Changes in population</
(3) Capital formation/capital accumulation
(4) Use of better techniques of production.
Changes on Demand Side
(1) Changes in social and institutional life
(2) Changes in the level of production and distribution of NI(nation income)
(3) Changes in size and nature of tastes of the people
2. Long Period of Time: The process of economic development requires a long period of time. This period consists of 25 years or more. That is, if real GNP rises till the period of 25 years, there will be economic development in real sense
3. Increase in Real Gross National Product (GNP): Economic development will take place when the real GNP of a country increase which is the basic objective of this process.
4. Increase in Real Per Capital Income: If an increase in real per capital income of a country occurs for a long time, then the country moves towards economic development.
Measurement of Economic Development
There are different methods to measure economic development in a country
1. Increase in Real Gross National product method
2. Increase in Real Per Capital Income method
3. Economic welfare as a measure
5. Physical Quality of Life index (PQLI)
6. Human Development index (HDI)
1. Real Gross National Product method
Real Gross National Product is an important and a common indicator of economic development of a country. Real GNP refers to the country’s total output of final goods and services in real terms instead of money terms. In the light of meier and Baldwin’s definition, if the GNP of a country increase over along period of time, the country is considered to be making economic development. A short period rise in national income due to business cycle does not represent economic development
- An accurate statistic about national income is not available
- It is very difficult to assess the value of a number of goods and services in money terms.
- National Income statistic fail to describe the distribution of income in the economy.
- While calculating National Income, there is a danger of Double Counting.
- Due to the faster growth rate of population as compared to the growth rate of National Income, there will be no economic development.
- Income from illegal activities and transfer of payment are not included in NI(National Income)
2. Real Per Capital Income Method
Real Per Capital Income Method is treated as an indicator of economic development. The quantity of goods and services received by an individual of a country in a year or the average income of the people of a country as known as real per capital income. Economic development is considered as the process whereby Real Per Capital Income increase over a long period of time which results people living in a country are able to buy more goods and services than before at average. Consequently, the average poverty will come down and living standard of the country will improve.
Per Capital Income = National Income/Population
- It is diffical to have the correct statistic of National Income and population.
- It does not reflect the distribution of National Income or regional inequalities of income
- It does not throw light on the quality of life aspect, which is very important
- If LDCs(less developed countries) adopt this method, then there will be hardly any development because in LDC per capital income rises veru slowly and nominally in presence of high population high population growth rate.
- Per capital income method reflects the living standard of the people. But perhaps it is not so, as Brunei, Qatar, and Kuwait have the highest per capital income respectively $32,843, $72,677 and $32737 but the average living standard of US citizen ($65,062) and U.K ($42,036) is far above than that of then.
3. Economic Welfare as Measure
According to this method, economic development is a process whereby there is an increase in the consumption of goods and services of individuals. As Okun and Richardson say, “economic development is a sustained and secular improvement in material well-being which will be reflected in an increase in goods and services”.
- The increase in the production of goods and services ignore social opportunity cost
- From the economic welfare point of view, we must consider not only what is produced but how it is produced?
- If the increase in goods and services has been produced at the cost of exploitation of labor, reduction in wages, air and noise pollution etc. it will not be economic development.
- Due to economic development, it is possible that people are having more goods and services than before but it is not necessary that the distribution of goods and services has been fairer one
- We cannot equate an increase in output per head with an increase in economic welfare.
4. Basic Needs Approach
According to this Basic Need Approach if the people are In the position to avail more amount of food, have better access to educational facilities, availability of clean water supply, water sewerage, health care, shelter, and clothing etc. All such would represent economic development. Therefore, if people of country fail to get above needs even GNP has gone up, it will not represent economic development.
- Without increase National Income, it is difficult to improve these indicators.
- It only stresses upon social indicators and social development.
- There are different items in this method having different impotance and weight under different economic and political setup of countries. In such situation, the comparison in countries seems difficult.
5. Physical Quality of Life Index (PQLI)
Morris D. Morris developed ” Physical Quality of Life Index (PQLI)” where he included just three indicators like life expectancy, literacy rate, and infant mortality rate. The scale of 1 to 100 was used for this index. 1 indicated the poorest level and 100 indicated the highest level of development. Different countries are ranked in development on the basis of their physical quality of life index.
- It stresses upon a qualitative aspect of life and ignores the quantitative aspect.
- It is a limited measure; it has not included so many social and psychological indicators
- As many developed countries have got maximum limit of physical quality of life index. So according to this method there is no scope for their further growth.
- Without quantitative development, it is difficult to improve a qualitative aspect of life
6. Human Development Index (HDI)
Human Development Index developed by United Nations is based on three measures: life expectancy literacy rate and income to meet the basic needs of life in a country. HDI rank all countries into three groups named low human development (0.0 to 0.5), medium human development (0.51 to 0.79) and hogh human development (0.8 to 1). According to UNDP HDI index of 2017 Pakistan had 0.562 HDI, India was 0.640 and Bangladesh was 0.608
- The three indicators which have been included in HDI are good but not the idea ones.
- The HDI measure does not consider the income inequalities in a country.
- The modern experts using Human Governance Index (HGI) instead of HDI. HDI is the combination of good economic governance good political governance and good civil governance.
|alternative measures of development
Which Method of calculating Economic development is best and why
The above mention methods of measuring economic development reveal that each method has certain limitations and no one is objection free. However, physical quality of life index basic needs approach human development index and economic welfare, as measure cannot be considered better than Real National income method and Real Per Capital Income method because they just explain the qualitiative aspect of economic development. Without quantitative development qualitative development cannot be achieved. When we make a comparison between Real National Income and Real per capital income methods we find that the former is better than the later because
- The increase in real per capital income is based upon the increase in real GNP.
- If real per capital income method is used as measure economic development, the real per capital income remains the same if the rate of increase in real national income is equal to rate of increase in population but in fact the country gets progress
- Real per capital income method in LDCs, then we find hardly any observable development as per capital income rises very slowly.
- Real per capital income method conceals the population problems of a country
- For the sake of simplicity economists and international organizations use per capital income as the measure of economic development
- Share your own thoughts with us about these method of measuring economic development you can show as your thoughts via comment. Thanks for reading