Economic Development IndicatorsDevelopment Indices Human Develop Index

Studying development is about measuring how developed one country is compared to other countries, or to the same country in the past. Development measures how economically, politically, socially, culturally or technologically advanced a country is. There are a few indices and economic development indicators to measure development.

Per Capita IncomeGross Domestic Product (GDP)Gross National Product (GNP)Gross Domestic Income (GDI)Gross National Income (GNI) Inequality of wealth InflationUnemployment

Per capita income or average income measures the average incomeearned per person in a given area (city, region, country) in a giventime period.

Total Income———————Total Population

Higher per capita income means higher standard of living. So, developed countries have higher per capita income relative to developing countries.

Gross domestic product (GDP) is a monetary measure of the value of all final goods and services produced in a period (quarterly or yearly). Also known as Nominal GDP.

The economic worth of all goods and services produced in a given year, adjusted as per changes in the general price level is known as Real GDP.

Nominal GDP is the GDP without the effects of inflation or deflation, whereas, you can arrive at Real GDP only after giving effects of inflation or deflation.

There is another formula for measuring GDPGDP = C + I + G + Nx

C = Consumer SpendingI = Investment by BusinessesG = Government Spending Net Exports = Nx = (X- M) = Exports – Imports

Higher GDP also means higher standard of living. Thus, Developed countries have higher GDP.

Gross national product (GNP) is the market value of all the products and services produced in one year by labor and property supplied by the citizens of a country.

It is equal to GDP plus any factor income earned by residents from overseas investments minus factor income earned within the domestic economy by overseas residents.

GNP = GDP + Net factor income inflow from abroad – Net factorincome outflow to foreign countries.

Factor income is income received from the factors of production i.e. land, labor, capital and organization. Factor income on the use of land is called rent, income generated from labor is called wages , income generated from capital is called interest and income earned by organization is called profit.

Developed countries have higher GNP relative to developing countries.

The sum of all income earned while producing goods and services within a nation's borders is called Gross Domestic Income (GDI)

GDI = rental income + interest income + profits + wages + income tax + dividends.

Developed countries have higher GDI relative to developing countries.

Theoretically, GDI should equal GDP.But GDP is calculated based on expenditure, difference usually exists.

The market value of goods and services produced often differs, because of measurement errors, from the amount of income earned to produce them.

The gross national income (GNI) is the total domestic and foreign output claimed by residents of a country, consisting of gross domestic product (GDP) plus incomes earned by foreign residents, minus income earned in the domestic economy by nonresidents.

GNI = GDP + Net compensation receipts + Net property income receivable + Net taxes (minus subsidies).

Developed countries have higher GNI relative to developing countries.

For GNI calculation we have to includes Net taxes (minus subsidies)While GNP formula does not include it.

Wealth inequality (also known as the wealth gap) refers to the unequal distribution of assets among residents of a country.

Wealth includes the values of homes, automobiles, personal valuables, businesses, savings, and investments.

Developed countries have low wealth inequality.

Inflation is an increase in the general price level of goods and services in an economy over a period of time.

When the price level rises, each unit of currency buys fewer goods and services. Consequently, inflation reflects a reduction in the purchasing power of the currency.

Deflation is the decrease in the general price level of goods and services in an economy over a period of time.

Inflation is caused when goods and services are in high demand, creating a drop in availability. Consumers are willing to pay more for the items they want, causing manufacturers and service providers to charge more.

Deflation occurs when too many goods are available or when there is not enough money circulating to purchase those goods.

Developed countries try to maintain a balance between inflation and deflation.

Unemployment occurs when people who are without work are actively seeking work.

The unemployment rate is a measure of the prevalence of unemployment and it is calculated as a percentage by dividing the number of unemployed individuals by all individuals currently in the labor force.

No. of unemployed people——————————— x 100No. of people in labor force

Labor Force is all people who supply labor for the production of goods and services during a specified period. It includes both the employed and the unemployed.

Developed countries have relatively low unemployment rate.

Pakistan being a developing country, its economy is in recession and it has high inflation and unemployment rate.

Recession is a significant decline in activity across the economy, lasting longer than a few months.

Pakistan also have relatively lower per capita income,GDP,GNP,GDIand GNI relative to developed countries.

Studying development is about measuring how developed one country is compared to other countries, or to the same country in the past. Development measures how economically, socially, culturally or technologically advanced a country is. There are a few indices and economic development indicators to measure development.

The Human Development Index (HDI)measures the average achievements in a country in three basicdimensions of human development: life expectancy, education,and income per capita. To enable cross-country comparisons,the HDI is, to the extent possible, calculated based on data fromleading international data agencies and other credible datasources available at the time of writing.

The Inequality-adjusted Human Development Index (IHDI) adjuststhe Human Development Index (HDI) for inequality in distribution ofeach dimension across the population. The IHDI accounts forinequalities in HDI dimensions by “discounting” each dimension’saverage value according to its level of inequality. The IHDI equals theHDI when there is no inequality across people but is less than the HDIas inequality rises. In this sense, the IHDI is the actual level of humandevelopment (accounting for this inequality), while the HDI can beviewed as an index of “potential” human development (or themaximum level of HDI) that could be achieved if there was noinequality. The “loss” in potential human development due toinequality is given by the difference between the HDI and the IHDIand can be expressed as a percentage.

The Gender Inequality Index (GII) reflects women’sdisadvantage in three dimensions—reproductive health,empowerment and the labour market. The index shows the lossin human development due to inequality between female andmale achievements in these dimensions. It ranges from 0, whichindicates that women and men fare equally, to 1, whichindicates that women fare as poorly as possible in all measureddimensions.

The Multidimensional Poverty Index (MPI) identifiesmultiple deprivations at the individual level in health,education and standard of living. It uses micro data fromhousehold surveys, and—unlike the Inequality-adjustedHuman Development Index—all the indicators needed toconstruct the measure must come from the same survey. Eachperson in a given household is classified as poor or nonpoordepending on the number of deprivations his or her householdexperiences.

The Human Development Index (HDI) is a composite statisticof life expectancy, education, and income per capita indicators,which are used to rank countries into four tiers of humandevelopment. A country scores higher HDI when the lifeexpectancy at birth is longer, the education period is longer, andthe income per capita is higher. The HDI was developed by thePakistani economist Mahbub ul Haq working alongside Indianeconomist Amartya Sen, often framed in terms of whether peopleare able to "be" and "do" desirable things in their life

Dimensions and calculationHuman Development Report(HDI) combines three dimensions:

A long and healthy life: Life expectancy at birthEducation index: Mean years of schooling and Expected years

of schooling.A decent standard of living: GNI (Gross National Income) per

capita

Life Expectancy Index (LEI)

LE: Life expectancy at birthLEI is 1 when Life expectancy at birth is 85 and 0 when Life expectancy at birth is 20.

Education Index (EI)

Mean Years of Schooling Index (MYSI)MYS: Mean years of schooling (Years that a person 25 years-of-age or older has spent in schools) Fifteen is the projected maximum of this indicator for 2025.

Expected Years of Schooling Index (EYSI)EYS: Expected years of schooling (Years that a 5-year-old child will spend in

schools throughout his life)Eighteen is equivalent to achieving a master’s degree in most countries.

Income Index (II)

GNIpc: Gross national income at purchasing power parity per capitaII is 1 when GNI per capita is $75,000 and 0 when GNI per capita is $100.

Finally, the HDI is the geometric mean of the previous three normalized indices: