Categories
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).