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Economic Development | How economic development is measured?

Economic Development | How economic development is measured?

Economic development is a process whereby an economy’s Real National Income increases over a long period, if the Growth Rate of National Income is greater than the population growth rate then Real Per Capita Income will increase.

After World War II, desire for the Economic Development rose in the backward countries of the world. Poor countries of the world are facing various challenges such as poverty, illiteracy, unemployment, malnutrition, diseases, economic stagnation, and environmental pollution. Whereas, in developed countries, people have access to facilities.

The concept of economic development goes back to the appearance of the Industrial Revolution in Europe in the 18th century. UK, France, and Germany initiated the process of industrialization. Afterward, this process spread over to Japan, the USA, and Russia. The countries from Asia, Africa, and Latin America and surprisingly, failed to avail the perks of the Industrial Revolution. In this way, an international division came into being- The rich countries and the poor countries.

Economic Development and Economic Growth

Economic Development refers to the continuous increase in the real income of a country over a long period along with technical and industrial changes in society. Economic Development is the branch of economics that deals with the causes and cures of mass poverty. Economic Growth is a long-term process by which real national income, total population, and per capita income rise.


Economic Development Definition

A country is said to be in the process of economic development if the proportion of population decreases in the production of Primary Goods Industries e.g. agriculture, forestry, and fisheries, etc. and increases in Secondary Goods Industries e.g. communication, construction, trade, and products.

Economic Growth Definition

Economic Growth is a steady process by which the productive capacity of the economy is increased to bring about rising levels of national output and income.

From the above definitions of economic development and economic growth, we find that economic development and economic growth are qualitative and quantitative terms respectively. Moreover, economic development is wider than economic growth. 

Difference between Economic Growth and Economic Development 

Economic Development

Economic Growth

Economic Development is the qualitative change in the wants, goods, incentives. It can be experienced but cannot be numerically measured.

Economic Growth is a quantitative term as it is the positive change in the country’s per capita income. It can be measured numerically.

Economic development is a wider concept as it implies human welfare in terms of health, education, and other aspects.

Economic growth is a narrower concept as it indicates the overall increase in the national income and expressed in terms of Gross Domestic Product (GDP).

Economic development emphasizes on balanced growth of the economy.

Economic growth is concerned with the statistical uplift of the economy.

Economic development is unclear as it incorporates social measures such as life expectancy or literacy rate as a means of economic development.

Economic growth is defined by an increase in Gross Domestic Product (GDP).

Economic development is aimed at the welfare of the citizens of a country.

Economic growth may not be aimed at human welfare. An increase in National Income may be the result of the introduction of ammunition and intoxicants.

Economic development is a long-term process and takes many years to change social, economic, and institutional structures.

Economic growth is a short-term process and can be measured on yearly basis to analyze the changes in the national income.


Measurement of Economic Development

Various methods have been used to assess the level of Economic Development in a country at a particular time. Some of them are discussed here.

  • National Income
  • Per Capita Income
  • Human Development Index
  • Capability Poverty Measurement (CPM)


NATIONAL INCOME AS A MEASURE OF DEVELOPMENT: 

National income is considered an important indicator of economic development. There is no doubt that if national income increases over a long period, the economic conditions of the people improve. But we can’t ignore here the rate of economic development which is an important factor in the determination of economic growth. It is therefore suggested that while estimating the economic growth in a country, the initial level of income and the rate of increase in the national income should both be taken into consideration. 

DIFFICULTIES OF MEASUREMENT: 

There are certain difficulties in using NATIONAL INCOME as an index of development.

  • Statistical problems in measuring National Income and its rate of change
  • Statistics available of National Income are generally not accurate. 

·         The problem of valuation of goods. It is very difficult to measure and make inter-country comparisons of the level of income. 

PER CAPITA INCOME AS A MEASURE OF ECONOMIC DEVELOPMENT:

The alternative measure of development is the real per capita income. Per capita income is considered a better measure of economic development. Per capita income is found by dividing national income by the population of the country (GNP/population). If the real per capita income increase over time, it will be indicated that the country is moving towards a higher standard of living and is achieving economic goals.


DIFFICULTIES IN MEASUREMENT: 

There are also inherent weaknesses in taking per capita income as on index of development are as under;

  • The data of National Income and the population are not easy to measure.
  • It ignores the qualitative aspect of the life of man which is very important.
  • Per capita data does not throw light on the distribution of National income.
  • Per capita data also does not reveal the inequalities of wealth between regions cities and rural areas of the same country.
  • A country with a high Per Capita Income may not be developed like many countries of The Middle East.

Human Development Index (HDI): 

The development economists now in the ’90s are not satisfied with GNP per capita or nation income as the principal measure of economic progress.

According to them,

“The issue is not only how much growth but what kind of growth”. 

These stresses are on human development. Human development is defined as;

“The process of enlarging the range of people’s choices increasing their opportunities for education, health care, income and employment and covering the full range of human choices from the physical environment to economic and political freedom.”

 

Main Components of Human Development Index (HDI): 

There are four essential components in human development.

l. Equity: Equity means that all people should have equal access to opportunities available in the country. For enlarging people choices to avail opportunities by

(i) changing the productive assets

(ii) introduction of progressive fiscal policy

(iii) provision of credit to the needy people for productive purpose

(iv) and giving opportunities to the low-income groups to actively participate in politics.

2. Sustainability: It is an essential component of human development.

The present & future generations must have mutual access to share developmental opportunities.

3. Productivity: Productivity in all sectors of the economy can be achieved at a rapid speed by increasing investment in human capital.

4. Empowerment: It means that people should be in a position to exercise choices of their own free will and opportunities for women to participate on equal footing with men.

Capability Poverty Measurement (CPM): 

The human development report 1996 also stresses that poverty cannot be eradicated merely by boosting income. These should be a broad expansion of basic human capabilities and the productive use of these capabilities.

The new index introduction in place of the Human Development Index (HDI) is named Capability Poverty Measurement (CPM).

It considers the lack of three basic capabilities.


First: Lack of well-being well-nourished and healthy. It is represented mainly by the proportion of children under a year who are underweight.


Second: Lack of Capability for health reproduction. This is shown by the proportion of births unattended by trained health personnel.

Third: Lack of capability to be educated and knowledgeable. It is represented by female literacy.

Conclusion

Economic growth and economic development go side by side. Sometimes, both terms are used by economists as alternatives. It is difficult to imagine economic development without economic growth. Above mentioned methods of measuring economic development reveal that each method has certain objections and limitations. However, the qualitative approach can not be better than the quantitative approach. Without quantitative development, qualitative development cannot be achieved. 

If we use Per Capita Income as a measure of economic development in Less-Developed Countries, then we could hardly observe any development as Per Capita Income rises very slowly. Per Capita Income in Kuwait, Brunei, and UAE is more than many European countries but the standard of living is low as compared to UK, USA, and other developed countries. For the sake of simplicity, economists and many international organizations use Per Capita Income as a measure of Economic Development.


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