Indicators of Development (Edexcel A-Level Economics A): Revision Notes

Indicators of Development

Introduction to measuring development

Development is a broader concept than economic growth alone. While economic growth focuses on increasing the resources available to a society, development encompasses how those resources are used to improve people's quality of life. Understanding development requires us to examine multiple dimensions of human well-being.

Some countries have successfully closed the gap with developed nations. The tiger economies of South East Asia (Hong Kong, South Korea, Singapore, and Taiwan) achieved rapid economic growth from the 1960s onwards. More recently, emerging economies including the BRICS countries (Brazil, Russia, India, China, and South Africa) have experienced significant progress. However, other developing countries, particularly in sub-Saharan Africa, have made relatively little progress.

Measuring development with GNI per capita

An obvious starting point for measuring development is Gross National Income (GNI) per capita. However, using this measure for international comparisons presents challenges. To make meaningful comparisons, GNI per capita is typically measured using Purchasing Power Parity (PPP), which adjusts for differences in price levels between countries.

The Human Development Index

To address the criticism that GNI per capita fails to account for other dimensions of quality of life, the United Nations Development Programme (UNDP) devised an alternative indicator in 1990. The Human Development Index (HDI) is a composite indicator of a country's level of development, with values ranging between 0 and 1. Higher values reflect higher human development.

Components of HDI

The HDI recognises three key aspects of human development: a decent standard of living (resources), knowledge of how to make good use of those resources (education), and a long and healthy life in which to make use of those resources (health).

These three components are measured as follows:

• Decent standard of living: Measured by GNI per capita in PPP
• Knowledge: Measured by indicators of education (mean years of schooling and expected years of schooling)
• Long and healthy life: Measured by life expectancy at birth

The measurements are combined to produce a composite index ranging between 0 and 1, with higher values indicating higher human development.

Understanding education indicators

Education is represented by two different variables in the HDI, each capturing important but contrasting aspects:

HDI data analysis

The following chart shows HDI values for selected countries in 2021:

Countries remain ranked in descending order of GNI per capita, but the gap between low and high human development is less pronounced than when looking at income alone. Some interesting patterns emerge from the data. South Africa and Malaysia, for example, rank lower on the HDI than on GNI per capita, suggesting these countries show lower levels of human development than their income performance would indicate. Conversely, countries like Chile and Sri Lanka perform better on HDI grounds than on GNI per capita.

Life expectancy patterns

Life expectancy at birth provides insights into health standards and healthcare provision across countries:

Life expectancy is primarily responsible for the low ranking of South Africa in the HDI. South Africa's level of life expectancy is significantly below what would be expected given its average income level and mean years of schooling. In contrast, Bangladesh performs relatively well in terms of lifespan but poorly in terms of education. These comparisons illustrate the diversity between countries that was mentioned earlier.

Education and schooling

Mean years of schooling vary considerably across countries:

The diversity in education levels reflects differing priorities that governments have given to various aspects of development. Countries such as Brazil have aimed primarily at achieving economic growth, while countries like Sri Lanka have given greater priority to promoting education and healthcare.

Growth vs development

There is a view that growth should be the prime objective for development. By expanding the resources available, the benefits can begin to trickle down through the population. An opposing view claims that by providing first for basic needs, more rapid economic growth can be facilitated.

The HDI may be preferred to GNI per capita as a measure of development because it reflects the key dimensions of development as opposed to growth alone. However, it will always be difficult to reduce a complex concept such as development to a single statistic. The diverse characteristics of developing countries demand the use of a range of alternative measures to identify the specific configuration of circumstances and problems facing a particular country.

In the area of healthcare, examining the number of doctors relative to population or levels of infant mortality provides useful insights. For infrastructure, access to improved water, sanitation, or electricity is informative, as is access to a mobile phone.

Other indicators of development

Although the HDI is a useful composite indicator that is more informative about relative living standards across countries, it still neglects some important dimensions of development. The UNDP has recognised this and has produced a number of other indicators designed to complement the HDI, notably in respect of inequality, gender, and poverty.

The Inequality-adjusted HDI

Inequality in the three components of the HDI (health, education, and standard of living) is used to adjust the HDI to estimate the extent to which potential human development is lower because of inequalities. For example, South Africa experiences relatively high inequality.

Gender inequality

The situation of women in many countries has been a major concern. Women tend to receive less education, are exposed to greater health risks, and receive lower incomes. The UNDP has produced two ways of exploring gender inequality across countries.

One approach calculates the HDI separately for females and males. In more developed countries, female life expectancy is often significantly higher than for males, so the difference in HDI levels between females and males is not great, even where females face lower GNI per capita. Indeed, some countries (such as Estonia) show females having a higher HDI than males.

The Multidimensional Poverty Index

In previous discussions, poverty was examined in relation to income or consumption levels. However, poverty is not just about income; it is also about deprivation—lack of access to key resources.

The Multidimensional Poverty Index (MPI) attempts to reflect the number of deprivations faced by households. These deprivations are grouped into the three key components of the HDI (health, education, and standard of living). They include:

• School attainment and attendance (for education)
• Nutrition and child mortality (for health)
• Lack of access to a range of things such as: electricity, clean water, sanitation, good cooking fuels, a floor that is not dirt, sand or dung, and assets related to information (such as radio, television, phone), mobility, or livelihood

These multiple deprivations are combined into an index that reflects both the number of people regarded as being poor in terms of deprivations and the number of deprivations that they suffer. A headcount ratio is published showing the percentage of the population who are poor under this definition.

Characteristics of developing countries

There are many other indicators that can be used to capture the varied characteristics of developing countries that may contribute to their progress (or otherwise) in achieving development. The pattern of economic activity may be important, as heavy dependence on low-productivity agriculture may hinder economic growth.

Access to good infrastructure can be captured by data on access to electricity, sanitation, or clean water. Transport and communications are also vital for development, so access to the internet or mobile phones, and the quality of roads, are all important indicators that can provide clues to the problems faced by particular countries.

Notice from the varied pattern of the data that there does not appear to be a strong association between poverty and average incomes. Each country shows different strengths and weaknesses across the various indicators, highlighting the complexity of measuring and understanding development.

This data illustrates how different countries face different challenges and have different characteristics that affect their development path. Some may have good education systems but poor health outcomes, while others may have achieved progress in reducing poverty but struggle with high unemployment or inequality.