Tag: GNP

What are the Most Useful Indicators of Development?

You need to use a range of economic and social indicators to get a full picture of how developed a country is….

There are hundreds of economic, political and social indicators of development, ranging from ‘Hard’ economic indicators such as Gross National Income (and all its variations), to various poverty and economic inequality indicators, to the Sustainable Development Goals, which focus much more on social indicators of development such as education and health, all the way down to much more subjective development indicators such as happiness.

In this blog post I consider what the most useful indicators of development are for students of A level sociology, studying the excellent module in global development.

I’ve thus selected the indicators below to try and represent:

  • the most commonly used indicators collected by some of the major development institutions, both multilateral agencies such as the World Bank, as well as NGOS.
  • The indicators you need to know for the ‘indicators of development topic – most obviously GNP, the HDI and the MDGs.
  • Other indicators which are useful to know for different sub-topics within the global development course (health, education, gender, conflict, the environment etc…)

Taken together these indicators should provide enough breadth of measurements to gain a very good (for A level standards) insight into the level of development of a country, without resulting in information overload and mental meltdown…

Most of the above indicators below have been developed and are monitored by either the World Bank or the United Nations, but I’ve also included others, such as the Global Peace Index, which are collated by other agencies, so as to broaden out the data sou

The indicators I consider in more detail below are as follows.

  1. Total nominal Gross Domestic Product
  2. Gross National Income per capita (PPP)
  3. The percentage of people living on less than $1.25 a day
  4. The percentage of people living below the poverty line within a country.
  5. The unemployment rate.
  6. The Human Development Index score
  7. Progress towards the Sustainable Development Goals (overlaps with many other aspects)
  8. School enrollment ratios
  9. PISA educational achievement rankings
  10. Percentage of population in tertiary education.
  11. The infant mortality rate.
  12. Healthy life expectancy
  13. The gender inequality index
  14. The global peace index
  15. Total military expenditure
  16. Carbon Dioxide emissions
  17. The corruption index
  18. The Happiness Index.

NB – As with many other posts on this site, this is a work in progress, to be gradually updated as and when I get a chance!

Nominal Gross National Income

Nominal Gross National Income is the total economic value of domestic and foreign output by residents of a country.

It roughly works out like this: Gross National Income = (gross domestic product) + (factor incomes earned by foreign residents) – (income earned in the domestic economy by nonresidents).

Nominal Gross National Income rankings (2015)

  • 1st – USA = $17 trillion
  • 2nd –  China – $$10 trillion
  • 6th – UK = $2.8 trillion
  • 7th – India = $2.0 trillion

Nominal GNI is useful for giving you an idea of the ‘economic clout’ of a country compared to other countries. The real global power players (in terms of military expenditure) are all towards the top of this.

These figures, however, tell you very little about the quality of life in a country…. for that you need to divide the figure per head of population and factor in the cost of living in the country….

Gross National Income Per Capita (PPP)

Gross National Income Per Capita – is GNI divided by the population of a country, so it’s GNI per person.

(PPP) stands for Purchasing Power Parity – which alters the raw GNI per capita data to control for the different costs of living in a country, thus modifying the GNI figure in U.S. dollars to reflect what those dollars would actually buy given the different costs of living in different countries.

Gross National Income Per Capita (PPP) rankings (2013)

  • 1st – Qatar – $123 000
  • 11th – United States – $53 000
  • 23rd – Finland – $38 000
  • 27th – United Kingdom – $35 000
  • 126th – Nigeria – $5360
  • 127th – India – $5350
  • 185th – Democratic Republic of Congo – $680

More up to date data sources for various GNI stats:

GNI per capita (PPP) gives you a general idea of what the general economic standard of living is like for the average person in a country, however, there are serious limitations with this indicator – the main one being that it does not tell you how much of that income actually stays in a country, or how income is distributed. Quality of life will thus be a lot better for some people, and a lot worse for others than these gross statistics indicate.

The Percentage of People Living on Less than $1.25 a day

There are still around 800 million people around the world living on less than $1.25 a day (PPP), the figures for some of these countries are below:

  • The Democratic Republic of Congo (88%)
  • Bangladesh (47%)
  • India (26%)
  • China (6%)

Looking at absolute poverty statistics like this gives us a much fuller understanding of the lack of development in certain countries – in DRC, you can clearly see that poverty is endemic (absolute poverty is a significant problem in many Sub-Saharan African countries), and we can also see that absolute poverty is still a significant problem in India (mainly rural India) and while the 6% is quite low in China, this 6% represents 10s of millions of people, given the large overall population size.

