Indicators of Development

Dr. L. N. Bhattarai
Professor of Economics
 Types of Indicators
• Single Indicators:
– Real GDP/ GNP
– Real Per Capita Income
– Real consumption per Capita
– Productivity per capita
– General literacy/Adult literacy rate
– Life expectancy at Birth
– Rate of Urbanizaiton/ percentage of People living in
urban areas.
– CBR/ CDR etc.
 Composite indices of
Development
• Physical Quality of Life Index (PQLI)
• Human Development Indices (HDIs)
• Gross National Happiness Index (GNHI)
 Physical Quality of Life Index
• The Physical Quality of Life Index (PQLI) is an attempt to
measure the quality of life or well-being of a country. The value is
the average of three statistics: basic literacy rate, infant
mortality, and life expectancy at age one, all equally weighted on
a 0 to 100 scale.
• It was developed for the Overseas Development Council in the
mid-1970s by Morris David Morris, as one of a number of
measures created due to dissatisfaction with the use of GNP as
an indicator of development.
• PQLI might be regarded as an improvement but shares the
general problems of measuring quality of life in a quantitative
way.
• It has also been criticized because there is considerable overlap
between infant mortality and life expectancy
 The Human Development Indices

• The HDI (Human Development Index)

- a summary measure of human development

• The GDI (Gender-related Development Index)

- the HDI adjusted for gender inequality

• The GEM (Gender Empowerment Measure)

- Measures gender equality in economic and political participation and
decision making

• The HPI (Human Poverty Index)

- Captures the level of human poverty
The dimensions and indicators of the HDI

• HDI has three dimensions, measured by one or two

indicators each:
• Leading a long and healthy life
– Life expectancy at birth
• Education
– Adult literacy rate
– mean years of schooling(for the population over 25 yrs)
– Expected year of schooling (up to the population of 18 yrs)
• A decent standard of living
– GDP per capita ( adjusted for PPP of US$)
 What dimensions to include
• The concept of human development has many
dimensions
• Health, education and standard of living are
dimensions that are basic and can be measured
• Proposed additions either are hard to measure
or overlap with existing dimensions - Examples:
political freedom, environment, child mortality
• HD can never be captured in single indicator!
 Combining indicators for the HDI
• In order to create the HDI, ‘goalposts’ are
chosen for each indicator
• Using goalposts rather than observed minima
and maxima allows comparisons over time
• Also set to allow for disaggregation – some
subgroups can have lower values than
observed in country data
 Goalposts for calculating the HDI

Indicator Minimum value Maximum value

Life expectancy 25 years 85 years

Adult literacy 0% 100%

Gross enrolment 0% 100%

GDP per capita 100 (PPP US$) 40,000 (PPP US$)

 Calculating the HDI
A long and Being A decent
Dimensions: Knowledgeable standard
healthy life
of living

Literacy & GDP

Indicators: Life Enrolment per capita
Expectancy
Education GDP
Index Index
Dimension Life
index Expectancy
Index

The HDI
Calculating the HDI: an example (Zambia)
Life Education index
expectancy Income
index
Literacy
(2/3)
Enrolment
(1/3) index HDI
85 years 1 100% 100% 1 40,000 1 1

78.1 0.68

49 0.433
780 0.34
41.4 0.27

25 years 0 0% 0% 0 100 0 0
(log scale)

0.27 + 0.68 + 0.34

= 0.433
3
 The weights in the HDI
• The three dimensions in the HDI – health,
education, standard of living – weighted
equally
• Equal weighting is not an accident; reflects a
belief that all three are equally important
 Why include GDP per capita?
• GDP per capita included as a proxy for a
decent standard of living
• Reflects a number of issues not explicitly
included: the expanding choices available in
many areas with increasing income
• Logarithm of GDP is used – reflects
diminishing return in expanding choices
 Critiques of the HDI
• Are these all the dimensions of HD?
• Are these indicators good measures of
the dimensions?
• What about inequality?
• Can it capture policy changes?
• Ranking countries – unknown
uncertainties
• Why cap values?
• Why have an index at all?
 Critiques, cont.
‘Missing’ components
• What about future generations – an
environmental degradation component?
• Political freedoms and rights?
• Culture
• Nutritional status
• Uncertainty
• Personal security
 Gross National Happiness Index
 Development philosophy is centered around
the Gross National Happiness (GNH) concept
(the term coined by King of Bhutan is early
1970s)
 GNH concept implies that SD to progress in a
manner giving equal importance to non-
economic aspects of wellbeing (good life)
 Gross National Happiness (GNH) & its
Indicators
• Four pillars of GNH
1. Good governance
2. Sustainable socio-economic development
3. Cultural preservation
4. Environmental conservation

• The four pillars of GNH are further classified

into 9 domains with 33 indicators (124
variables)
 GNH indicators
• The 33indicators under the nine domains aim to
emphasize different aspects of wellbeing and
different ways of meeting these underlying
human needs – the indicators are further
composed of 124 variables
• The indicators are:
– Statistically reliable
– Normatively important,
– Accuracy across time
– Policy relevance
– Clarity of interpretation
 GNH Index
• GNH Index uses two types of thresholds
1. Sufficiency Thresholds: Shows how much a
person needs in order to enjoy ‘sufficiency’ –
how much is enough, normally, to create a
happiness condition. Each of the 33 GNH
indicators has a sufficiency threshold.
2. Happiness Threshold: A person who enjoys
sufficiency in more than six or more of the 9
domains is considered happy.
 What it does?
• All government polices & plans are screened
for GNH (mandatory mainstreaming of
environmental issues into plans, policies &
programs)
• All development projects/activities should be
aligned with the GNH approved/endorsed
plans
• Quarterly review is conducted to measure
progress & status
 What it does?
• GNH survey conducted and based on the results
measures are taken to improve the GNH Index.
• GNH Index effectively classifies the population
depending on the degree of happiness (in
sufficiency)
– Deeply happy (>77%)
– Extensively happy (66% - 76%)
– Narrowly happy (50% - 65%)
– Unhappy (0 %– 49%)
 GNP ≠ GNH
“Gross National Happiness (GNH) measures the
quality of a country in more holistic way
[than GNP] and believes that the beneficial
development of human society takes place
when material and spiritual development
occurs side by side to complement and
reinforce each other”