Skip to main content

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.


Labels:

Comments

Post a Comment

Popular posts from this blog

Market Economy Vs Command Economy

Generally, there are two fundamentally different ways of organizing an economy. Market and Command Economy. A market economy is one in which individuals and private firms make the major decisions about production and consumption. In a market economy, decisions are made in markets, where individuals and enterprises voluntarily agree to exchange goods and services, usually through payments of money. A system of prices, of markets, of profits and losses, of incentives and rewards determines the what (profits), the how (costs) and the form whom (reward for inputs). [Laissez-faire economy] A command economy is one in which the government makes all important decisions about production and distribution. In a command economy, the government owns most of the means of production; it also owns and directs the operations of enterprises in most industries; it is the employer of most workers and tells them how to do their jobs; and it decides how the output of the society is to be divided among ...
Post a Comment
Read more

Let's discuss the government budget

A government budget is a financial plan that outlines the revenues and expenditures of a government for a specific period. It is a crucial tool for managing a country's finances efficiently to achieve economic and social goals like promoting growth, reducing poverty, and providing public services. Monitoring and adjusting the budget as needed is essential for fiscal stability and sustainability.  In Nepal, the tradition of presenting an annual budget dates back to the 1950s, with the first budget presented in 1951 covering the period from March 1951 to February 1952. This change followed the overthrow of the Rana regime in February 1951. During this transitional phase without a legislature, the first budget was presented at the end of the year BS 2007 through Radio Nepal. The budget amount was Rs. 52,529,000, with a tax collection target of Rs. 30,619,000. The then Finance Minister, Subarna Shamsher, presented the budget as part of the council of ministers led by Prime Minister Mat...
Post a Comment
Read more

Economic Efficiency

A given economic arrangement is efficient if there can be no rearrangement which will leave someone better off without worsening the position of others. One important aspect of overall economic efficiency is productive efficiency. Productive efficiency occurs when an economy cannot produce more on one good without producing less of another good.
Post a Comment
Read more