4.3.1. Measures of development

give three advantages of HDI

1) all countries calculate their HDI scores in the same way. therefore, the HDI is ideal for international development comparisons 2) the HDI considers both material aspects of development (via GNI per capita) and non-material aspects of development (via life expectancy). therefore, it is broader and a better measure of development than per capita income. 3)international HDI league tables might shame policy makers into focusing attention on promoting positive development outcomes, rather than just trying to promote economic growth.

give three disadvantages of HDI

1) the HDI is a broader measure of development than per capita incomes. however, it is arguably still not broad enough- the HDI excludes critical aspects of development, such as crime, gender equality, freedom of speech. 2) some of the variables used to calculate the HDI may be misleading and/or inaccurate e.g. in many developing countries, the prevalence of subsistence agriculture means that actual per capita incomes are higher than what official statistics might suggest. therefore, the HDI of developing countries could understate the quality of life because the GNI per capita has been under-recorded. 3) doesn't take into account regional variations. the HDI is an average that is designed to represent the overall level of economic development within a country. in practice there can be significant regional differences in GNI per capita, life expectancy and mean years of schooling.

economic growth does not lead to economic development

1. GDP FIGURES ARE oFTEN INACCURATE AND HAVE TO BE REVISED. Calculating a country's GDP is a mammoth task. imagine using the output method and having to calculate value-added created by every business in the UK! These figures are frequently revised. differences in GDP per capita will occur depending on the exchange rates that are used to convert GDPs valued in domestic currencies to a common currency unit. 2. THE DISTRIBUTION OF INCOME The distribution of income measures the degree of spread around the mean average per capita income. The UK has an uneven distribution of income. This means that there is a sizable gap between the rich and the poor. if economic growth coincides with rising income inequality it is possible that: - GDP per capita could rise - But at the same time the majority of households might be worse off this is because the fruits of economic growth have only been enjoyed by numerically small rich elite. The cause of this growing inequality is a change in the composition of GDP. Since the 1970s labour's share of GDP has fallen, whilst capital's share has risen. The bottom 99% of UK households earns most of their incomes in the form of wages. The richest 1% are asset rich. Therefore, their incomes come in the form of profits, rents and interest. immigration, the demise of trade unions and the threat of outsourcing have all contributed to a slowing of UK wage inflation. In most occupations nominal wage growth has failed to keep pace with inflation. real wages have fallen. However, these very same low wages have increased company profits. This is why UK economic growth has only benefitted the very richest households in Britain. a country's GDP may grow at a very fast rate and yet only a small proportion of its population could be the beneficiaries of such growth, while the masses of its population may not experience any improvement in their standard of living. regional differences in per capita income. 3. GDP DOES NOT TAKE INTO AccoUNT owNERSHIP- it could be argued that GDP per capital is a poor indicator of a country's material standard of living because it takes into account the value of output produced by foreign owned businesses operating in the UK. The profits made by foreign multinationals operating in the UK do not contribute towards our standard of living. This is because the profits made by companies such as Nissan and Google make in Britain flow out of the country to shareholders living abroad. it could be argued that GNP per capita far better measure of the material standard of living. This is because GNI considers ownership, rather than location; it measures the total income received by British households. Income matters more than the volume of goods produced by a country because income is what households have to live off. 4, GDP DOES NOT CONSIDER THE OUTPUT MIX OF THE ECONOMY - GDP does not take into account the type of goods and services produced. For example, country could experience a crime wave. To cope the government would have to build extra prisons and employ more prison officers. This would cause prison output to rise, increasing GDP per capita. The same principle also applies a natural disaster. The floods of December 2015 will probably increase UK national output, This is because homeowners will have to buy new carpets and furniture. Pollution reduces the quality of life in non-material terms. However, the process of cleaning up pollution can add to GDP. in recent years the has created GDP growth by producing more demerit goods. Demerit goods are products that are over-consumed because the consumer overestimates the private benefit of consuming he demerit good compared to the private cost. Examples of demerit goods include gambling, sugary food, pay day loans and alcohol. Most demerit goods are over-consumed due to imperfect information. As a nation, if we produce and consume more junk food our GDP per capita will rise. However, our standard of living will undoubtedly fall due to health problems caused by obesity. consumption of military goods leads to death and destruction. more luxury goods will not boost the quality of life for the masses. to create economic development economic growth must be pro-poor. the extra output produced by an enlarged economy must lead to a widespread rise in the consumption of products that are needed by the majority not a rich minority. or if production is export-orientated- bulk of goods produced are enjoyed by consumers living abroad. to create economic development the bulk of the additional goods made possible by the economic growth should be life enhancing. 