Unit 3.1(2): Measuring Economic Development

Economic development

defined as the improvement of the well-being of a country’s citizens over time

→ difficult to define it: broad and complex concept, different countries value different aspects, hard to measure because well being includes non-economic factors like happiness, freedom etc.

Characteristics of economic development

• Rising household incomes, which give the population greater access to goods and services that improve their material quality of life

• Falling levels of poverty so everyone in society can enjoy a basic level of welfare

• Increased provision (providing/suppling)of public services like education and health to give people the ability to improve their well-being.

Measuring economic development - GNI

Higher countries with GNI have:

• higher average incomes

• Lower levels of poverty

• Better healthcare

→ better welfare

Purchasing power parity (PPP)

Way to compare the value of currencies by looking at what each currency can actually buy in its own country. It adjusts exchange rates so that the same basket of goods and services costs the same amount in different countries

→ helps compare living standards and economic output

→ long term exchange rate calculated by considering the ratio of prices in one country compared to another

Basket of goods and services

Fixed set of products and services that reprints what a typical consumer buys. Foods clothing housing transportation and entertainment

→ measure inflation by tracking how the total cost of the basket changes over time

Problems of using GNI per capita to measure economic development

1. Income distribution

   → only measures avg income doesn’t show its distribution (Inequality)

2. Doesn’t capture non monetary aspects (add to welfare but cannot be measured ) ex: climate, mental health crime rates, political freedom

3. Nature of goods produced

→ doesn’t show whether income comes from sustainable high quality production or just resource extraction

Some goods produced and consumed in a country add more to welfare than others