When measuring the development of a country there are many factors to take into account. One of the indices that have been most used so far by economists is GDP, which gives us a reference to the size of an economy as a whole. Other measures that can help us understand the development of an economy are GDP per capita and GDP per capita by purchasing power parity.
These last two measures give us an idea of the purchasing power of the inhabitants of a country and how much they earn. Regarding GDP per capita by purchasing power parity, the countries that register the best indices are Qatar, Luxembourg and Singapore. This means that with what its citizens earn they can buy more goods and services than those citizens who live in other countries.
Concept of Human Development Index
This is an indicator created by the United Nations, specifically by the United Nations Development Program and its objective is to determine more precisely how developed a country is, taking into account the well-being of its citizens.
The initiative to create this index came from Pakistani economist Mahbub ul Haq. Since the 1990s, the United Nations has been measuring and reporting on this index, which is largely based on the ideas of Amartya Sen.
Variables taken into account in the index
The human development index deals with much more precise variables than the production of an economy as a whole or the average income of its inhabitants and their ability to buy goods in the market. For all this, the human development index takes into account:
- The health of citizens: State of health systems, prevalence of diseases and life expectancy at birth.
- Education: This section measures the adult literacy rate, as well as the number of people enrolled in primary, secondary and higher education programs. This factor tells us how prepared a country’s citizens are for the internal or global labor market.
- Wealth: Here the GDP per capita is used (but not as an average of the GDP among the inhabitants, but as an average of the GDP taking into account the purchasing power of the citizens, that is, how much they can buy in their country with their income. To this we call it the GDP per capita by PPP).
Apart from the three things above, HDI is also influenced by:
- Human development index rank
- Life expectancy
- Infant mortality rate
- Maternal mortality rate
- Adult literacy ratio
- Percentage of the population below poverty line
What is Human Development?
In all this discussion a question arises that is vital to understanding this index. What can we define as authentic human development? Human development today is understood as the process by which societies improve the quality of life of their citizens, either by increasing the quantity of goods and services to satisfy their basic needs and by creating a favorable environment for the fulfillment of goals. human rights in a comprehensive manner.
This means that Human development is the number of life options that a human being has within the society in which they live. Options for health, employment, education, housing and decent wages. In this sense, human development leads us to measure with multiple factors (mentioned above) how good the quality of life is for people in a given nation.
United Nations Classification
The United Nations through the UNDP (United Nations Development Programme) establishes its own measurements of the quality of life of the countries. There are currently four ranges in this index: Very high Human Development, high human development, medium human development, and low human development.
The Top ten countries with the highest human development index.
For the year 2017, the countries with a very high degree of human development were:
- Norway
- Canada
- Australia
- Germany
- Denmark
- Swiss
- Netherlands
- Ireland
- Iceland
- Singapore.
The ten countries with the lowest human development index (2017 measurements)
- Ivory Coast
- Haiti
- Afghanistan
- Sudan
- Togo
- Comoras
- Senegal
- Benin
- Uganda
- Madagascar.
Questions to development measurements such as GDP
Even so, these indicators have been the subject of strong questions in recent years. In the Salmón Blog, a blog dedicated to economics with a very detailed analysis perspective, we find 7 reasons why GDP is not useful for measuring the well-being and development of economies. These reasons are:
- GDP does not take into account a country’s population, so GDP per capita might be a better indicator instead. Although GDP per capita is just an average and does not tell us how wealth is distributed in a nation.
- There are activities in the economy that are not taken into account in the measurement of GDP, such as domestic work and volunteering.
- There are economic activities that are not declared in the GDP, such as illicit activities that are not recorded in official accounting.
- GDP measures only a country’s net production, but not the quality of its health or educational systems.
- The damage caused to the environment by productive activities is not measured within the GDP, nor are the externalities generated by pollution such as costs for the health system, etc.
- GDP only measures the nominal value of products, but not their quality. This prevents us from comparing the state of well-being generated at different times as a consequence of technological and medical advances.
- It ignores multiple factors that contribute to the well-being of the population such as time dedicated to leisure and entertainment. In countries with true development, these activities can be carried out because the inhabitants are more productive and have more time for leisure.
Faced with these objections, a new type of measurement emerges, which is called the human development index (HDI). This indicator helps us define factors that have greater implications for the personal development of individuals such as health, education and expectations.
Conclusions
In Economics, GDP is not always everything, although it seems that in most countries finance ministers are rated by how high this index is and nothing else is important. That is why we need to place greater emphasis on alternative measures that lead us to better understand the economic and financial development of nations, which take into account the real well-being of all citizens. The Human Development Index is an excellent initiative in this direction.