Proportion of population living below the poverty line within a country

The UN sustainable development goals states that one of its aims (under goal 1) is to ‘reduce at least by half the proportion of men, women and children of all ages living in poverty in all its dimensions according to national definitions’. (Source – The United Nations Sustainable Development Goals)

The United Nations collects this data for countries will lower human development, but not for countries with high human development, and so here we are reliant on data from national governments or other agencies  – and the problem here is that different countries measure their ‘poverty line’ in different ways, so this means making cross national comparisons are difficult. Some sources are below:

Selected Stats on the Proportion of People Living Below the Country’s own poverty line:

  • Most low income countries with high absolute poverty rates register percentages of between 30-60% living below their own poverty lines.
  • The USA has 15% of its population living below its poverty line (a household income of around $24000 per annum)
  • The UK also has around 15% of its population living below its poverty line, although its line is higher than the US – around $30000.

So how useful is this ‘relative measure of poverty’ as an indicator of a country’s level of development?

  • They give us far more insight than the GNI per capita PPP figures, because they tell us about income distribution. Can you really call a rich country developed if 15% of its population aren’t earning enough of an income to fully participate in that society?
  • We also need them as an addition to the absolute figures of poverty – absolute poverty doesn’t exist in the wealthiest countries, but clearly relative poverty does.
  • HOWEVER, the differences in how relative poverty figures are calculated does make it difficult to make comparisons.
  • Also, some figures in the UN’s data just don’t seem believable – some ex-communist countries (such as Kazakhstan) report that only 5% of the population live below the country’s poverty line – either than line is extremely low or there’s maybe a little bit of mis-reporting going on?

The Human Development Index

The Human Development Index is compiled annually by the United Nations and gives countries a score based on GNI per capita, number of years of actual and expected schooling and life expectancy, or in the words of the UN itself – the HDI is ‘A composite index measuring average achievement in three basic dimensions of human development—a long and healthy life, knowledge and a decent standard of living.’

Selected Countries by Human Development Index rankings (2015)

  • 1st – Norway
  • 8th – United States
  • 14th – United Kingdom
  • 24th – Finland
  • 32nd – Qatar
  • 39th – Saudi Arabia
  • 55th – The United States
  • 56th – Saudi Arabia
  • 90th – China
  • India – 130th
  • 137th- Bhutan
  • 176th – DRC

For the strengths and limitations of the HID, please see my aptly titled post: ‘the strengths and limitations of the Human Development Index’.

Percentage of children enrolled in secondary school

The Gender Inequality Index

The United Nations defines the Gender Inequality Index as ‘A composite measure reflecting inequality in achievement between women and men in three dimensions: reproductive health, empowerment and the labour market’.

More specifically, it gives countries a score between 0-1 (similar to the HDI) based on:

  • The Maternal mortality ratio: Number of deaths due to pregnancy-related causes per 100,000 live births.
  • The Adolescent birth rate: Number of births to women ages 15–19 per 1,000 women ages 15–19.
  • Proportion of seats held by women in the national parliament expressed as percentage of total seats.
  • The proportion of the female population compared to the male population with at least some secondary education
  • The comparative Labour force participation rate for men and women.

2015 Gender inequality index rankings

Selected countries according to their rankings for the Gender Inequality Index

  • 1st – Slovenia
  • 11th – Finland
  • 39th – The United Kingdom
  • 55th – The United States
  • 56th – Saudi Arabia
  • 97the – Bhutan
  • 127 – Ghana
  • 130th – India

The obvious strength of this is that we get to compare the life chances of women in a country to those of men. What’s (maybe) surprising is that while there does appear to be a general correlation between high GNI per capita (PPP), high human development and low gender inequality, the correlation is not perfect: as is evidenced by the USA being just one place above Saudi Arabia and Ghana being just a few places above India, despite these two pairs of countries having quite divergent levels of ‘human development’.

Notes 

Composite Versus ‘Single Variable’ Indicators

Some of the indicators above are ‘composite’ indicators – which are formed when individual indicators are combined into a single index, giving countries a simplified score, such as the Human Development Index, the Gender Empowerment Index and the Global Peace Index; others are ‘single variable’ indicators – such as the Child Mortality Rate, which just measure one thing.

My reasons for considering both composite and single indicators of development are that while composite indicators crunch more data into a single figure, and thus allow you to make more ‘in-depth’ snap-shot comparisons, single numbers simply don’t give you a sense of the real difference between countries, so these are necessary to highlight the extent of the difference between countries in terms of economic, social and political development, or lack of it.

(1) of course, studying development comparatively may or may not, in itself be useful!

