16. 2 Measuring economic activities

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The complexity of measuring economic development:

Indicators are used:

-monitoring how a country develops over time with respect to the attribute measured by the indicator

-making comparisons between countries with respect to the attribute

-assessing how well a country is performing with respect to particular goals or targets of development (for example, an increase in the literacy rate indicates an improvement in educational level)

-devising appropriate policy measures to deal with specific problems

Limitations:

-each indicator measures only one aspect of development

-since development is a multidimensional process, it is often necessary to combine the use of many indicators to obtain an overall picture of a country’s level of development

-indicators are based on statistical information, and this poses a distinct set of problems

-some countries have a limited capacity for collection of statistical data

-data are not fully available in many countries

-definitions of variables and methods used by statistical services vary from country to country, despite efforts by international organisations (such as the World Bank and United Nations agencies) to achieve standardisation

-statistical problems mean that the indicators cannot always be precise and should be used as rough guides of trends over time or differences between countries, rather than as very precise measures

Single indicators

-comparisons of GDP per capita or GNI per capita across countries require measures of per capita output or income based on conversions of national currencies into US$

-by the use of purchasing power parities (PPPs), to eliminate the influence of price differences on the value of output or income

Comparing and contrasting GDP per capita and GNI per capita:

-GNI per capita is a better indicator of the standards of living in a country

-represents income per person receive d by the residents

-GDP per capita is a better indicator of the level of output per person produced in a country

Purchasing power parities (PPP):

-the amount of a country’s currency that is needed to buy the same quantity of local goods and services that can be bought with US$1 in the United States

Comparing and contrasting health indicators

-adequate public health services (such as immunisation, provision of health information and education), and prevention of communicable diseases (such as malaria, tuberculosis, HIV/AIDS)

-adequate health care services with broad access by the entire population

-a healthy environment, including safe drinking water, sewerage and sanitation, and low levels of pollution

-an adequate diet and avoidance of malnutrition

-a high level of education of the entire population

-absence of serious income inequalities and poverty

-health outcomes in the United States may be due to inequalities in income and education resulting in pockets of poverty, connected to poor housing and living conditions, poor nutrition and health, and insufficient access to medical care (due to lack of medical coverage)

-such factors result in worse health outcomes among low-income groups, which lowers the average over the entire American population

-health outcomes in countries like Moldova andSri Lanka are due to government policies placing a high priority on public health and the provision of health care services for low-income groups, as well as on education

-health outcomes in sub-Saharan African countries are due to a very large extent to the disastrous impacts of HIV/AIDS, as well as problems with sanitation, safe drinking water, lack of education and information, poor public health and health care services, and premature deaths due to diseases that are both preventable and treatable (such as malaria)

The discussion of health indicators illustrates that:

GNI per capita (or any other income or output measure) is an insufficient indicator of health outcomes

limited resources, due to low GNI per capita, are not always the most important cause of poor health outcomes

most (if not all) countries, both more and less developed, can do more with their available resources to meet economic development goals

they can reallocate resources towards provision of more social services and merit goods, improving the institutions through which these services are delivered, as well as reducing poverty

some development issues apply not only to developing, but to developed countries as well, because of the presence of poverty in wealthy societies that make people on low incomes subject to similar deprivations as poor people in developing economies

Comparing and contrasting education indicators:

-countries can achieve universal literacy and universal primary education even if they have relatively low per capita incomes

-provided their governments allocate enough resources to education services, and ensure that all children have access to these

Composite indicators:

-summary measures of more than one dimension, composite indicators are more than one dimension, composite indicators are more accurate measures of development

Human Development Index

-summary measure of human development

-measures average achievement in three diameters

long and healthy life is measured by life expectancy at birth

access to knowledge is measured by mean years of schooling and expected years of schooling

a decent standard of living is measured of GNI per capita

-use as a tool for governments wishing to devise policies focusing on economic and human development and it is far superior to single indicators as a measure of development

Limitations:

-economic and human development are much broader concepts with more dimensions than are reflected in the HDI

- HDI does not provide us with information about income distribution, malnutrition, demographic trends, unemployment, gender inequalities, political participation, etc

Comparisons between HDI and GNI per capita

GNI (or GDP) per capita used alone can be a poor measure of the different dimensions of development

many countries, even with their given levels of GNI per capita, are capable of making significant improvements in the well-being of their populations by making different choices regarding the resources allocated to health, education and other services or merit goods

economic and human development issues apply not only to developing countries, but to developed countries as well