5. NEGATIVE EXTERNALITIES- Negative externalities are adverse spill over effects that reduce the utility of third parties. Economic may boost country's GDP per capita. However, if production and consumption increases more negative externalities will be produced. Negative externalities reduce the quality of life in non material terms. 6. WORKING HOURS a country could achieve an increase in its GDP per capita if the population agreed to a longer working week. American GDP per capita is higher than France's GDP per capita. As a result, the material standard of living in material terms is higher in America than it is in France. However, before making an assessment of the respective standard of living in both countries it is also important to realise that the average American works a much longer working week than the average French worker. Time spent at leisure also creates utility. Shorter working hours creates a higher standard of living, other things be equal. 7. NON- MARKETED GooDS AND SERVICES official GDP figures may understate the true value of output produced by a country because official figures only include the value of goods and services that have been bought and sold. In many countries activities such as childcare are not included within official GDP figures because these services ar provided internally by households. 30 years ago most childcare provided in the UK went unrecorded because it was provided by mothers. Today, this is no longer so. Most childcare is now provided via professional nurseries and child minders who do charge for their services. As a result of this change UK GDP per capita has increased, but it could be argued that this change overstates the advances in made in the true standard of living. 8, GDP DOES NOT TAKE INTO ACCOUNT THE INFORMAL SECTOR OF THE ECONOMY- The informal sector of the economy consists of so-called Black Markets. Black Market activities are not declared to the government This is usually because either the entrepreneur is breaking the law, e.g. ng drugs, or because they want to illegally evade tax. In many countries GDP statistics do not include the value of goods produced within the informal sector of the economy, Therefore, it could be argued that official GDP figures understate the true level of economic activity taking place within a country. GDP 9, FREEDOM FROM SERVITUDE n addition to the number of goods and services consumed per capita, the duality of life can also be enhanced by religious and political freedoms. For example, a decision m to ban trade unions might reduce the number of working days lost to strikes. As a result the economy might grow and in materia terms the standard of living will improve. But, at what cos It could be argued that the o belong to a trade union and to strike is a fundamental human right. in recent years GDP per capita in China has risen because economic growth has risen faster than population growth. However, it could be argued that the quality of life in China would really improve if a decision was made to establish a democratic form of governance. jobless growth- therefore decrease in unemployment will not reduce absolute poverty in low income countries or reduce relative poverty and raise levels of living in high income countries. if the rate of population growth outstrips the rate of economic growth the result will be falling GDP per capita. loss of cultural identity- tourism might compromise the islamic values of Tunisia, leading to a falling quality of life. economic growth will not lead to greater gender or racial equality. Sustainability-sustainable economic development describes a situation where an improvement in the quality of life today, which benefits the future generation, does not compromise the ability of future generations to enjoy a sim high quality of life. At A2 Level the examiners expect you to know the 3 aspects of sustainable development. is economic development economically sustainable? Improvements to the quality of life by policies that are designed to create Short run economic growth will not be economically sustainable. This is because if policy makers demand-side policies only, the economy will eventually overheat. As a result, two problems will emerge: demand pull inflation and account deficit. Eventually, the government will have to halt its and-side policies to tackle these problems. Using reflationary demand side policies based on the use of private/public debt to lift AD create further problems which will not create a long-lasting improvement to quality of life. Borrowing to finance consumption is not economically sustainable. This is because consumer goods do not create a future income stream. Therefore, if society borrows to consume, the standard of living must fall in the long run. Future generations will be forced into cutting their consumption in order to pay off the debts that were run up by the previous generation. Is economic development socially sustainable? Economic growth will lift per capita incomes if the economic growth rate exceeds the population growth rate. However, if the economic growth created only benefits a privileged elite within society, the quality of life improvement received by the elite may not be socially sustainable. History shows that the poor majority will rise up and overthrow the elite. Is economic development environmentally sustainable? Economic growth may only create temporary economic development. For example, in Sao Tome the economy has benefited greatly from extracting oil. However, oil is finite and non-renewable resource. Eventually, Sao Tome's oil deposits will run dry. Increasing oil production today will boost living standards, but it will also leave future generations with less oil to consume. Most sensible independent scientists agree that burning fossil fuels causes, or at least contributes to, global warming, which directly responsible for rising sea levels which have compromised the lives of living low lying countries such as Bangladesh. The problem is that these externalities are an important consideration in assessing welfare, but they are not reflected in the estimates of per capita income.