Signposting and Related Posts

This topic is usually studied early on in the optional module on global development which is usually studied in the second year of A-level sociology.

Two related posts which explore some of the above indicators in more depth are:

Please click here to return to the homepage – ReviseSociology.com

Assess the View that Economic Indicators Provide an Unsatisfactory Picture of Development

Economic definitions and ways of measuring development are unsatisfactory. A much clearer and more useful picture emerges when wider social factors are included.’ Assess this view of development and underdevelopment. (20)

International organizations such as the World Bank prefer to measure development using economic indicators such as Gross National Product (GNP) and Gross Domestic Product (GDP)

GDP measures the total value of goods and services produced within a country in one year that are available for sale in the market place. GNP is the same but includes the value of all goods and services produced at home and abroad.

The use of GNP as a measurement of development is generally considered most useful by Modernisation theorists who believe that high GNP is an indication of how industrialised a country is, as high levels of production require efficient production in factories, and as far as Modernisation Theory is concerned, industrialisation will eventually lead to the developing countries catching up with the high age of mass consumption found in the west, thus GNP is the single most useful indicator of development.

Overall GNP/ GDP are more useful if we want an indication of how ‘powerful’ a country is, but if we want a better indication of social development; we need to divided GNP by head of population and take the cost of living into account (GNP per capita at PPP).

The usefulness of using GDP/ GNP is that they provide snapshot indicators of development which makes for easy comparisons between countries. However there are problems with both indicators.

However, there are many criticisms of the use of GNP as an indicator of development.

Firstly. It can disguise inequalities within countries. The USA, for example, has one of the highest GNPs in the world but some groups experience extreme poverty, suffering homelessness for example.

Secondly, GNP does not tell us how much wealth actually stays in the country, If production is carried out by Western Corporations, much of the profit may leave the country and not benefit the population. Similarly, some countries have a high GNP but a massive proportion of this goes on debt repayments.

Thirdly, if economic growth is driven by industrialization, this may bring about problems for some people in developing countries. In India for example, some villagers have has their farms destroyed and been reduced to coal scavenging for a living following the construction of open cast coal mines that are necessary to fuel economic growth.

Finally, it is the case that quality of life may be higher than suggested in poorer countries because production is often subsistence based, about survival and consumed locally in the community, and not sold in the market place. Subsistence agriculture is not measured in the GNP. Also, some people may get hold of goods and services illegally. This kind of economic activity is not included in GNP measurements.

Because of the limitations of economic indicators, the UN has developed social indicators such as the Human Development Index and the Millennium Development Goals which provide a picture of social rather than economic progress.

Many of these social indicators show us that high GNP is not necessarily accompanied by social progress, as in the case of Equatorial Guinea, which has a very high GNP but low social development because the corrupt elite keep most of the money to themselves.

The Millennium Development goals also provide a more useful indicator or development than GNP – The MDGs includes such things as female empowerment and sustainability, neither of which are taken into account by cruder economic indicators. Female Empowerment is especially important when considering development in India – it is rapidly developing in terms of GNP, but has very low gender equality, suggesting it has a lot of progress to make in that area.

Post-Development thinkers argue that sustainability indicators are especially important now that we are facing a climate change crisis, and if we take this as a measure of development, many of the richest countries are the biggest polluters, because consumption drives economic growth, which in turn drives pollution, which provides one of the most compelling challenges to the use of GNP as a valid measure of development.

Another seemingly more useful indicator of development is the level of peacefulness in a country – as measured by the Global Peace Index – this is important because where there is conflict, there is no chance of development, moreover, if we use this as an indicator, the USA and China fall down the development league tables because they spend so much money on their militaries, which are frequently used to oppress people and again reduce social development at home and abroad.

Another country which prefers to measure social development rather than economic development is Bhutan, which is poor, yet one of the happiest nations on earth, and the case of Bhutan seems to challenge the notion that economic growth results in greater happiness – many people living in Tokyo in Japan for example, are lonely and miserable.

The very fact that these other indicators exist suggests that many working within development feel that economic indicators are not a satisfactory measurement of ‘development’

In conclusion, it is clear that economic indicators do not provide a full picture of how developed a country is, and that it is clearly possible to have social development without a high GDP.

Moreover, it appears that the pursuit of economic growth can undermine social development, at home, if it leads to greater equality and misery, and abroad, if it leads to environmental decline and war and conflict.

Thus I believe that we really do need to look at a much wider range of indicators to fully understand how developed a country is, because development simply cannot be understood purely in economic terms alone.

Using material from item A, analyse two reasons why Gross National Product may not be sufficient to measure a country’s level of development (10)

Applying material from the item analyse (ten mark) questions appear with an item as the second question on section B of the AQA A Level Sociology topics paper.

