To measure economic development we have to measure the economic growth, although they are not the same, economic growth is a key part for economic development. Economic development can include economic growth, well-being, improvement in education and health. Economic growth is the economic capacity of a country, considering how the income is produced, spent and distributed. It can be measured in GNP (Gross National Product) or in GDP (Gross Domestic Product). Both of these measurements are the “sum of the value of finished goods and services produced by a society during a given year” (Dwight Perkins, 2013). The GNP includes the income from citizens working outside the country borders but does not include the value of raw material used in production of goods. The GDP includes the output produced only within the borders of the country. The per capita income is the result from the division of the GNP or GDP by the total number of the country’s population, economic growth uses the per capita income to measure the changes within a period of time.
Usually there are not large differences between their GNP and GDP. In countries where their natural resources are exploded by multinationals that repatriate their profits the GDP can be higher than the GNP. There can also be countries with a GNP higher than their GDP when their citizens work aboard and income goes back into their countries. In developing countries is more difficult to have complete data of the GDP, because there are activities that never enter in the market place (works made by family members or house work that is mostly performed by women, these data could completely change the GDP of a country). Measuring GPD is difficult because it includes different goods, and it does not include the depreciation (machinery) or the “bads” an industry can produce, pollution for example. Another problem in comparing GDPs of different countries is that they are calculated in their national currency and they have to be converted into the same currency (US dollars usually), this also represents a problem because the same service or good does not have the same value in every country even if they are converted to the same currency.
Even though the ones mentioned above are the most common ways of measuring economical progress there are other ways such as the Index of Sustainable Economic Welfare, Green GPD, Genuine Savings; and indexes that do not use GDPs (Ecological Footprint, Subjective Well Being).
With the Human Development Index the UNDP quantifies the crucial elements for human development (health, education and economy). The index converts the data of every country into a number that allows comparing them, access to resources, for example, is converted to US$ and knowledge in years in two different variables; and the three dimensions are expressed in percentage and not in different units. The percentages cannot be combined for the total of HDI, 10% decrease in the health index cannot be compensated with an increase of 10% in the income.
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Dwight Perkins et al (2013), Economics of Development, 7th edition, pp. 23-32; 40-53
Robert Costanza, Maureen Hart, Stephen Posner, John Talberth (2009), “Beyond GDP: The Need for New Measures of Progress,” Pardee Paper #4, Boston University
Frederick S. Pardee Center for Center for the Study of the Longer-Range Future
Diane Coyle, “The Way We Measure Economies is Inherently Sexist,” World Economic Forum, April 13, 2016