measurement of economic development

Parameters and methods used for measurement of economic development

Measuring economic development is a varied and difficult task. There are several measures of economic development and some of the common measures are
1. Gross National Product/ Gross National Income
2. Per Capita Income
3. Incidence of Poverty
4. Human Welfare
5. Standard of Living
6. Green Index

1. Gross National Product (GNP) / Gross National Income (GNI)

The Gross National Product (GNP) is the value of all the goods and services
produced in an economy, plus the value of goods and services imported,
minus the goods and services exported. The Gross National Income is the
total value of all income in an economy, plus the value of all income
received from other countries, minus payments made to other countries.
Thus, GNP and GNI measures indicate the levels of development. However,
between the two, GNI is a more appropriate measure of development, as it measures what is actually available for contributing to the standard of
living. On the other hand, GNP is a measure of the total value of goods
and services produced by a country, and not the income and output available
for use by a country.

2. Per Capita Income

Many economists argued that per capita income is a better measure of
development than GDP and GNI. According to them development is
meaningless, if it does not improve the standard of living of the people.
Per capita income is calculated as national income, divided by total
population.

3. Incidence of Poverty

The Incidence of Poverty is another measure of development. Many
countries have calculated the number of people, and, even families, living
below the poverty line. The simplest and most widely used measure of
poverty is the Head Count Index (HCI), which is the ratio of the population
living in poor households, with incomes below the poverty line, to total
population.

4. Human Welfare

Economic development can be measured in terms of welfare. Human
welfare includes both individual and community welfare. Individual welfare
would include access to basic needs, equity in the distribution of income
and wealth, literacy, health, sanitation, safe drinking water, and employment.
Community welfare measures for human welfare are delivered through the
active community participation.

5. Standard of Living

The economic development of a country is also measured in terms of its
standard of living. To be comparable across households, the standard of
living indicator may be expressed either in terms of consumption, or,
income. Although, consumption seems to be a more appropriate measure,
yet income is used as a better measure for the purpose of analysis.

6. Green Index

The World Bank’s Environmentally Sustainable Division has developed an
index, called the Green Index. The Green Index uses a new system of
measurement for the assessment of economic development. It attaches a
dollar value to the following three components: (i) produced assets, (ii)
natural resources, and (iii) human resources. It puts price tags on produced
assets, the sum of all machinery, factories, roads, and other infrastructure.
It also assigns an economic value to land, water, timber, minerals, and all
natural resources. Finally, it takes into consideration, the available human
resources, the education level, and the range of skills. All these indicators
are not usually taken into consideration in the traditional indicators of
economic development.