In this video we’ll cover 5 different measures of living standards and economic development
including HDI, MEW, HPI, MPI and the Kuznets Curve.
The reason we need to look beyond GDP is that GDP has some significant limitations as a
measure of the development of a country.
It really only tells us about the value of goods and services produced.
It doesn’t take into account various other factors that contribute to the general welfare
of society.
Robert F. Kennedy once gave a great speech about the limitations of national output measures.
I’ll link to it in the video information but one especially poignant remark was the
conclusion in which he said:
… the gross national product does not allow for the health of our children, the quality
of their education or the joy of their play.
It does not include the beauty of our poetry or the strength of our marriages, the intelligence
of our public debate or the integrity of our public officials.
It measures neither our wit nor our courage, neither our wisdom nor our learning, neither
our compassion nor our devotion to our country, it measures everything in short, except that
which makes life worthwhile.
And it can tell us everything about America except why we are proud that we are Americans.
If this is true here at home, so it is true elsewhere in world.
These words left an impression when they were spoken and still hold true today.
We’re going to examine different approaches that measure economic development that attempt
to include that which is valuable and has been omitted from standard national income
measures.
The Human Development Index was developed by Pakistani economist, Mahbub Ul Haq as part
of his work supporting the United Nations Development Programme.
The HDI is used to measure economic development by focusing on outcomes in three areas:
1.Standard of living, as measured by PPP adjusted GNI per capita
2.Health as measured by life expectancy 3.Education as measured by mean years of schooling
for adults over 25 and expected years of schooling for school age children
The index value is a 1 at its highest and a 0 at its lowest.
Higher values in each area would result in a higher overall index value.
This is useful when comparing development between countries and also for the same country
over time.
HDI does have its limitations, but it does provide more insight that national income
statistics alone.
Second is the measure of economic welfare.
The MEW is an adjusted measure of total national output which adds in the value of leisure
time, the value of unpaid work and deducts the value environmental damage.
This is not an index but an adjusted value of national output.
Third is the Human Poverty Index which has different indices for developing and selected
OECD countries.
For developing countries an HPI-1 is calculated which measures development performance by
assessing the probability of surviving to age 40 from birth, the adult illiteracy rate,
the percentage of population not using an improved water source and the percentage of
underweight children for their age
For selected OECD countries, HPI-2 is calculated which measures the probability of surviving
at birth to age 60, the percentage of adults who lack functional literacy skills, the percentage
of people living below the poverty line and the long-term unemployment rate.
Similarly, the value of the index will range from zero to one with higher performance moving
an economy towards 1.
Fourth is the multidimensional poverty index, or the MPI which focuses on three dimensions
education, health and the standard of living.
There are a total of 10 indicators within these three dimensions.
Within education is years of schooling and school attendance.
Within health is nutrition and child mortality.
Within the standard of living are 6 indicators including cooking fuel, sanitation, water,
electricity, housing and assets.
Fifth is the Kuznets curve.
The Kuznets curve demonstrates the relationship between income inequality and income per capita.
Essentially it shows us that as a country gets richer, inequality initially widens then
lessens as the country moves towards higher levels of development.
This is explained by the movement of workers from agriculture to manufacturing, with income
gains being generated to owners of capital and workers in manufacturing faster than they
are being generated to workers in the agricultural industry.
On the right side where inequality is falling, it is often supported with claims that as
the country gets richer, the government will improve welfare programs and initiatives aimed
at reducing inequality.
While the curve offers some explanation about development and inequality, it doesn’t explain
how rich nations suffer from increasing inequality.
Now that we’ve gone through five additional approached to measuring economic development,
you may have some questions or comments you’d like to write.
Leave them below and let’s talk through them together.
I’ve also included a lot of information if you’d like to research into any of the
indicators mentioned as well as the speech by Robert Kennedy.
That’s us done for now and I will see you in the next one!