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Analysis

Evaluating different measures of economic development

Introduction

Economic development is an improvement in the general standard of living in a country achieved through better education and medical services, improved infrastructure, a more equitable income distribution, and protection of the environment (sustainability). Economists have long attempted to measure the level of economic development in a country. In 1990, the human development index (HDI) was developed. Since then, further economic development indicators have been developed as well. In this article, I will look at three popular methods of measuring economic development: the human development index, the happy planet index, and the gender-related development index.

Human Development Index (HDI)

During the creation of the HDI, there was an emphasis that “people and their capabilities should be the ultimate criteria for assessing the development of a country.” The HDI assesses the health factor by the average life expectancy at birth, the standard of living factor by the gross national income (GNI) per capita, and the education factor by the “mean years of schooling for adults” and the “expected years of schooling for school-aged children starting school.” 

Some critics have argued that there are problems with the way the HDI is measured. For example, economists have criticized that the HDI “correlates factors that are more common in developed countries.” Including only one of these correlated values — such as a higher level of education leading to a higher GNI per capita — may give a better representation of a country’s well-being. Furthermore, there are possible ethical issues with the HDI not taking into account factors such as inequality, poverty, and gender equality. Lastly, some believe that the structure of the HDI implies that a person’s life expectancy has economic value, which would be unethical.

Happy Planet Index (HPI)

The Happy Planet Index (HPI) measures the level of sustainable wellbeing in a country. More precisely, it gives economists an indication of how likely it is that a nation’s population will be able to lead a long, happy, and sustainable life. The HPI is calculated by multiplying a country’s well-being by the life expectancy and dividing by the ecological footprint of a country. According to its proponents, the HPI has the advantages of offering a clear path to a sustainable and fair future by “combining life satisfaction with ecological aspects” and being relatively easy to comprehend.

However, there have also been criticisms of the HPI, most notably that the HPI completely disregards political freedom, human rights, and labour rights. Some argue that the concept of the CO2 footprint itself is controversial as it only focuses on CO2 emissions and disregards other activities like water consumption. Lastly, “happiness” and “satisfaction” are heavily subjective, culturally dependent, and perhaps difficult to influence by politics. Thus, the question of whether the HPI should be used to measure political measures — such as action against climate change — arises.

The Gender-related development index (GDI) was developed to measure “gender gaps” in human development achievements. To evaluate possible disparities between men and women, the GDI covers three dimensions of human development: health (life expectancy), knowledge (expected years of schooling and mean years of schooling), and living standards (GNI per capita). For all 167 countries, the GDI is calculated for men and women, but for all countries — based on the GDI — gender inequality still exists. 

Recently, some critics pointed out that for some countries there are no gender-specific data points available, which means that many assumptions are made while calculating the GDI. Additionally, inconsistencies with the rounding up and down in calculations have been identified. There has also been debate over the components that were chosen to calculate the GDI.

Conclusion

The above examples of ways in which economic development can be measured (HDI, HPI, and GDI) are only a small sample of the indexes used. While the human development index (HDI) may be the most well-known, there are problems with the measurement. It is very likely that as economists pursue further research in development economics, more indexes will be developed that represent the true situation in countries more accurately.

Sources

United Nations Development Programme. “Human Development Index (HDI)”. Available at http://hdr.undp.org/en/content/human-development-index-hdi (Accessed 3 December 2021).

Investopedia Team, 2021. “What are the Criticisms of the Human Development Index (HDI)?”. Available at https://www.investopedia.com/ask/answers/042815/are-there-critics-human-development-index-hdi.asp (Accessed 3 December 2021).

Wellbeing Economy Alliance, 2021. “How Happy is the Planet?” Available at https://happyplanetindex.org/wp-content/themes/hpi/public/downloads/happy-planet-index-briefing-paper.pdf (Accessed 3 December 2021).

Meinert, Sascha and Stollt, Michael, 2010. “Bruttoinlandsglück — Auf der Suche nach qualitativer Entwicklung”. 

United Nations Development Programme. “Gender Development Index (GDI)”. Available at http://hdr.undp.org/en/content/gender-development-index-gdi (Accessed 3 December 2021).


Stanton, Elizabeth, 2007. “Engendering Human Development: A Critique of the UNDP’s Gender-Related Development Index”. Available at https://scholarworks.umass.edu/cgi/viewcontent.cgi?article=1104&context=peri_workingpapers (Accessed 5 December 2021).

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Weekly Summaries

3rd of January – 9th of January

Situation in Sudan

Last week, Sudan’s military and security forces re-gained complete control over the country. The military leader promised to form “an independent government,” after the civilian prime minister Abdalla Hamdok left the country last Sunday, leaving the country in chaos. Protests were met with security forces, especially in the capital, Khartoum. According to the New York Times, at least 57 people died.

