Understanding GDP, GNP, GII, HDI, & GNI Per Capita [AP Human Geography Unit 7 Topic 3]
The formal economy consists of economic activities that are recognized by law and are overseen by the government. Jobs and activities in the formal economy have set rules, legal protections, and are taxed by the government. They also have access to traditional financial services, such as banks.
(EX) A couple examples of jobs in the formal economy would be doctors, servers, or teachers, just to name a few.
While on the other hand, the informal economy consists of economic activities and jobs that are not regulated or protected by the government. Jobs and activities in the informal economy often do not have access to formal financial services. They lack consistent income and often do not have regulations or legal protection. Jobs such as street vendors, domestic work, illegal businesses, or unregistered small businesses would all be examples of jobs in the informal economy.
Traditionally, we can see that countries that have less economic development generally have a significant amount of jobs and activities located in the informal economy instead of the formal economy. Now, since the informal economy is not regulated or overseen by the government, it can be difficult to measure.
However, we can measure the formal economy in a variety of different ways. The first measure we can use is the GDP, which stands for gross domestic product. This measures the total economic output of a country over a given period of time. We can get a country's GDP by adding a country's consumption, investment government spending, and the country's exports minus its imports.
Notice that we are subtracting imports from our calculation. This is because the GDP is only factoring in production that occurs inside the country's boundaries. When GDP is increasing, it shows that businesses are expanding, jobs are being created, and the economy is growing. We can also see that when the GDP is increasing, it indicates that there is more consumer and government spending, which is due to the government receiving more tax revenue and consumers having more disposable income. But on the other hand, when GDP is declining, it shows that the total value of goods and services inside the country's boundaries is shrinking, which can be due to the result of an economic contraction or possibly a recession. A decrease in the GDP also often indicates that businesses may be struggling, that jobs are being lost, and that consumers are spending less money. Another way in which we can observe economic development is by looking at the GNP,
For example, Tesla is an American-based company, but its factories in countries around the world and earns profits from the sale of goods produced in those factories. If we were looking at the GDP of the United States, we would only factor in the production of the Tesla sales inside the United States' boundaries.
But when looking at the GNI, we would also include the profit from factories in other countries. Now you might be thinking, how does this differ from a country's GMP? And to be fair, it's a great question. The main difference between the GNI and the GMP is the GNI focuses on income generated by a country's citizens and companies, while the GMP focuses on production. We can also look at the GNI per capita, which is often used as a way to better understand a country's standard of living. To find the GNI per capita, we have to take a country's GNI and divide it by its population. Remember, the GNI includes the total income earned by a country's citizens. This includes all wages, profits, and investments, both by individuals and businesses. So the GNI per capita allows us to gain an estimate that shows us
the average income earned by each person in the country.
Generally, the higher the GNI per capita, the more economic opportunities there are in society, along with the more goods and services that people have access to, and the higher the standard of living is. One thing to note is that the GNI per capita does not factor in things such as income inequality, quality of life, or other social aspects. So it does not show an entire picture of a country. Now, so far, we've been looking at ways in which we can measure economic development of a country, but we can also measure a country's social development as well. One way we can do this is by looking at a country's GII, which is the gender inequality index. This index shows inequality between women and men in three different areas. Reproductive health, empowerment, and the labor market. Reproductive health is measured by the maternal mortality ratio and the adolescent fertility rate. Empowerment is measured by the amount of government positions held by each gender and the amount of secondary and higher education levels obtained by each gender. Lastly, the labor market is measured by women's participation in the workforce.
GNI per Capita: Higher GNI per capita indicates more economic opportunities, better access to goods and services, and a higher standard of living, but does not account for income inequality or quality of life, offering an incomplete view of a country.
GII (Gender Inequality Index): Measures social development by assessing gender inequality in three key areas:
Reproductive Health: Evaluated through maternal mortality ratio and adolescent fertility rate.
Empowerment: Measured by government positions held by each gender and education levels attained.
Labor Market: Assessed by women's participation in the workforce.
