Top 3 Methods for Measuring Economic Development

In the recent past, different economists described many new techniques of measuring economic development.

These methods has emphasized that one should account for all such components that determine welfare of the common masses.

These measures/methods are discussed in detail:

1. Physical Quality Of Life Index (PQLI):

In 1979, D. Morris constructed a composite Physical Quality of Life Index (PQLI). He found that most of the indicators were inputs to development process rather than result of the development process. These indicators reflected that economically less developed countries are simply underdeveloped versions of industrialized countries. He therefore, combines three component indicators of Infant Mortality, Life Expectancy and Basic Literacy to measure performance in meeting the basic needs of the people.

However, the choice of indicators are:

1. Life Expectancy Indicator (LEI)

2. Infant Mortality Indicator (IMI)

3. Basic Literacy Indicator (BLI)

These three indicators can be improved in a variety of ways. However, Prof. Morris used Life Expectancy (LE) at birth as the indicator. Infant mortality implies deaths before age one instead of life expectancy at birth. In case, the figure for life expectancy at age one was not available, it could be worked out by using a formula which relates life expectancy at birth, infant mortality and the proportion of children.

How to Normalize Indicators:

We are familiar that life expectancy is measured in terms of years, infant mortality rate in terms of per thousand and basic literacy rate in terms of percentage. They cannot be simply added. Moreover, basic literacy can have a natural zero for minimum and 100 for maximum, thus there exists no natural minimum or maximum values for other indicators. For comparison, each of the levels should be normalized. Prof. Morris choose the best and worst levels in each of the three cases.

In the case of positive indicators of life expectancy and basic literacy the best is shown by the maximum and worst by the minimum. While in case of negative indicator of infant morality, the best is denoted by the minimum and the worst by the maximum. For converting the actual levels of a positive variable into normalized indicators, first the minimum values are subtracted from the actual values and then the gap is divided by the range.

For positive indicators, the formula is:

Choice of Minimum and Maximum Values:

In case of life expectancy and infant mortality, there exists no natural minimum and maximum values. The conversions from values to indices are linear. Put the actual value of these indicators of the country in the expression and get the reasonable indices as Physical Quality of Life Index.

2. Human Development Index (HDI):

Considering quality of Life Index, the United Nations was the first to prepare and publish Human Development Index in the year 1990.

Human Development Index studies the following three basic human aspects:

(i) Living a long life or Longevity (LEI)

(ii) Being knowledgeable on Educational Attainment (Index EAI).

(iii) Standard of living on Real per capita GDP (SLI).

These three indices can be expressed as

HDI = (1/3) (LEI + EAI + SLI)

Let us discuss these three aspects.

(i) Longevity (LEF):

Longevity means life expectancy at birth. It refers to the number of years a newly born baby is expected to live. Life expectancy in India at present is 63 years.

(ii) Educational Attainment (EAI):

It means education attained by the people of the country on an average basis.

The constituents of educational attainment are expressed through the following two variables:

(а) Adult literacy rate (ALR)

(b) Gross enrolment ratio (GER)

(a) Adult Literacy Rate (ALR):

The rate or the percentage of people aged 15 and above who can understand, read and write a short and simple statement in their everyday life are known as literate. It implies that every literate must be capable of reading and writing certain sentences. If someone is able to sign but not capable of reading and writing simple statement is not literate. Thus, capability of reading only or writing only does not make a person literate. Literacy is the symbol of the quality of the people.

(b) Gross Enrolment Ratio (GER):

Gross Enrolment Ratio refers to the number of students enrolled at different levels of education. It is the percentage of population of different age groups engaged in educational pursuit. The education level consists of primary, secondary and tertiary level. Basic elements of education are provided at primary level.

Secondary level education is studied at middle and secondary level. University level education is studied under tertiary level. General enrolment ratio shows the percentage population enrolled at primary, middle, secondary and university level. The higher GER indicates higher quality of life. It will be the sincere effort of every economy to increase general enrolment ratio as far as possible.

(iii) Real GDP Per Capita or Standard of Living (SLI):

It is considered as a measure of the standard of living of the people of a country. In order to calculate human development index we are required to study and analyse longevity, educational attainment and real GDP per capita.

Quality Of Life Index (QLI):

Quality of life of the people is another index to measure the standard of living of the people in an economy. It is influenced by national and per capita income of the people. Many other factors like consumption, output, health, environment, education, freedom, security, non-violence peaceful atmosphere etc. also influence human welfare directly or indirectly. In other words, none of these factors alone determines the welfare of the people. At the same time, we should note that National Income is not itself the single representative factor of welfare.

It is as such necessary that all the determinants of welfare should be combined together to measure the quality of life index. But it is not possible that every variable should be accounted for because of conceptual and statistical difficulties. It is, therefore, said that an index comprising of certain selected social factors be made to determine the quality of life index. For example Human Development Index (HID) has been prepared under United Nations Development Programme (UNDP).

In fact, they make an attempt to measure quality of life and we should make reference to it towards the end. At the same time, we should remember that these indices were developed in the international context. They were used for ranking different countries according to its numerical value of achievement in descending order.