Measuring development

📚The economics

What is economic development?

Economic growth is an increase in real output (GDP). Economic development is a multidimensional improvement in people’s well-being: rising incomes, less poverty and inequality, better health and education, more freedom and choice, and greater self-esteem and security. Amartya Sen described development as the expansion of people’s capabilities: the real freedoms they have to live the lives they value. Denis Goulet’s three core values are life sustenance (basic needs), self-esteem and freedom.

Single indicators

• GDP or GNI per capita at PPP: average income adjusted for the cost of living (3.1). Widely available and comparable, but an average that ignores distribution and non-income dimensions.
• Health indicators: life expectancy at birth, infant and under-5 mortality, maternal mortality, share of stunted children, doctors per 1000 people.
• Education indicators: literacy rates, mean and expected years of schooling, enrolment rates, learning outcomes (test scores).
• Economic and social inequality indicators: the Gini coefficient, income share of the richest 10% or poorest 40%, the poverty rate.
• Energy indicators: access to electricity, use of clean cooking fuels, energy use per person.
• Environmental indicators: CO₂ emissions per person, forest cover, air quality (PM2.5), access to clean water and sanitation, the ecological footprint.

Single indicators are simple and precise, but each captures only one dimension; they can move in different directions.

Composite indicators

Strengths and limitations

• Composite indicators capture several dimensions in one number, allow rankings and comparisons over time, and draw attention to health and education, not just income. But they involve value judgments about which dimensions to include and how to weight them; they can hide trade-offs between dimensions; data quality varies; and a single number cannot capture freedom, security or culture.
• Single indicators are clearer to interpret and easier to target with policy, but partial.
• Averages hide inequality between regions, genders and groups (why IHDI and GII exist).
• Data in low-income countries are often old, estimated, or miss the informal economy and remote areas.

Growth and development

• Growth can support development: higher incomes fund food, housing and schooling; growing tax revenue pays for health, education and infrastructure; growth creates jobs and can reduce poverty. Countries with higher GDP per capita generally have higher HDI.
• Growth without development: if the gains go to a small elite, if growth is based on extracting resources with few jobs (some oil exporters), if it damages the environment and health, or if governments do not invest the revenue, growth may improve few lives. Some countries have HDI ranks far below their income ranks.
• Development without much growth: good public health, education and gender policies can raise life expectancy and literacy even at modest incomes (Kerala in India and Sri Lanka are often cited; Costa Rica ranks high on well-being measures).
• Development also supports growth: a healthier, better-educated workforce is more productive (LRAS shifts right).

✏️Worked example

A country has life expectancy 72 years, mean years of schooling 9, expected years of schooling 13.5 and GNI per capita (PPP) $12 000. Using the UNDP method (goalposts: life expectancy 20 to 85; mean schooling 0 to 15; expected schooling 0 to 18; GNI $100 to $75 000 in logs), calculate its HDI. You will not be asked to do this in an exam; it shows what the HDI is made of.

\[ \text{Health index} = \frac{72 - 20}{85 - 20} = 0.800 \]

\[ \text{Education index} = \frac{1}{2}\left(\frac{9}{15} + \frac{13.5}{18}\right) = \frac{0.600 + 0.750}{2} = 0.675 \]

\[ \text{Income index} = \frac{\ln 12\,000 - \ln 100}{\ln 75\,000 - \ln 100} = 0.723 \]

\[ \text{HDI} = \sqrt[3]{0.800 \times 0.675 \times 0.723} = 0.731 \]

HDI 0.731 falls in the “high human development” band (0.700–0.799). The weakest dimension is education, so policy aimed at schooling would raise the HDI most.

Check it. A geometric mean is always at or below the arithmetic mean (here 0.731 against 0.733); it penalizes imbalance, so a country cannot fully make up for poor health with high income.

Calling HDI a measure of happiness or of equality. It measures average achievement in three dimensions. Equality needs the IHDI or Gini; well-being needs surveys such as those behind the Happy Planet Index.