what are Michael Todaro's three core values of economic growth - that constitute economic development

1. sustenance. economic development occurs when a country can increase the availability and widen the distribution of basic life-sustaining goods. e.g. food, clean water, housing, heating. if sustenance needs are not met, the population will experience absolute poverty. absolute poverty is life threatening. the government can use fiscal, monetary and/or supply-side policies to promote economic growth. if the rate of real GDP exceeds the rate of population growth, GDP per capita will rise. higher incomes will enable the population to purchase more food, shelter and health care. 2. raising levels of living and self esteem. to raise levels of living- economic development occurs when a country is able to raise per capita income levels above the poverty line needed to guarantee survival. raising levels of living might mean that a higher percentage of the population now have access to the internet, or to free state funded health care and education. material and non-material progress will raise the levels of living. to raise self-esteem- economic development can enhance national pride and create a feel good factor. economic development is a way of creating national pride. levels of living versus self-esteem- e.g. accepting aid or tourism might raise levels of living but might reduce national pride. 3. freedom from servitude. freedom from servitude means that people are free to choose their religion, sexual preference, whether they want to belong to a trade union or a political party, whether they want to join public demonstrations against the state or not. in economically developed countries there is freedom of speech and no discrimination freedom from servitude also means that people have the power to influence decision making within society. 1. Economically developed countries are usually democratic 2. In economically developed countries there is less corruption- the government serves the people, rather than big companies that make political donations (bribe) to politicians 3. The government serves the people, rather. In undeveloped countries the people serve the government In economically developed countries the government is accountable to the electorate 4. 5. Is there fear within society for example people are not detained without trial? 6. Does the state monitor its citizens and invade their privacy? in countries that lack democracy the regime is free to pursue policies that benefit themselves, rather than society. a country might 'develop' if any of the following happen: - a movement from a totalitarian regime to a democratically elected government - freedom of speech and expression - personal privacy is respected: the end of mass surveillance of the population by the state - enhanced political freedom - a fall in the level of corruption within society - the development of legislation that promotes equality (race, gender, religion) of opportunity

but economic growth does not guarantee economic development

1. the output mix might be wrong- GDP per capita might rise, but the quality of life does not improve because the output mix of the economy is wrong 2. GDP per capita is just an average. output per head may have risen but only a small elite within society gets to consume the extra goods produced. 3. economic growth might lift per capita incomes, but what about non-material factors, such as leisure time and the environment?

