‘Hdi Is a Composite Index That Is a Far Better Representative Indicator of Economic Development Than Gnp Per Capita.’ Discuss

Decent Essays

Studying development is essentially about measuring how developed one country is compared to other countries or to the same country in the past. It is common knowledge that each country is aiming to be defined as developed. For us is to determine which measure is a better representative of how country is developed HDI or GNP per capita.

Firstly, we will define what economic development is. Secondly we will compare Gross National Product and Gross Domestic Product. Thirdly, we will outline the problems with these indicators. Finally, we will try to find out whether HDI is a solution to the problems identified in GNP/GDP.

What is economic development?

As the definition states economic development is a “sustainable increase in …show more content…

On the other hand we have real GNP which measures the value of output in two or more different years by valuing the goods and services adjusted for inflation.

Problems with GNP/GDP

GNP is merely a gross measure of market activity which counts only money transactions and excludes goods and services (like taking care, cleaning, food preparation) that people provide each other free. In terms of developed economies like United Kingdom it would not be a huge difference, however in less developed countries much of its production takes place in the household economy like growing crops and farming animals for the purpose of the household not selling. Therefore it would not be included in countries GNP/GDP.

The World Bank itself recognizes many of these problems. Although they reflect the average incomes in a country, GNP per capita and GDP per capita have numerous limitations when it comes to measuring people’s actual well-being. Taking as example countries which dig oil, where sheikhs earn millions and other live in poverty, the GNP per capita will count them equal dividing their income and not showing how equitably income is distributed.

They do not account for pollution, environmental degradation, and resource depletion. As a result of the problems outlined above, much of GDP can be composed of: fixing

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