Essay on the Measurement of Economic Development

Essay on the Measurement of Economic Development

There are several criteria or principles to measure the economic development. Let us make a detailed study of these measurements for better understanding.

1. National Income as an Index of Development:

There is a group of certain economists which maintains that the growth of national income should be considered most suitable index of economic development.

They are Simon Kuznets, Meier and Baldwin, Hicks, Samuelson, Pigou. Kuznets favoured this method as a basis for measuring economic development. For this purpose, net national product (NNP) is preferred to gross national product (GNP) as it gives a better idea about the progress of a nation.

2. Per Capita Real Income:

Some economists believe that economic growth is meaningless as it does not improve the standard of living of the common masses. According to this view economic development should be defined as a process by which the real per capita income increases over a long period of time.

Harvey Leibenstein, Rostow, Baran, Buchanan and many others favour the use of the per capita output as an index of economic development. The UNO experts in their report on ‘Measures of Economic Development of Underdeveloped Countries’ have also accepted this measurement of development.

3. Economic Welfare as an Index of Economic Development:

Economists like Colin Clark Kindleberger, D. Bright Singh, and Hersick etc. have suggested economic welfare as the measure of economic development. The term economic welfare can be understood in two ways:

(a) When there is equal distribution of national income among all the sections of the society. It raises economic welfare.

(b) When the purchasing power of money goes up, even then there is an increase in the level of economic welfare. The purchasing power of money can go up when with the increase in national income there is also increase in the prices of goods. That means economic welfare can increase if price stability is ensured.

Thus economic welfare can boost with equal distribution of income and price stability. Higher the level of economic welfare, higher will be the extent of economic development and vice-versa.

4. Measurement through Occupational Pattern:

The distribution of working population in different occupations is also regarded as criteria for the measurement of economic development. According to Colin Clark there is deep relation between the occupational structure and economic development. He has divided the occupational structure in three sectors

(a) Primary Sector:

It includes agriculture, fisheries, forestry, mining etc.

(b) Secondary Sector:

It consists of manufacturing, trade, construction etc.

(c) Tertiary Sector:

It includes services, banking, transport, etc.

In underdeveloped countries, majority of the working population is engaged in primary sector. On the contrary, in developed countries the majority of the working population works in tertiary sector. When a country makes economic progress, its working population begins to shift from primary sector to secondary and tertiary sectors.

5. Standard of Living Criterion:

Another method to measure economic development is the standard of living. According to this view, objective of development is to provide better life to its people through improvement or upliftment of the standard of living. In other words, it refers to the increase in average consumption level of the individual.

But, this criterion is not practically true. Let us suppose national income and per capita both increase but the government imposes a heavy dose of taxation or compulsory deposit scheme or any other method. In such a situation, there is no possibility to raise the average consumption level i.e. standard of living. Moreover, in poor countries, propensity to consume is already high and stern efforts are made to reduce superfluous consumption in order to encourage savings and capital formation. Again ‘standard of living’ is also subjective which cannot be determined with objective criterion.