other indicators of development

GDP der capita, suicide rates, the distribution of income (income inequality tends to reduce the level of economic development- a big gap between rich and poor leads to status anxiety and depression and higher crime rates), Co2 emissions per capita, life expectancy, literacy rates, working hours, freedom of speech, privacy and association, democracy, gender and racial equality, social mobility,

economic growth -> economic development

HIGHER REAL GDP PER CAPITA LEADs To GREATER HousEHOLD coNSUMPTION -> todaro's core values of sustenance and raising levels of living (via material progress) Sustenance- The consumption of more goods and services means that more people will have their needs satisfied. It therefore follows that economic growth has the potential to reduce life threatening absolute poverty. Economic growth raises the HDI by raising GDP per capita and also life expectancy as there will be fewer deaths caused by malnutrition. Raising levels of living- The utility generated when goods and services are consumed adds to the material standard of living. Households finance consumption from disposable income. If per capita incomes rise, households will able to buy more goods and services. Households will receive more utility if they buy more. This is why higher per capita incomes lead to higher living standards. Higher incomes will also enable households to purchase better quality products that are more expensive. Many of these products will generate more utility than older products that they have replaced. HIGHER GDP PER CAPITA LEADS To HIGHER TAX REVENUES- todaro's raising levels of living (via non-material progress) Increases in GDP per capita usually arise because the economy has grown at a faster rate than the population. A bigger economy means that there is more economic activity for the government to tax; even if the government maintains tax rates, the government will collect more tax in total if GDP rises. This additional tax income could be used to finance government spending on health and education. If health and education standards have got better the quality of life will improve people; will live longer lives (due to better health care that extends life expectancy- raising HDI) and more enriched lives (better schools will enable the population to gain pleasure from a country's culture- and education raises HDI average years of schooling). 3. HIGHER GDP PER CAPITA CREATES INCREASED EMPLOYMENT oPPORTUNITIES When economy grows the economy produces more goods and services than it did the year before. To raise output firms will need additional factors of production, including labour. Therefore, economic growth tends to cause an increase in the derived demand for labour. The new jobs created by expanding firms will reduce unemployment. The quality of life improves when unemployment falls because those without work have to live off benefits. Benefit income tends to be well below the average wage rate Therefore, the unemployed will have a lower material standard of living because they will not be able to consume as many goods and services. In addition, unemployment can also cause social problems such crime. In countries where GDP per capita is high there should be fewer of these social problems; the quality of life should be higher.

economic growth makes development possible

economic growth leads to higher wages. extra income will enable households to buy more goods and services. the extra utility generated by extra consumption will raise the quality of life in material terms, creating development. economic growth also tends to automatically lift both direct and indirect tax revenues. the government could choose to spend the tax windfalls created by growth on life enhancing public services, such as education and health care. therefore, non-material progress will be enhanced through the mortality rate. however, there is no guarantee that tax windfall will be spent wisely. also economic growth leads to higher employment rates. more goods and services produced means that more factors of production will be needed- so there will be a higher demand for labour and so the price of labour will increase. eval: but is capital replacing labour? jobless growth

what is material progress

improvement in the quality of life made possible by economic growth that lifts per capita incomes. consumption is financed from income. thus higher per capita incomes will allow households to consume more goods and services. consuming goods and services creates utility, creating material progress and development. but the rate of economic growth must be greater than the rate of population growth.

what is non-material progress

improvements to the quality of life that have not been caused by additional production and consumption. non-material progress does not rely on economic growth. e.g. shorter working hours- leisure time generates utility; utility gained from consuming environmental goods; a long and healthy life; equality, social mobility and cohesion income redistribution can be justified on the grounds that a poor man's pound is worth more than a rich man's pound i.e. diminishing marginal utility.

economic development can be created by either

material or non-material progress

what is the HDI

the Human Development Index is a composite measures of development, which considers more than one factor that affects development. The different development factors, which are weighted equally, are: life expectancy, GNI per capita (converted into US dollars at a PPP exchange rate), and mean years of schooling. High HDI signifies high development.

what is economic development

the process of improving a country's quality of life