Measuring economic development
Gross National Product (GNP) measures the economic output of a given nation. GNP can be used to measure the increase in real national income over a given period of time.
Criticisms of GNP
1. Real national income excludes price changes. A short period rise in national income during an upswing of an economic cycle does not constitute economic development.
2. GNP does not factor in a change in the population of a given nation.
3. GNP does not reveal or factor in the negative externalities such as pollution.
4. GNP tells nothing about the distribution of a societies income.
5. Does not factor in other forms of measurement such as illegal markets, services, etc.
Per Capital Real Income (PCRI) is a measurement of income which also factors in population.
Criticisms of PCRI
1. PCRI Fails to measure changes in output due to changes in price lend.
2. Does not show whether any increase in income goes to the rich or the poor.
3. International comparisons of real GNP per capita are inaccurate due to exchange rate considerations of different currency's into one standard currency.
4. PCRI fails to take into account problems associated with basic needs like nutrition, health, sanitation, housing, education, etc.
According to Morris D Morris: Physical Quality of Life Index (PQLI) is a measurement of the most basic needs of the people. It factors in a wide range of indicators such as health, education, water conditions, nutrition and sanitation.
PQLI is determined by taking 3 measurements,
1. Infant Mortality Rate (IMR) 2. Life Expectancy at age one 3. Literacy rate
and averaging these three factors giving equal value to each.
1. PQLI is a limited measure of basic needs
2. Many societal and psychological factors like security, justice, human rights, etc are excluded.
3. Does not explain the changing structure of economics and societal development.
4. Arbitrary weights are given to each determining factor.
5. PQLI does not measure economic development and total welfare.
6. There is no unanimity among the economists as to the number and type of items to be included in such an index.
the Human Development Index (HDI) is a quality of life index prepared by the United Nations Development Program. It is a composite index of life expectancy, adult literacy and years of schooling. It also considers P.C.I. (real)
HDI is a composit index of a long and healthy life, knowledge and a descent standard of living. Human development is the process of enlarging peoples choices and raising the level of well being.
Calculation of HDI 1. Longevity 2. education (2/3) Educational attainment of adult literacy, (1/3) gross enrollment ratio (GER) for primary, secondary and tertiary levels. 3. Standard of living, Purchasing Power Parity in terms of dollars.
High HDI .8+ Med HDI .5-.8 Low HDI Below .5
1. A crude index which tries to create one simple number for a complex realization about human development and deprivation. 2. There can be many indicators like IMR, nutrition, etc. 3. HDI measures relative rather than absolute human development. 4. The use of weights to each of these items is arbitrary. 5. HDI may shift the focus away from the high inequality found in some countries. 6. Reliability of data pertaining to health education and literacy used by UNDP is open to question.
Human capabilities is the measurement of freedom of choices. At the core of human well-being is freedom of choice by enhancing peoples capabilities for attaining higher standards of health, knowledge, self respect and the ability to participate actively in community life.
The relavent factors in determining choices are 1. Free from starvation 2. Free from hunger 3. Free from under nourishment 4. Free from participation in communal life 5. Adequate shelter
Criticisms 1. Freedom of choices goes beyond economic development when freedom from servitude, freedom from religion, and political freedom are included. 2. Problems in measuring factors