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Measures of Economic Development

Updated on February 26, 2012

There are a number of measures which have been used to es timate the economic development of a country. These measures, in brief, are:

(i)  Increase in real GNP.

(ii)  Increase in real per capita income.

(iii)  Rise in overall wellb eing of the people.

(iv)   Basic needs approach.

(v)    Human Development index.

The above measures of economic development are discussed now in brief.

(i)   Increase in real GNP.  Before  1970's, economic development was regarded as an increase in real national product of country over a long period of time. A long run expansion in production was to be achieved by rapid industrialization of the country at the expense of agriculture and rural development. The growth development at that time mainly meant the growth of material production.

(ii)  Increase in real per capita income. Another traditional measure of economic development was an increase in real per capita income of a country. It was considered at time that if the rate of growth of income per capita increases over a long period of time, it would indicate that the country was moving towards higher standard of living and achieving economic goals. The increase in real per capita income can be achieved if the nation has the ability to expand its output at a rate faster than the

 changes in price level. r = y ; where r = real income, y = money and p = price level. The problems of poverty,                          p

 unemployment and mal-distribution of wealth were of secondary importance.

(iii)   Rise in overall wellbeing of the people. The third traditional measure of economic development was an increase in the economic well-being of the people. According to this measure, if the citizens of country are able to get and consume more goods and services than before, people will be considered better off . The welfare of the people will rise . In the words of Okun and Richardson, ``Economic development is a sustained and secular improvement in the material well-being which is reflected in increase in goods and services.''

The basic defects with these definitions are if an increase in the goods and services produced have been created at the expense of too much hard work, or unequal distribution of wealth or at the expense of health, safety and comfort or at the expense of dignity etc., it would be unjustified to link rise in income or material welfare to an increase in economic welfare or economic development of the country . Moreover these definitions do not include non-market goods and services such as goods produced for self-consumption, women work at home etc . The objective of economic development is rise in national income by making an improvement in the quality of life of the people. The economists, therefore, are in search of other measures which serve as complements,  or alternatives to the traditional measures.

(iv)  Basic Needs Approach. Basic needs approach also called Physical Quality of Life Approach uses only three indicators for measuring economic development in a country . These indicators are  (i) Life expectancy and age. (ii) Infant mortality and (iii)  Literacy .

The basic need approach is considered superior as spells out in detail the human needs in terms of health . nutrition, shelter and education etc. It is also devoid of the flaws which exist in per capita, GNP measure. However, the approach is criticised . on the ground that it does not include security, justice and human rights which are an important measures of quality of life .

(v)  Human Development Index.  The modern economists are not satisfied with GNP, per capita or national income as the principal measures of economic progress. According to them, the issue is not only how much growth but what kind of growth. They formulated Human Development Index (HDI). There were number of measures which were included in this index, However, to keep the HDI simple and manageable, the following main variables were included in it (a) Life expectancy was chosen as a measure of long life (b)  Literacy as  an index of knowledge and (c) Real GDP per person.

(vi)  Other  diverse indicators. In addition to real GDP per person, the modern economists measure the level of country's development from the following indicators.

(1)   The percentage of income originating from agriculture in GDP. The higher the income originating from agriculture, the less developed is the economy of a country.

(2)    per Capita consumption of energy. The higher the per capita consumption of energy, the more developed is the industry and economy of the country.

(3) Percentage of starches in total calories consumed. If there is high percentage of starches consumed in total calories consumed by the people, the economy will be considered as underdeveloped.

(4) Degree of urbanization, high school enrolment ratio. If the ratio of school enrolment, the degree of urbanization and life expectancy is rising in a country they are considered to be positively related to economic development.

(5) Infant mortality and density of population. If in a country the infant mortality and density of population are high, it is considered to be negatively related to economic development.

Summing up,  ''Economic development includes not only economic growth but also a political, social and cultural change of society which contributes to better living standard.

Problems related to the measures of Economic Development of Pakistan

The measurement of economic development in a country is a complex issue. There are number of problems related to each measure of economic development which in brief are discussed below:

(1) Increase in real GDP. If there is increase in real GDP over a long period of time, the economy is described as having a strong economic growth. In case of Pakistan the real GDP is growing at an average rate of 7% for the last over five year. It is not accompanied with marked structural changes which is not of the precondition for economic development. The structural changes of the economy indicates (1) a shift away from agriculture to non-agricultural activities and (2) from industry to services along with a change in the scale of productive units.

In case of Pakistan, the share of agriculture in GDP was 47% in 2001-02 which marginally declined to 46.7% in 2006-07.It is necessary to mention that the shift of economic activities from agriculture to non-agricultural activities should be supported by an increase in agricultural production. The agricultural sector has shown positive growth of 5% in 2006-07 against 1.6% in 2005-06. The growth of industry in GDP increased by 3.2% and of services sector by 1.3% for the same period.One can easily conclude that the real growth in GDP is not accompanied with structural changes in the economy which is one of the basic precondition of economic development.

(2) Increase in per capita income. Increase in real per capita income over a long period of time is also considered a strong indicator of economic development. The real per capita income is gradually increasing in Pakistan. It was $833 dollar per year in 2005-06 and has increased to $925 dollar in 2006-07. In fact the per income does not represent the standard of living of the people. We shall have to consider the level of distribution of income, the rate of inflation in the country.

(3) Basic needs approach. As regards the Basic needs approach, the indicators to be included regarding basic needs change with the stage of development in a country. Therefore, they are not helpful in measuring economic development of a country.


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    • profile image

      Sadia 12 months ago

      Nice notes for students

    • profile image

      shagufta akbar 2 years ago

      Thnku... its really very good report nd also helpful

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      junaid BS ECO KIU 4 years ago

      very well notes for students, from which we benefit. this is well step at service of students.thanks a lot for this act of kindness.

    • f_hruz profile image

      f_hruz 6 years ago from Toronto, Ontario, Canada

      A very good report!

      I am curious about the longer term economic benefit education on a global scale may be able to create.

      My thinking is, since reality is bound by causality, the removal or reduction if irrationality in the global population by having a better understanding of the relative productivity loss through religiosity and also in part through popular mass culture, a shift in focus towards a more rational life style would benefit the economic and cultural development of most societies and as a consequence the majority of individuals on this planet.

      Converting the Vatican into an International Organization for the Advancement of the Human Mind would be a much better use of their vast resources than for them to stand in the way of progress in the name of some non-existing deities ... along with most of the other religions.