4.2. Measuring Development

4.2. Measuring Development

GNI per Capita - Purchasing Power Parity (PPP)

• This is a method of currency valuation based on the idea that two identical goods in different countries should eventually cost the same

• This is illustrated by the Big Mac index, which takes a Big Mac hamburger and compares its prices in different countries in order to establish the relative value of their currencies

If PPP holds true, then you can buy the same goods and services with £100 in London as you can in Glasgow, New York and Cape Town. There are many reasons why this will not be the case!

See the GNI per capita in PPP terms (constant 2011 PPP $)

http://hdr.undp.org/en/content/gni-capita-ppp-terms-constant-2011-ppp

Distinguish between GDP per capita figures and GDP per capita figures at purchasing power parity (PPP) exchange rates

Task 3: How does PPP exchange rates affect the GDP per capita & GNI per capita figures for the countries in the table below

Sources - GDP per capita figures - http://data.worldbank.org/indicator/NY.GDP.PCAP.CD & GNI per capita figures - http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

Task 4: Compare and contrast two education indicators for economically more developed countries and economically less developed countries - see video on single indicators of development also

Task 5: Compare and contrast two health indicators for economically more developed countries and economically less developed countries - see video on single indicators of development & HDI reports

Gapminder

• Gapminder Website - https://www.gapminder.org/. Use the following website to investigate the relationship between single development indicators and income

Task 7: Analyse the two graphics below. What conclusions can you come to about GDP per capita (PPP) as a measure of economic development?

Human development is the concept of development that has to do with the creation and improvement of living conditions so that people can develop their full potential.

The Human Development Index (HDI) is published annually by the UNDP and focuses on longevity, basic education and minimal income

• It tracks progress made by countries in improving these three outcomes

• The inclusion of education and health indicators is a sign of successful government policies in providing access to important merit goods such as health care, sanitation and education

1 Knowledge: First an educational component made up of two statistics – mean years of schooling and expected years of schooling.

a) Expected years of schooling – number of years of schooling that a child of school entrance age can expect to receive if prevailing patterns of age-specific enrolment rates persist throughout the child’s life.

b) Mean years of schooling – average number of years of education received by people aged 25 and older, converted from education attainment levels using official durations of each level.

2 Long and healthy life: Second a life expectancy component is calculated using a minimum value for life expectancy of 25 years and maximum value of 85 years. Life expectancy at birth – is the numbe rof years a newborn infant could expect to live if prevailing patterns of age-specific mortality rates at the time of birth stay the same throughout the infant’s life.

3 A decent standard of living: The final element is gross national income (GNI) per capita adjusted to purchasing power parity standard (PPP). PPP conversion factor shows the number of units of a country’s currency required to buy the same amount of goods and services in the domestic market as one dollar would buy in the US.

Important note:

GNI is now used rather than GDP because of the growing size of remittances in the global economy and also the importance of international aid payments. For example, because of remittances from abroad, GNI in the Philippines greatly exceeds GDP

Log of income is used in the HDI calculation because income is instrumental to human development but higher incomes are assumed to have a declining contribution to human development

Latest HDI Report

http://hdr.undp.org/en/content/table-1-human-development-index-and-its-components

Human Development Index

• The Human Development Index (HDI) is a summary measure of average achievement in key dimensions of human development: a long and healthy life, being knowledgeable and have a decent standard of living. The HDI is the geometric mean of normalised indices for each of the three dimensions.
• The health dimension is assessed by life expectancy at birth, the education dimension is measured by mean of years of schooling for adults aged 25 years and more, and expected years of schooling for children of school entering age. The standard of living dimension is measured by gross national income per capita (PPP). The HDI uses the logarithm of income, to reflect the diminishing importance of income with increasing GNI. The scores for the three HDI dimension indices are then aggregated into a composite index using geometric mean.
• Use the HDI website to get definitions on the four indicators that are used to construct the three dimension indices - http://hdr.undp.org/en/home

• Relationship between real GDP per capita (PPP) and the Human Development Index

There ought to be a reasonable close connection between GDP per capita and ranking on the human development index but this is not always the case. For some countries there is a strong positive difference between their HDI rank and their ranking by income alone – here are some examples:

• Generalised picture of the world - HDI by type of human development

Task 8: Taking the HDI Report 2016 as your focus, compare how the use of the Inequality-adjusted HDI affects the HDI index value for both very high human development and low human development countries

• HDI Report 2016
• Very High Human Development - Top 20 jurisdictions

• Low Human Development - bottom 12 countries

Task 9: Change in HDI values 1990-2015

You will allocate yourself into a group of students. There will be five groups in all. Each group will be assigned a particular set of countries as illustrated by the graphics below. Your task is to answer the following questions:

1. Identify the geographic distribution of the countries
2. Ascertain whether there has been a positive trend in HDI values for 1990-2015
3. Ascertain whether any country experienced a temporary decrease in HDI values for 2010-2015
4. Identify the country with the greatest rate of change in the HDI values

• Inequality-adjusted HDI - The IHDI combines a country’s average achievements in health, education and income with how those achievements are distributed among country’s population by “discounting” each dimension’s average value according to its level of inequality. Thus, the IHDI is distribution-sensitive average level of HD. Two countries with different distributions of achievements can have the same average HDI value. Under perfect equality the IHDI is equal to the HDI, but falls below the HDI when inequality rises.

• Gender Inequality Index - The GII is an inequality index. It measures gender inequalities in three important aspects of human development—reproductive health, measured by maternal mortality ratio and adolescent birth rates; empowerment, measured by proportion of parliamentary seats occupied by females and proportion of adult females and males aged 25 years and older with at least some secondary education; and economic status, expressed as labour market participation and measured by labour force participation rate of female and male populations aged 15 years and older. The GII is built on the same framework as the IHDI—to better expose differences in the distribution of achievements between women and men. It measures the human development costs of gender inequality. Thus the higher the GII value the more disparities between females and males and the more loss to human development.

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