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Evaluating the wealth and quality of life in different nations using various economic metrics.
If a country's economy grows by 10% but its literacy rate drops and life expectancy falls, is that country actually 'developing' or just getting richer?
Quick Check
Why might a country with a very high GDP per capita still have a high poverty rate?
Answer
Because GDP per capita is an average that does not account for income inequality or how wealth is distributed among the population.
To address the limitations of GDP, the United Nations created the Human Development Index (HDI). HDI is a composite statistic that ranks countries on a scale from 0 to 1 based on three dimensions: Health (Life expectancy at birth), Education (Mean and expected years of schooling), and Standard of Living (GNI per capita adjusted for purchasing power parity). By looking at these factors, economists can determine if economic growth is actually translating into a better quality of life. For example, a nation might use its oil wealth (high GDP) to build world-class hospitals and schools, which would result in a high HDI score.
Consider two nations: - Country X: GDP per capita of 15,000; Life Expectancy of 80 years; Literacy rate of 98%.
Even though Country X is 'richer' in raw dollar terms, Country Y would likely have a higher HDI score because it has successfully converted its resources into superior health and education outcomes.
Quick Check
What are the three core dimensions measured by the Human Development Index?
Answer
Health (Life Expectancy), Education (Schooling years), and Standard of Living (GNI per capita).
Economic development is often hindered by structural barriers. Less Economically Developed Countries (LEDCs) often face the vicious cycle of poverty: low income leads to low savings, which leads to low investment, resulting in low productivity. To break this, nations must invest in Infrastructure (transport, power, and digital networks) to lower business costs, and Human Capital (education and healthcare) to increase labor productivity. In contrast, More Economically Developed Countries (MEDCs) face different challenges, such as aging populations and transitioning from manufacturing to high-tech service economies. For LEDCs, the focus is often on extensive growth (adding more resources), while MEDCs focus on intensive growth (innovation and efficiency).
An LEDC invests $1 billion into a new national rail network. 1. Immediate Impact: Direct employment for construction workers. 2. Secondary Impact: Farmers can now transport crops to distant cities without them rotting, increasing their income. 3. Long-term Impact: The Long-Run Aggregate Supply (LRAS) curve shifts to the right as the economy's productive capacity increases. 4. Result: This investment reduces 'frictional costs' in the economy, allowing for sustainable GDP growth and improved HDI through better access to markets.
Which of the following is a primary limitation of using GDP per capita as the sole measure of development?
A country has high literacy rates and long life expectancy but relatively low income. How would this affect its HDI ranking?
Investing in 'Human Capital' refers specifically to building physical structures like factories and roads.
Review Tomorrow
In 24 hours, try to list the three components of HDI and explain why a country might have a high GDP but a low HDI.
Practice Activity
Research two countries: Norway and Qatar. Compare their GDP per capita and their HDI rankings to see how resource wealth impacts human development differently.