Before looking at this question, you might like to review the main post on this topic: economic indicators of development.

Below is a suggested answer to the a possible ten mark question on Global Development which stems directly from the item below,

Read Item A and then answer the question below…

Item A

Gross National Product (GNP) has long been one of the main economic indicators used to measure development by international agencies such as the World Bank, and there is a general correlation between increasing GNP and improvements in social development.

However, Post-Development thinkers have criticized GNP as being a very limited measurement of a country’s development because it does not tell us anything about how the wealth generated from production is distributed within a country. Post-Development thinkers argue we need to look at a broader range of indicators to accurately measure development, such as the happiness of a country, the level of peacefulness, equality, and even sustainability.

Applying material from item A, analyse two reasons why Gross National Product may not be sufficient to measure a country’s level of development (10)

The first reason is that Gross National Product does not tell us the income or wealth generated from production is distributed in a country.

Gross National Product may be very high, as it is in the USA for example, but high levels of inequality in that country mean that at least the bottom fifth of the country see little benefit from high overall income and wealth, and so GNP doesn’t necessarily translate into social development.

High social inequality, or relative deprivation, is also correlated with a range of social problems, such as poor health (for the poor) and high levels of crime.

Gender inequality can also mean that high GNPs do not benefit women as much as men, as is the case in especially Saudi Arabia, where women’s freedoms are much more restricted than mens, and many Sub-Saharan African countries too.

In contrast, more economically equal countries seem to have higher social development to unequal countries, irrespective of GNP, and It follows that in addition to GNP, we need to at least look at equality indicators to get a better idea of how socially developed a country might be.

The second reason is that by increasing Gross National Product, a country may actually harm its social development, and that of other countries, so it could actually be something of a ‘perverse indicator’.

For example, in pursuing industrialisation in pursuit of economic growth (and thus high GNP), China has become the sweat shop capital of the world, and has increased the exploitation of its workers who are typically paid low wages. This especially applies to women (given the low levels of gender equality in China).

Another negative consequence of economic growth and industrialisation is the increase in pollution, which leads to sea levels rising, and more climate change refugees.

In contrast, some countries, such as Bhutan, put social development indicators, such as happiness and sustainability first, and arguably countries such as these are less developed when we look at GNP per capita, but more developed when we look at how happy the people are, and they don’t retard the social development of other countries in the process.

Economic Indicators of Development

International organisations such as the World Bank prefer to measure development using economic indicators. There are three main economic indicators which are used to give an indication of the overall economic health of a country.

This post has primarily been written for students studying the Global Development option for A-level Sociology.

Three Economic Indicators of Development

  • Gross Domestic Product (GDP) is the total economic value of goods and services (expressed in US dollars) produced within the borders of a country in the course of a year and available for consumption in the market place.
  • Gross National Product (GNP) is the same but includes the value of all services produced at home and abroad. A country such as Ghana will have a relatively similar GDP to GNP because it doesn’t have many companies which produce things abroad: most production takes place within Ghana. America, on the other hand, which is where many Transnational Corporations are based, has a much higher GNP than GDP – Think about MacDonald’s for example –all of those Big Macs sold outside of the USA won’t appear in the GDP of the USA but will appear in the GNP.
  • Gross National Income (GNI) a hideous oversimplification of this is that it’s ‘Gross Domestic Product + the additional income that self-employed people pay themselves +income received from abroad’. This matters to a lot of developing countries who don’t produce much but have large diasporas, or populations living permanently abroad. Take Gambia for example (the country Paul Mendy takes your old toys to at Christmas) – 1/6th of its GNI is from money sent by relatives who abroad, this would not be included in either GDP or GNP.

You get slightly different country rankings if you use GNP or GDP rather than GNI. Don’t worry too much about the differences between the above – with a few exceptions* most developing countries tend to have similar GDPs, GNPs and GNI*s.

GDP and GNI per capita in India
*If you look at India’s Gross Domestic Product, it is the 6th richest country in the world, but if you look at its Gross National Income per Capita, it falls to the mid 100s, due to its enormous population, abut also due to the fact that it consumes a lot of the goods it produces itself, so it doesn’t export much, so there’s not a lot of income coming into the country.

‘Per Capita’ and ‘Purchasing Power Parity’

  • Gross National Product Per Capita – GDP/ GNP are often divided by the total population of a country in order to provide a figure per head of population, known as GDP/ GNP per capita.
  • The cost of living varies in different countries – so one dollar will buy you a lot more rice in India than it would in America. Purchasing Power Parity figures for GNI per capita factor in the cost of living which is useful as it gives you more of an idea of the actual standard of living in that country for the average person.