Other News

  • There was an assasination attempt on Haiti’s President over the weekend, which he survived
  • Turkey’s year-on-year inflation reached 36% in December, a 19-year high
  • Apple’s value as a company has tripled since 2018 when it recently became the first company to become a $3 trillion company
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Weekly Summaries

27th of December 2021 – 3rd of January 2022

Election results in Iraq certified by court

The parliamentary vote actually already took place in October but this past week the court certified the results, although voter turnout was extremely low (only 41%). This means that Muqtada al-Sadr is now set to lead Iraq. His bloc, the Sadrist Bloc, was able to win 20 additional seats in Parliament, consolidating its position of being the largest bloc even further, which will be of great importance when he chooses the next prime minister.

Floods in Brazil

This past week floods in Brazil devastated entire parts of the country. More than 50,000 people had to flee their homes and at least 20 people were killed by the floods drowning the northeastern part of the country. The rain is especially problematic because northeastern Brazil has suffered from extreme droughts for the past 5 years and the heaviest rain recorded in the region over the past three decades has caused dams to collapse, aggravating the situation even further.

Other News

  • The super typhoon Rai of the Philippines has now killed almost 400 people and injured more than a thousand. Nearly 100 people are still missing while others are stuck in evacuation centers.
  • Somalia’s president suspended the country’s prime minister last week because of corruption investigations
  • Ashraf Ghani, the former president of Afghanistan, gave his first interview with the BBC after fleeing Afghanistan
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Online Courses

19th of December – 26th of December

Elections in Chile

Gabriel Boric won this year’s presidential elections in Chile. He is known to be a former student activist and won 56 percent of the votes. President Boric’s opponent Jose Antonio Kast, a more conservative politician, was able to capture the remaining 44 percent of the votes. After the results announcing Boric as Chile’s youngest-ever president at 35 years of age came out, Boric announced to the crowds that he was going to be “the president of all Chileans” and that he was going to do his “best to get on top of this tremendous challenge.” Boric will officially take office in March and has been called a “promising president” by some.

Other News

  • A Typhoon in the Philippines likely killed more than 140 people
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Weekly Summaries

13th – 19th of December

Drastic Changes for the E.U.

Last week, the E.U. proposed some very drastic changes, which involve taking away the unfettered movement of people between E.U. countries. This is a hallmark sign of the E.U., but it could become a distant memory if both all national government and the E.U. Parliament approve of the change. If this would be the case, member countries could re-introduce border checks as frequently as they wish. The European Commission justified the proposal by stating that it would “help member countries better respond to troubles stemming from migration and the pandemic,” according to the New York Times.

Other News

  • Storms across 6 U.S. states killed at least 90 people. One of the tornadoes will become the “longest tornado in U.S.,” according to Kentucky’s governor.
  • The first official visit by an Israeli leader to the UAE took place on Tuesday the 14th of December. Israel’s prime minister Naftali Bennett met with the crown prince of the United Arab Emirates, Mohammed bin Zayed.
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Analysis

The Economics of “Black Friday”

Introduction

Black Friday is always on the Friday after American Thanksgiving and fell on the 26th of November this year. Originally, Black Friday was an American tradition that started with New York’s apartment store “Macy’s” in the early 1900s. More recently, however, Black Friday has spread across the world and is very popular due to its characteristic low prices. This leads one to question how it is possible for Black Friday to still be so profitable for retailers.

Loss Leader Marketing

Loss Leader Marketing is a marketing tool that businesses use to gain brand loyalty and to attract new customers, especially on Black Friday. The strategy behind loss leader marketing is that customers are incentivized to enter a store through the promotion of a special discounted item. This discounted item is placed toward the back of the store so that customers walk past many other products (these often aren’t discounted) in order to reach the product. Customers often end up buying more than just the discounted item, which means that the total sales of all the products make up for the loss the store incurs through the discounted item. Consumable items — items with higher margins that are repeatedly purchased — are often marketed using this loss leader marketing strategy. 

For example, the retail giant Costco has established a reputation as being a low-price distributor among consumers. Costco achieved this reputation by selling some discounts on items such as gasoline, food, and in-store items. This brand image means that consumers often first think of Costco when considering whether or not to make a purchase, which increases the total sales Costco makes.

Price Discrimination Strategies

Price discrimination is another marketing strategy that aims to make use of the various amounts consumers are willing and able to pay. In a retailer’s perfect world, every consumer would pay the maximum amount they are willing to pay for the product, meaning that producer surplus is maximised. This marketing strategy is also used on Black Friday by retailers to break into new markets and draw in new consumers. Companies may price discriminate by setting their products at different prices in different stores, depending on the income of people who are most likely to pass that store.

2021’s Black Friday

Early observations have revealed that there were most likely fewer people out physically shopping on Black Friday in 2021 than in previous years. Instead, more and more people seem to opt to shop online instead. The National Retail Federation predicted an increase in sales between 8.5% and 10.5% from 2020 while early data from Mastercard Spending Pulse revealed that Black Friday sales may have actually been up by 12.1% in the US.

