One difference between growth and development is that growth tends to be more objective, as it can be measured with a set figure and tends to be much more of an exact science. However, development is more normative and it is more difficult to judge accurate figures to gauge a ‘correct’ level of the development (e.g. it is hard to estimate the number of calories the average person should have a day to show the level of poverty).
Although there is a distinct difference in the measurement of the two factors, there is also a small link between the actual indices. The HDI is a composite of three basic components of human development: longevity, knowledge and standard of living. Now standard of living is measured by purchasing power, which is based on real GDP per Capita adjusted for the local cost of living –PPP (purchasing power parity). Therefore, as a component of the HDI is related to GDP per capita, it shows that there is a small link between economic growth and development.
b) How do economists measure economic development?
The most common method of measuring development is to use figures for national income. However, the method of gauging national income itself differs, but the most common two are to use GDP (gross domestic product) and GNP (gross national product) although GNP is a better indicator as it takes into account income of residents in a particular country, regardless of where it was generated.
However, to use the standard GNP figure is not sufficient and there are a number of adjustments we can make to create a more accurate indicator. For example, we can make a conversion to ‘per capita’ figures (by dividing the GNP by the population number) or by taking into account the income distribution of a country (seeing whether the GNP is high due to a few wealthy people or a general sense of affluence). It is also necessary to take into account errors and omissions and the ‘real’ value of the GNP measurement, as the raw figure may be distorted and even change over a time scale (e.g. the GNP measurement now would differ of that from 50 years ago). Moreover, the errors and omissions do not just include calculation factors, but also physical elements, for example, the geography & climate of the region (for example, the broader the area that a country’s population inhabits, the more of GNP that will be taken up by the cost of transportation.)
Economists would also, as stated before, take into account the income distribution of a country in their GNP measurement, and to do this, they would use the ‘Lorenz Curve’ and the Gini Co-efficient formula. This formula from the graph can emphasise the distribution, where the closer to result to 0 (and the diagonal line on the graph), the closer to perfect equality the country, whereas an outcome close to 1 shows a high level of inequality.
Other indicators used are less scientific, but nevertheless can still help gauge to what extent a country is developed, for example, access to services, percentage of people with access to safe water & resources. It is also necessary to consider access to services such as electricity and medical care, as well as reviewing certain rates like Literacy and Mortality (PQLI- Physical Quality of life index) & the PPP (Purchasing power parity, of how much $1 can buy in other countries). The combination of these indices is known as the HDI (human development index). A variation of this is known as the HPI (human poverty index), which can also be used and measures the percentage of the population not benefiting from the development process.
c) Comment upon the difficulties involved in such measurement.
There are several reasons why the measurements mentioned above are flawed and inaccurate. For example, the level of per capita income is not a perfect measure of the level of development, just as growth too is not a perfect indicator of the rate of economic development, and are thus imperfect yardsticks for comparing development over time and across countries. This is because, over time and between certain countries, the way in which GDP (and thus GNP & NNP) may change and also technical inaccuracies within a population census would in turn cause the GNP per capita figure to be distorted. GDP per capita income also doesn’t take into account the distribution of income, and therefore may show a distorted figure when the majority of the figure is composed of a few wealthy people (e.g. Saudi Arabia and the Royal Families), rather than of the country as a whole. It is wealth (or accumulated saving) that determines economic welfare and not the current income, hence, a wealthy person who does not earn any income in a year, may still be able to enjoy a high level of economic welfare, and thus making the GNP (national income) slightly inaccurate in some circumstances in measuring the development of a country.
The ‘shadow’ or ‘black’ economy plays a major role is discussing the measurement problems with using the National income method. This is shown when viewing the number of people living in poverty in a country like Columbia, where the level of poverty would appear to be low, whilst the GNP per capita income is low. This is due to a large amount of ‘undeclared’ output through drugs and in turn creating small jobs to the locals, and thus reducing poverty, whilst keeping GNP per capita low.
The outcome of GNP per capita may be distorted from certain other activities where payment is not received. Although this is generally the case for MEDC’s (more economically developed countries) with D.I.Y and pocket money, it still occurs in 3rd World and developing countries to a lesser extent. For example, this may be through subsistence farming and self-sufficiency (e.g. in Bangladesh) where a family may work on the land and produce output just for themselves, rather than for income. Women in the role of ‘housewives’ conform to this too as they perform a service (e.g. through cooking and cleaning e.t.c) but this is not officially counted as output and they generally do not get paid (often the case in some Middle Eastern & Islamic countries).
The problem with the PQLI and the HDI are both broad and limited. Although they measure such factors as maternal health, quality of prenatal care, nutrition levels, sufficiency of healthcare & access to a safe water supply, they fail to take into account indices such as: security & political freedom (which is lacking in some countries such as Russia, Kazakhstan & China), human rights and employment. Therefore, the problem with the PQLI and the HDI is that these indexes do not try to measure freedom, justice and security, but instead they attempt to measure how well people satisfy certain life-serving social characteristics. These indexes are also considered to be normative, and thus not an exact science. Hence, it is difficult to judge accurate figures for factors such as sufficiency of health care per person, as this may differ over time and between countries also.