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Development Economics

Measurement of Economic Development

Different economists have used various measures to access the level of development at a particular time. Some measures have been given below:

Prof. W.W. Rostow:

Economic development is measured in “daily average product of labour”, i.e. if daily average product of labour is increasing country is developing and this increase is possible only when there is optimum use of productive resources, principle of division of labour is adopted and modem technology is used so that labour efficiency could increase,

H.F. Williamson, Arthur Lewis:

These economists measure economic development in per capita income. According to them if per capita income is increasing and standard of living of the people is rising, country is developing and if per capita income is not increasing and standard of living of the people is not rising, country is not developing.

Meier & Baldwin:

According to them the standard of measure for economic development is increase in real national income. If, level of real national income is increasing, country is developing and if real national income is not increasing country is not developing.

Methods of Measuring Economic Development:

There are various methods which are used for the assessment of economic development. The most important methods are the following:

Increase in Real Gross National Product:

A simple and common measure of economic development is the volume of real National measure co Changes occurring in it. Increases in real National Income are typically used to measure economic development. According to Meier and Baldwin if country’s real national income increases over a long period of time, it depicts the actual situation of economic development. When real National Income of a country goes on increasing, then according to this method, country is considered to be making economic development. On the other hand, if real National Income of a country falls over a long period of time, the country will be moving towards economic backwardness.


Following reasons have been given in favour of this criterion:

(a) Increase in real per capita income is only possible due to increase in real national income.

(b) If per capita income method is adopted a country can show development only when per capita income is increasing but if rate of population growth is greater than the increase in per capita income, it will be understood that country is not developing but it may be developing if real national income method is the standard of measure.

(c) By using per capita income method, we cannot show how national income has increased. It is possible that increase in national income may be only due to production of intoxicants and exports of consumer goods:

(d) If per capita income method is the standard measure of economic development then population problem is oversighted. It may be possible that increase in per capita income may be due to some big landlords, feudal lords, industrialists and big businessmen while majority of the population is,.,.,.,.,.

(e) If national income is base for measurement of economic development. We can analyze several economic problems e.g. unemployment, decrease in agricultural products, industrial products, minerals, inequal distribution of wealth, low level of investment, aggregate savings and aggregate consumption.

(f) On the basis of national income analysis, we can study the different sectors of the economy.

(g) National income measure is also important for developed countries, because in developed countries per capita income level is already high, they need increase in national income so that there should be full employment without inflation.

(h) It may happen that per capita income is higher yet country is not developed e.g. in Middle East countries per capita income is much higher than other developed countries while these countries are developing.

Limitations / Drawbacks:

Following are the limitations of the method:

  • It is possible that there is an increase in gross national product, but only a portion of total population has benefited from this increase. This increase in gross national product (GNP) may be called economic growth but not economic development and it does not lead to economic welfare also.
  • If increase in domestic product is due to increase in production of armaments, intoxicants and construction of beautiful houses it is not economic development because it does not increase the satisfaction of an average consumer.
  • It is difficult to determine the value of various goods and services because sometimes the government is practicing price control policy.
  • It is difficult to make comparisons of level of income among various countries.
  • An accurate statistic about National Income are not available. People of less developed countries do not cooperate with the statistical department.
  • In every society many economic, social, political and religious activities, that enhance welfare are not accounted for National Income. For example, unpaid house work done by house wives and do-it-Yourself repairs and services are excluded from National Income.
  • National Income figures tell nothing about the distribution of income in the country concerned.
  • While calculating National Income there is a danger of double counting. For example. cotton price is taken, then cloth price is also taken.
  • National Income may rise due to greater production of military hardware, more production of alcohol etc, it will not represent economic development because it will not benefit a common man.

Real Per Capita Income Method:

Some economists are of the view that if per capita income increases over a long period of time it will be accorded as economic development. According to this method, if the real per capita income of a country increases each resident of the country will be able to attain more goods and services than before on average. Consequently, the average poverty will ‘come down and life standard of the people of the country will improve. All this will represent economic development in the country. Real per capital income can be easily calculated. Real per capita income is equal to total real national income divided by the total population.


Per Capita Income = GNP/Population or National income/National population


  • Information regarding per capita income of each country of the world is easily available.
  • Increase in real national income depicts the true picture of social and economic structures of the societies.
  • Per capita income analysis takes into account changes in population size that may accompany increasing output, and it can provide some information about both the efficiency of production and the success in reaching a country’s economic goals.

Limitations / Drawbacks:

Following limitations/shortcomings have been pointed out in the method.

