indicators of Economic Development

Various economists have suggested different indicators for the measurement of economic development. The major indicators of economic development are as follows

Gross National Product (GNP)

Some economists have considered GNP as the indicator of economic development. According to this criterion, economic development refers to the increase in the production of an economy over a long period of time. That is, economic development can be measured in terms of an increase in the economy’s real national income over a long period of time. However, the major drawback of this indicator is that it does not take into account the changes in the population growth. It also does not include the equity aspect of development.

Per Capita Income (PCI)

Per Capita Income is another indicator of economic development. According to this indicator, economic development is the process whereby the real per capita increases over a long period of time. Therefore, for the economic development, growth rate of income must be greater than that of the population growth rate. However, increase in per capita income also may not guarantee the improvement in the standard of living of the masses.

Social Indicators

Since economic development refers not only to the increase in absolute income but also to the improvement in the social factors such as health, education, etc., GNP and per capita income fail to become the indicators of economic development. In order to include the social factors in the indicators, various economists have formed various indexes. The major indicators of economic development that include social factors are as follows:

a)   Physical Quality of Life Index (PQLI)

This index was introduced by Morris D. Morris. It is a composite index that does not include income variable. Only three variables viz., life expectancy at birth, infant mortality and literacy rate are used to calculate this index. The value of PQLI ranges from 0 to 100, where 0 refers to the most inferior level while 100 refers to the most superior level. The higher the value of PQLI, better the condition of the economy.

There are some limitations of PQLI. The major drawback is that it does not include the income variable. Moreover, while calculating PQLI, equal weights are assigned to each of the variable. In addition, PQLI does not include the aspects such as security, political freedom, etc.

-         life expectancy at birth

-         infant mortality

-         literary rate

b)   Human Development Index (HDI)

Human Development Index (HDI) was developed by United Nations Development Program (UNDP) in 1990. This indicator includes three aspects of human life, namely, income for decent living, educational attainment and life expectancy. The value of HDI ranges from 0 to 1, where 0 refers to the most inferior level and 1 refers to the most superior level.

So far, HDI is regarded the best criterion to measure economic development. However, this index also is not free from criticism as it does not include the aspects such as freedom, human rights, security, etc.

-         income for decent living

-         educational attainment

-         life expectancy

c)   Basic Need Criteria (BNC)

     There are also certain social and health indicators of economic development called basic need criteria. Some of the economists suggest the economic development is measured in term of how basic human needs are being met. Although there is no specific and exact definition of basic needs, the general idea is to set minimal levels of caloric intake, health care, educational attainment, clothing and shelter etc.

d)  Economic Welfare

Some economist like Coline Clark, Kindleberger, Hersick etc. suggested economic welfare as the measure of economic development. The term economic welfare refers to the equal distribution of national income among the all sections of the society and price stability. The term Price stability is neither inflation nor deflation in an economy. Thus higher level of economic welfare higher will be the extent of economic development and vice versa.

Which is the best Measure of Economic Development?

As rightly said by Professor R. G. Lipsey, whatsoever changes in the measurement of economic development it is almost impossible to replace gross national product (GNP). Hence GNP  Per Capita Income is considered as the best method of measuring economic development. Majority of economist, agencies and U.N. organizations use GNP per capita as the measurement of economic development.


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