Learn about the key economic indicators of a country, including GDP, unemployment rate, inflation rate, trade balance, and interest rates. Stay informed and make informed decisions for a strong economy.
Economic Indicators of a Country.
Economic development has also an export value for both the aid-giving and aid-receiving countries. In order to avoid secular stagnation, rich countries need an ever-increasing rate of development. Poor countries need an accelerating rate of development to increase their export potential for avoiding deficit in balance of payments.
Following are the main, indicators of economic development.
* Per Capital Income Index
In terms of this indicator, development is said to take place if growth-rate in national income exceeds growth-rate in population. And as the money figure is corrected for changes in prices, development is made synonymous with an increase in the real per capita income.
Significance:
This index is favored for the following important reasons. One, it represents the fact that a country as a whole is getting better-off. No doubt it is an average. But a rising average indicates that per head there is an increase in the availability of goods and services. Two, apart from the general consideration,- this index is especially suitable for the less developed countries.
It signifies the possibilities of raising the general standard of living of the poor masses, provided distribution is fairly equitable. The index at the least keeps the focus of development on the poverty of the mass of the people. Three, the index is helpful also for comparing the living standards among countries, as also their performances.
Without such an index, many odd conclusions would follow. For example, the USA’s national income is ten times larger than that of Canada. But the USA is not ten times better because per-capita incomes are almost the same in the two countries. Similarly, the growth rate of national income in a poor country, starting from a very low level may be higher than that in a rich country But this does not convey the reality y the situation which is more’ clearly reflected in the nse m the per capita income.
Neglect of distribution
Criticism of the per capita income index is that it ignores distribution, which has important bearing on the welfare of the people.
This criticism is however not valid in case there is a normal distribution of income. In this case average income is close to the medium is defined as the midmost or halfwaypoint in a scale of ordered observations
Weak measure of income: Another criticism is that income index is neither a correct nor a proper measure of the income which it is supposed to represent. Principal deficiencies in this regard are the following (1) the national income estimates do not cover the entire production of a country. (2) N1 estimates over times are biased upwards, giving somewhat false images of development (3) N1 includes things which increase N1 but which do not make much sense.
Examples are, expenditure on pollution-control, on regulation of traffic jams in cities, etc (4) Some beneficial items may have the effect of reducing GNP estimates For example, expenditure on preventive measures (like supply of safe drinking water, or health services etc) may result in the reduction of production of drugs, thereby reducing GNP (5) the N1 estimates do not take account of the damages inflicted by development. Example are pollution of the countryside, discontentment of the people witn rising expectations etc. (6) the inter-country comparisons are prone to many errors, for example, per capita incomes do not truely reflect their purchasing power in different places (7) a very great difficulty is with regard to the measurement of changes in the GNP/per capita GNP over times. The difficulties pertain to the selection of the base year the construction of price-indices etc.
Disregards Quality of Life:
The most recent criticism is that the income-index focuses on the quantity of goods and services, and totally ignores the quality of life that development should promote. The quality of life is related to such things as increase in the expectancy of life, better food, clothing and shelter, more education and skill formation of the people This criticism is to a considerable extent valid in the poor developing countries, as the experience shows there is no strong relationship between the rise in per capita incomeand the improvement in the quaiity of life. And there is no guarantee either that with further increases in the per capita incomes, there will be improvement in the quality of life.
To sum up, the increase in per capita income can serve to indicate development. But this index alone is not sufficient to ensure that growth benefits the poor, and inequalities do not increase, as also to provide for a composition of national income that raises the quality of life, other ingredients and indices have to be included to indicate socially desirable development. However, in the poverty stricken less developed countries, the overriding index of development has to be a sustained improvement in the income-levels.
Physical Quality of Life Index:
This is a composite index of three elements, namely the life expectancy, the infant mortality, and the literacy. Figures in respect of each of these three components in case of different countries are rated on an index of 1 to 100. For example, the highest figure in respect of life expectancy achieved by any country is assigned the upper limit of 100 for the life-expectancy index. The lowest figure of a country in this respect is assigned the lowest limit of one. Similarly, for the lowest infant mortality, and the highest literacy, the assigned numbers are 100 each. And for the highest infant mortality, and the lowest literacy, the assigned number is one in each case.
In between the highest and the lowest, other countries are ranked. A composite index is then prepared by averaging the three indices, giving equal weight to each of them. This will be highest at 100 for a country with the most favorable life expectancy, the lowest infant mortality and the highest literacy in the world. The index will be the lowest at one for a country with the most unfavorable life expectancy, the highest infant mortality, and lowest literacy. Between these two extremes will fall other countries according to their ranking.
Significance: This indicator shows the end-result of the use of national income in terms of what individuals desire the most in their lives. Individuals wish to enjoy longer years of life. They cherish living a healthy life. They love to see their children grow into their fullness, which also includes longer expectancy of life. They seek more and more of literacy in the sense of education and training so that they are well prepared for greater opportunities in this world. A high ranking of a country in this index means tha4 large many people have gained in terms of physical quality of life. It also follows that in a country where PQLI (physical quality of fife index) is rising year after year, the physical quality of life is improving.
This index is supposed to be a superior index to that of per capita income. Since the index shows an improvement when much is spent on items which influence its constituents (namely better and nourishing food, health and educational facilities etc.), the end-result is not dependent upon an increase in per capita N1 It follows that it is the use of Nl, and not mere increase in the per capita N1. that is a guarantee for an improvement in the PQLI index.
This approach is no doubt an improvement over the per capita income index. But this is true only partly. For in several countries, particularly those with vast and rapidly rising population, very little can be spared for improvements in terms of the ingredients of PQLI. Therefore, a mere emphasis of the use of GNP can be of little help in such countries. In most of these countries per capita incomes are so low that the income-index has to be accepted as the right index of development. Other non-income indices like PQLI. can at best be useful as adjuncts to per capita income index
Basic Needs The approach involves satisfying the minimum levels of physical needs. These include such items as: consumption of food; provision of shelter, and access to essential public services such, as pure drinking water, sanitation, health and education. While these are the minimum basic requirements, these do not exhaust the list. Depending upon the level of development, the physical conditions, and the-culture of society, these needs may differ
Indices: There is as yet no single most acceptable index to represent this approach to development. One approximate index can be expectation of life at birth. It is argued that while the people desire the satisfaction of their basic needs for many reasons, it is also obvious that these have large bearing on the health status of the individuals. Food, sanitation, watet supply and health services influx ice health directly Ho;.~iny and education too do so, althcugn to a limited extent ai d indirectly. Hence if the goods and se-v ces to satisfy the bas c needs are taken as inputs of health the index to register progress can be life expectancy
Significance The basic needs approach focuses most sharply on the poor of the less-developed countries Its centre-theme however is the composition of production and its beneficiaries As for production is concerned emphasises a product-mix of final goods and services that serves the basic needs of the poor Implied in this product-mix is also a factormix for production that is labor-intensive as most of the goods of mass consumption can be produced with this technique. This gives rise to more jobs.
It is also argued that such an approach is necessary as basic needs include also public services like water, sanitation, health and education, which individuals themselves cannot supply It is also argued that this approach is very useful in assessing the relative gap between the rich and the poor countries Moreover, this approach can be a good guide to monitor the direction of development as also the rationale of policies of the less developed countries, as also of the policies of international agencies which organize aid for the poor countries.
To sum up, this approach concerns with the removal of absolute poverty through the direct provis.cn of goods and services to the poor. This is an attempt to relieve poverty immediately rather than depending only upon the strategy of increase in the incomes of the poor wnich may take long time It also raises the productivity of the poor through dhect provision of health, education and other facilities.