Measurement of Economic Development

Measurement of economic development in four ways, GNP, GNP Per Capita, Welfare, and Social Indicators.

Economic Development
Economic Development

GNP

One of the methods to measure economic development is in terms of an increase in the economy’s real national income over a long period of time.

This measure fails to take into consideration changes in the growth of the population. If a rise in real national income is accompanied by faster growth in population.

There will be no economic growth but retardation. The GNP figure also does not reveal the costs to society of environmental pollution, urbanization, industrialization, and population growth. Therefore, it tells us nothing about the distribution of income in the economy.

Measurement of economic development

Difficulties of N.I

  • There is the difficulty of defining “Nation” in national income.
  • National income is always measured in money, but there are a number of goods and services which are difficult to be assessed in terms of money.
  • Another difficulty in calculating the national income is of double country.
  • Income earned through illegal activities such as gambling is not included in national income.
  • Then there arises the difficulty of including transfer payments in the national income like pension, unemployment allowance, interest, and public loans.
  • Capital gains or losses occur to property owners by increase or decrease in the market value of their capital assets.
  • All inventory changes whether negative or positive are included in the GNP.
  • When we deduct capital depreciation from GNP, the resulting measure is NNP.
  • Moreover, the calculation of national income in terms of money is the underestimation of real national income.
  • In calculating national income, a good number of public services are also taken which cannot be estimated correctly.
  • GNP Per Capita

The second measure relates to an increase in the per capita real income of the economy over a long period.

Meier defines economic development “as the process whereby the real per capita income of a country increase over a long period of time but difficulties still remain.

An increase in per capita income may not raise the standard of living of the masses. It is possible that while per capita and income is increasing per capita consumption might be falling.

There is another possibility of the masses remaining poor despite an increase in the real national income if the increased income goes to the few rich instead.

Welfare

There is also a tendency to measure economic development from the point of view of economic welfare.

According to Okun and Richardson, economic development is “a sustained, secular improvement in national well-being, which we may consider to be reflected in an increasing flow of goods and services.

      Limitations

  • The first limitation arises with regard to the weight to be attached to the consumption of individuals.
  • Second in measuring economic welfare caution has to be exercised with regard to the consumption of the total output that is giving rise to an increase in per capita consumption and how this output is being valued.
  • Third, from the welfare point of view, we must also consider not only what is produced but how it is produced.
  • Last, we cannot equate an increase in output per head with an increase in economic welfare, let alone social welfare without additional consideration.

Social Indicators

Certain economists have tried to measure it in terms of “social indicators”, like health, food, nutrition, and education, etc,

But problems arise in consulting a common index of development relating to these social indicators.

  • There is no unanimity among economists as to the number and type of items to be included in such an index.
  • There is the problem of assigning weights to the various item which may depend upon the social, economic, and political setup of the country.
  • Social indicators are concerned with current welfare and are not related to the future.
  • The majority of indicators are inputs and not outputs, such as education, health, etc,
  • They involve value judgment.

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