Gross National Income Per Capita

This section provides a closer look different levels of ‘development’ according to this particular economic indicator. Remember, global rankings will vary depending on whether you use GNI, GNP, or GDP. 

One measurement of development The World Bank uses is Gross National Income (GNI), which can be crudely defined as the total value of goods and services produced in a country in a year plus any income from abroad. If you divide GNI by the number of people in the country, you get the average amount of income per person, or GNI per capita.

GNI per capita is widely regarded as a good indicator of the general standard of living in a country, and it is a good starting point for giving us an idea of the extent of global inequalities between countries. For example, the United Kingdom has a GNI per capita of about $43 000, while India has a GNI per capita of about $1600, which is more than 20 times greater.

The World Bank’s map of countries by Gross National Income per capita map is a useful, interactive resources to easily find out how most countries fair by this indicator of development. 

The World Bank’s Four Income Categories

The World Bank categorises countries into one of four categories based Gross National Income per capita (per head): high, upper middle, lower middle and low income countries.

  • High income = $12, 536 or more – about 60 countries, including most of Europe
  • Upper middle income = $4,046 – $12,535 – about 60 countries, includes South Africa and China
  • Lower middle income = $1,036 – $4, 045 – about 50 countries, mostly in Africa, includes India
  • Low income = $1,035 or less – about 30 countries, mostly in Sub-Saharan

Comparing countries by GNI per Capita and total GDP

Top ten countries – GNI per capita (source)

Monaco.jpg
Monaco -full of wealth people but for some reason no longer at the top of the GNI per capita rankings!

1 Liechtenstein116,4302009
— Bermuda (UK)106,1402013
2  Switzerland85,5002019
3 Norway82,5002019
— Macau (China)78,6402018
— Isle of Man (UK)75,3402017
4 Luxembourg73,9102019
5 Iceland72,8502019
— Channel Islands (UK)66,2302007
6 United States65,7602019
7 Qatar63,4102019
8 Denmark63,2402019
9 Ireland62,2102019
10 Singapore59,5902019

Top ten countries Total by Gross Domestic Product (source)

United States.jpg
The United States – ranked number 1 in the world for total GDP
1 United States20,807,269
2 China[n 2][n 3]14,860,775
3 Japan4,910,580
4 Germany3,780,553
5 United Kingdom2,638,296
6 India2,592,583
7 France2,551,451
8 Italy1,848,222
9 Canada1,600,264
10 South Korea1,586,786

Question to consider: Why do you think the top ten countries are so different when judged by total GDP compared to GNI per capita?

Evaluating the Usefulness of Economic Indicators of Development

Three Advantages of using GDP/ GNP/ GNI as an indicator of development

  1. GNI figures provide a snap-shot indication of the huge difference between the more developed and less developed countries. In 2016, the GNP per capita in the UK was $43000 while in India it was only $1600. This means that there is 20 times as much money per person in the UK compared to in India
  2. Gross National Income figures are also closely correlated with social development – generally speaking the higher the GNI per capita, the better the education and health indicators are in a country.
  3. Total GDP figures give us an indication of who the most powerful nations are on earth in terms of military power. It’s not a perfect correlation, but the USA, China, Russia and the UK are all in the top ten for GDP and they are the biggest arms producers and consumers in the world too.

Four limitations of using GDP/ GNP/ GNI as an indicators of development

  1. Quality of life (Social Development) may be higher or lower than suggested by GNP per capita.
  2. They don’t tell us about inequalities within countries. The USA has one of the highest GNPs in the world but some extreme poverty.
  3. A lot of production in developing countries may not be included. For example, subsistence based production is consumed locally in the community, and not sold in the market place. Similarly goods obtained illegally on the black market are not included in GNP measurement
  4. They are very western concepts, equating production and economic growth with development. Some countries may not want economic growth and have different goals (Bhutan)

The United States – economically developed but socially retarded? 

The USA is a good example of a country that demonstrates why we can’t rely on economic indicators alone to give us a valid indication of how developed a country is. Despite ranking number 1 for total GDP, the USA does a lot worse on many social indicators of development – See this post – ‘The USA – an undeveloped country?’ for more details.

Review Questions 

  • Define Gross National Income Per Capita and be able to identify some high income and lower income countries.
  • Explain the difference between GNI, GDP, GNP, and understand the significance of Purchasing Power Parity.
  • Outline three strengths of using economic indicators of development
  • Outline at least three reasons why GNP may not be valid measurements of ‘development’