Conclusion

Due to COVID-19, fewer and fewer consumers are shopping in physical stores and many have switched to online retailers instead. This is bad news for smaller firms who cannot compete with “super-retailers” like Amazon. As there is a shift towards online retail, shopping bots have also become more and more popular among consumers to ensure that they will be able to get a pair of those rare sneakers. Finally, there has also been a trend in recent years to not limit Black Friday Deals just to Black Friday. Increasingly, more and more retailers are offering Black Friday discounts much earlier, some as early as October.

Sources


Discussion Question: What is your experience with Black Friday discounts?

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Weekly Summaries

29th of November – 5th of December

Turkish Lira further loses value

After the Lira crashed last week, protests broke out across Turkey. The crash comes after months of worsening economic problems that already caused the currency to lose more than 45 percent of its value from the start of 2021. Last week alone, the currency devalued by around 20 percent. The police have responded by detaining protestors: last Wednesday the police detained at least 70 people in districts of Istanbul who were protesting the “government’s management of the economy,” according to the New York Times.

American delegates to boycott 2022 Winter Olympics

This weekend the Biden administration announced that no American delegates would be attending the 2022 Winter Olympics in Beijing. American athletes, however, are not affected by the boycott and will be allowed to compete in the Olympics. Since the announcement, New Zealand and Australia have joined the U.S. in the diplomatic boycott.

Other News

  • Four students died at the most recent school shooting at a high school in Michigan, United States. The suspect is a 15-year old who now faces murder and terrorirsm charges
  • Austria’s former chancellor, Sebastian Kurz, who is currently under investigation for accusations that include corruption, announced last week that he was quitting politics
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Weekly Summaries

22nd of November – 28th of November

Germany’s new government

Two months after elections took place at the end of September, the German parties Social Democrats, Greens, and Free Democrats announced last week that they have concluded their coalition talks. The leader of the Social Democrats party, Olaf Scholz, is expected to take over as chancellor from Angela Merkel. This means that Germany may finally have a new government. Some policies included in the new deal are raising the minimum wage to 12€, building 400,000 new apartments to fight the housing crisis, legalizing the sale of cannabis, and new plans to phase out the use of coal by 2030.

Other News

  • To help battle the skyrocketing oil prices worldwide, Britain, the U.S., China, India, Japan, and Korea have decided to release tens of millions of barrels of crude oil from their storage, according to the New York Times
  • A bus caught fire and crashed in Bulgaria, killing at least 45 people
  • A new variant of COVID-19 called Omicron that was first detected in South Africa has started to spread
  • 52 people were killed due to a gas buildup and explosion in a Siberian coal mine last week
  • There were clashes between the police and demonstrators in Honiara, the capital city of the Solomon Islands. The protestors demanded that the prime minister resign.
  • The cyberwar between Iran and Israel has reached new heights
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Weekly Summaries

15th of November – 22nd of November

Tensions at the Poland-Belarus border

Thousands of migrants were trapped at the border between Belarus and Poland for weeks. Poland, a member of the European Union, refused to open the border. Now, an increasing number of migrants have decided to seek asylum in Belarus instead. This could cause many problems for Belarus, a country that has few jobs and other opportunities. Towards the end of the week, Belarusian authorities then cleared the camps at the border and moved the migrants to a warehouse instead. The question of what will happen to the migrants now remains unanswered.

Other News

  • Sudan’s prime minister, Abdalla Hamdok, was reinstated on Sunday after being in house arrest for four weeks
  • A new Portuguese law is considered revolutionary in its efforts to regulate remote work conditions. The law effectively prevents employers from contacting their employees outside of working hours and from monitoring their work.
  • President Biden of the U.S. and President Xi of China met virtually in a three-hour long summit to keep “communication lines open”
  • Germany “suspended approval of the Nord Stream 2 pipeline,” according to the New York Times. The move cause gas prices in Europe to rapidly increase
  • An explosion in Kampala, the capital city of Uganda, killed at least three civilians. The explosion was later described as an “extremist attack” with three suicide bombers also dying. 
  • A self-portrait of Frida Kahlo sold for $34.9 million last week, setting a new record for the most expensive artwork by a Latin American artist at the auction Sotheby’s
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Weekly Summaries

8th of November – 14th of November

Tensions at the Poland-Belarus Border

Poland has stationed thousands of troops along its border with Belarus where migrants from Middle Eastern countries have set up camp, hoping to enter the European Union. This situation can be seen as a confrontation between Belarus and the E.U., of which Poland is a member. Politicians from E.U. member countries have accused President Lukashenko, Belarus’ leader, of “intentionally trying to create a new migrant crisis in Europe,” according to the New York Times. The E.U. imposed sanctions on Belarus after President Lukashenko’s victory in the elections of August 2020.

Other News

  • After Brexit, British companies have found themselves caught in a tangled web of restrictions and financial obstacles if they want to do business in E.U. countries. The country Estonia saw an opportunity and is now welcoming British companies who want to escape such troubles.
  • The top general of Sudan’s army appointed himself as the “head of a new ruling body” after last month’s coup, according to the New York Times
  • Japan’s economy contracted again in the third quarter of the year