A country's GII can range between zero and one, with the higher values indicating more inequalities and disparities between women and men. If the GII for a country is ever zero, it would mean there is no inequalities in society, and the country has perfect equality. Currently, however, there are no countries in the world with a score of zero. Notice that generally we can see that countries that have more economic development are more likely to have a lower GII, while countries that have less economic development generally have a higher GII. Here we can also connect back to our Unit 2, where we looked at countries' demographic data and analyzed the impact that economic development has on a country's TFR, IMR, literacy rates, access to medicine, and population growth. Remember, countries that are not far along in the demographic transition model
tend to have a high natural increase rate, higher infant mortality rate, and higher total fertility rate. They also are more likely to give women less economic and social opportunities in society, and to have traditional gender roles in place. Now the last indicator we are going to look at is the HDI. which stands for the Human Development Index. This index is determined by looking at a country's life expectancy, expected years of schooling, and the gross national income per capita. Just like the GII, the HDI can range anywhere from zero to one. However, unlike the GII, the higher the score, the higher the human development. Understanding the HDI allows us to gain different insights into different countries and compare the level of human development between them. We can also use the HDI to track a country's development over time
to see how a country is developing and identify different areas in which further improvement could occur. Today, the countries with the highest HDI would be Switzerland, Norway, Iceland, Hong Kong, and Australia, just to name a few. One other way in which we can measure development would be to look at the amount of renewable resources and the use of fossil fuels. As countries become more developed, they tend to rely more on fossil fuels to meet their new growing energy demand. Developed countries are more often more dependent on fossil fuels due to their dependency on cars, planes, and other technological advances. Today, though, we are also seeing higher levels of renewable energy be utilized to help provide energy needs for society. However, once again, it's most commonly found in more developed countries that have access to capital. By understanding these different social and economic indicators and measurements, we can better understand life
in society, and the different economic and social opportunities that exist within a state. But now comes the time to practice what we've learned. Answer the questions on the screen, and when you're done, check your answers in the description and comment section down below. As always, if you found value in this video, consider subscribing and check out my ultimate review packet for more help with your AP Human Geography studies. It's a great resource that'll help you get an A in your class and a five on that national exam. As always, I'm Mr. Sin. Thank you so much for watching and I'll see you next time online.
The Gender Inequality Index (GII) ranges from 0 to 1, where higher values indicate greater gender inequality, and no country currently has a GII of zero. More economically developed countries tend to have a lower GII, while less developed countries often have a higher GII, influenced by demographic factors such as total fertility rate (TFR) and infant mortality rate (IMR).
The Human Development Index (HDI) similarly ranges from 0 to 1, with higher scores signifying greater human development, assessed through life expectancy, expected schooling years, and gross national income per capita. Countries like Switzerland, Norway, and Australia rank highly on the HDI scale.
As countries develop, they typically rely more on fossil fuels while also increasing the use of renewable resources. Understanding these social and economic indicators aids in grasping societal conditions and economic opportunities.
GNI (Gross National Income): Total income earned by a country's citizens, including money made from work and investments, regardless of where they live.
GNP (Gross National Product): Total value of all goods and services produced by a country's citizens, whether inside or outside the country.
GDP (Gross Domestic Product): Measures all the economic activity within a country's borders, including what people and businesses produce.
HDI (Human Development Index): A score that reflects how well people in a country live by looking at life expectancy, education levels, and average income.
GNP measures all goods and services produced by a country's citizens, no matter where those citizens are (inside or outside the country).
GDP measures all the economic activity within the country itself, regardless of who is producing it.
The key difference is that GNP includes production by citizens abroad, while GDP only considers production within national borders. Therefore, if a country's GNP is higher than its GDP, it might indicate that many citizens are working outside the country, or that there is significant foreign investment within the country.
The examples of Toyota and Starbucks illustrate these differences; production by Toyota in the U.S. counts toward U.S. GDP but not U.S. GNP since Toyota is a Japanese company, while Starbucks's production in the U.S. counts for both GDP and GNP since it's an American company.