  • As Per Capita Income = National Income/ Population it is difficult to have the correct figures of National Income and Population.
  • It does not throw light on the quality of life aspect which is very important. So, it fails to address standard of living.
  • It does not throw light on the distribution of National Income among various classes of the people and different areas of the country.
  • Per Capita Income of a country may increase if due to some natural calamities like drought, floods, diseases or wars etc. population of the country decreases hut it cannot be accorded as economic development.
  • Per capita income and its rate of increase are only one aspect the state of economy. Economic development more adequately depicts particular characteristics of development in the economy.
  • The biggest drawback of per capita income is its nature as an arithmetic. As an average it does not give any direct information about the distribution of income and therefore about the economic welfare of the people.

Human Development Index:

This method was presented by “United Nations Development Organization” in 1990. HDI method emphasized on “Sustainable Development” according to united nations human development Report (NHDR) go to HDI is 0.490. Under this method development in a country is judged by following points.

i) Health facilities

(ii) Education

(iii) Decent living standard

(iv) Political freedom

(v) Human Rights

(vi) Self-Respect

Physical Quality of Life Index:

This is relatively a new approach to measure economic development. In this method different indicators like life expectancy, infant mortality rate, adult literacy rate, nutritional level measures on the basis of calories are taken for the construction of Quality of Life Index. The scale of 1 to 100 was used for this index. 1 indicated the poorest level and 100 indicated the highest level of development. Different countries are ranked in development on the basis of their physical quality of life index. A country where poverty is reducing and people can meet basic needs of life easily is on the path of economic development.


Some limitations of this method are:

It stresses upon qualitative aspect of life and ignores the quantitative aspect.

There is no agreement among economists on which indicators should be used and on the relative importance of each.

As many developed countries have already reached the maximum limit of physical quality of life index. So according to this method there is no scope for their further growth.

Without quantitative development, it is difficult to improve qualitative aspect of life.

Basic Needs Approach:

According to this approach economic development should be viewed in the reduction of poverty and satisfaction of basic human needs. Health, education, food, water supply, housing and clothing are the basic necessities of life. If in a country, the above needs are being met progressively and quality of life is improving, it will indicate that the country is on the road to economic development.


Following are the important limitations/ shortcomings of the method:

It emphasizes upon social indicators and social development.

Different items which are included in this method have different importance and weights in different countries depending upon social, economic and political setup of these countries.

In such a situation comparison among various countries seems difficult and inaccurate.

Without increasing National Income of the country, it is difficult to improve all the indicators included in this method.

Other Diverse Indicators:

In addition to real GDP per person, the modem economists measure the level of country’s development from the following indicators.

The percentage of income originating from agriculture in GDP. The higher the income originating from agriculture, the less developed is the economy of a country.

Per Capita Consumption of energy:

The higher the per capita consumption of energy, the more developed is the industry and economy of the country.

Percentage of starches (substance use) in total calories consumed:

If there is high percentage of starches consumed in total calories consumed by the people, the economy will be considered as underdeveloped.

Degree of urbanization, high school enrolment ratio:

If the ratio of school enrolment, the degree of urbanization and life expectancy is rising in a country they are considered to be positively related to economic development.

Infant mortality and density of population:

 If in a country the infant mortality and density of population are high, it is considered to be

negatively related to economic development.

Best Method for Measurement / Which Method Is Better and Why?

Above discussion on important methods of measuring economic development reveals that each method has certain limitations and no one is objection free. However, physical quality of life index and basic needs approach cannot be considered better than Real National Income Method and Real Per Capita Income method because they just explain the qualitative aspect of economic development and they make international comparison among different countries regarding economic development difficult.

It is also difficult to express any economic improvement under these methods into some numbers. Moreover, without quantitative development, qualitative development cannot be achieved. Therefore, Real National Income and Real Per capita income methods are relatively better than these two methods. When we make a comparison between the National Income and Real Per Capita Income methods, we find that the former is better than the latter on the following grounds.

The increase in real per capita income is based upon increase in real National hence real National. Therefore, so long as real national income does not increase, real Per Capita income cannot increase.

If an increase in Per Capita Income is used as method for measuring economic development, then if rate of increase in real National Income were equal to the rate of growth of population during a certain given period, then we shall have to say that no economic development has taken place in the country concerned. But in fact the country has experienced economic development.

If in some countries due to drought, migration and wars etc. the Per Capita Income increases, it will not represent economic development.

Real Per Capita Income method conceals the population problem of a country concerned because for obtaining real Per Capita Income, real National Income is divided by the Population. There is an urgent need that rather than concealing the rapid growth of population of a country, it should be brought to light, so that suitable measures might be taken to remedy this problem.

If we use Per Capita Income method in measuring economic development in less developed countries, then we find hardly any observable development because in these countries Per Capita Income rises very slowly and nominally.

The real Per Capita Income of Kuwait and Brunei Dar-ul-Salam is more than many European countries but despite it the former are developing countries having low living standard of their citizens than the later countries.


The above discussion proves that real National Income method, despite its certain limitations is better than others. Hence it should be adopted. but during the process of development its effects on the distribution of income, structure of the economy and on ethical values must be considered

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