Measuring Social and Economic

Development

Beyond the GDP

 Questions Addressed in This Presentation

• What are economic indicators?

• Why are economic indicators important?
• What are the most common economic indicators?
• What does GDP, the most common economic indicator,
reveal and conceal about the health of the economy?
• What are some of the alternative indicators and indices that
have been developed to measure social and economic
well-being?
What is an indicator

Dictionary Definition: “something observed or calculated that is used

to show the presence or state of a condition or trend.”

Examples of common indicators: thermometers (measure

temperature); scales (measure weight); stethoscopes (measure
heartbeat); rulers (measures distance); speedometers (measure
speed).
What about economic indicators?

• Economic Indicators are statistical

measures which reflect the overall health
of the economy.
Why Are Economic Indicators Important?

● Economic indicators are important because

they suggest to investors, politicians, citizens,
etc., how well the economy is doing at a given
point in time.
● Based on this knowledge, important investing
and public policy decisions are made, which
affect all of us as stockholders, consumers,
citizens, etc.
What Are the Most Common Economic Indicators?

● Gross Domestic Product (GDP)

● Stock market averages (e.g., DIJA, NASDAQ, S&P 500, etc.)
● Unemployment rate
● Inflation rate
● Can you think of other common economic indicators?
Common Economic Indicators

They are hundreds if not thousands of economic indicators, but the two
most commonly reported in the United States are:

1) The Gross Domestic Product (GDP), which is reported on a quarterly

basis (i.e., every three months).
2) The various stock market averages (e.g., the Dow Jones Industrial
Average (DIJA), (e.g., the Dow Jones Industrial Average (DIJA), the
NASDAQ Composite Index, and the Standard & Poor’s (S & P) 500),
which measure stock market activity on a daily basis (Monday
through Friday).
Let’s Take A Closer Look at GDP!
• Definition: GDP is the market value of all the goods and
services produced by a country during the course of a year.
• Formula: GDP = consumption + investment + government
spending + (exports - imports)
• Strength(s): GDP is good at measuring the amount of
market-recognized economic activity that takes place in a
given country.
The World Bank’s GDP Rankings (2006)
U.S. Millions of Dollars
The U.S.
accounts for
1 United States (13,244,550) 11 Russia (979,048) approximate
2 Japan (4,367,459) 12 India (886,867) ly 1/4th
3 Germany (2,897,032) 13 of the Gross
South Korea (888,267)
4 China (2,630,113) 14 Mexico (840,012) World
5 United Kingdom (2,373,685) 15 Australia (754,816) Product
6 France (2,231,631) 16 Netherlands (663,119)(GWP)!!!
7 Italy (1,852,585) 17 Turkey (392,590)
8 Canada (1,269,096) 18 Belgium (393,590)
9 Spain (1,225,750) 19 Sweden (385,293)
10 Brazil (1,067,706) 20 Switzerland (377,240)

GWP = $48,244,879,000,000
 The IMF’s GDP Per Capita
Rankings (2006)
Purchasing Power Parity (PPP)
1 Luxembourg ($80,471) 11 United Kingdom ($35,051)
2 Ireland ($44,087) 12 Finland ($34,819)
3 Norway ($43,574) 13 Belgium ($34,478)
4 United States ($43,444) 14 Sweden ($34,409)
5 Iceland ($40,277) 15 Qatar ($33,049)
6 Switzerland ($37,369) 16 Australia ($32,938)
7 Denmark ($36,549) 17 Singapore ($32,867)
8 Austria ($36,031) 18 Japan ($32,647)
9 Canada ($35,494) 19 Germany ($31,095)
10 Netherlands ($35,078) 20 Italy ($30,732)
 GDP Can Be Deceiving
• GDP does not take into account the
distribution of income or wealth.

• GDP does not account for the black market

nor does it recognize the non-monetary
economy (e.g., housework, volunteering,
etc.).

• GDP does not account for externalities like

crime, divorce, and natural disasters. In
fact, it treats them as economic gain.
 What’s Wrong with GDP As A Measure of Progress?
• In the words of one critic, GDP “works like a
calculating machine that adds but cannot subtract. It
treats everything that happens in the market as a gain
for humanity, while ignoring everything that happens
outside the realm of monetized exchange, regardless
of the importance to well-being.”
 What’s the Economy for, Anyway?
“Distinctions must be kept in
mind between
Simon Kuznets, the Nobel Prize-winning quantity
economist and and
creator of the GDP as a measurement tool,quality
warnedof
against treating
GDP as a gauge of progress. growth, between its costs and
return, and between the short
and
long run…Goals for more
growth
should specify more growth
of what and for what.”
 What’s the Economy for, Anyway?
• GDP growth may well be a means to economic
development, but it should NOT be considered an
end in itself!!!
• After all, some growth may bad for well-being (e.g.,
pollution, crime, war, etc.).
• That’s why it’s important to ask the question:
• What’s the Economy for, Anyway?
 The World Bank’s Income
Inequality Rankings (2006)
An imbalance between rich and poor is the oldest and most fatal ailment of all republics -- Plutarch

1 Azerbaijan (19) 11 Hungary (26.9)

2 Denmark (24.7)What’s the Economy
12 Ukraine (28.1)
for,
3 Japan (24.9) 13 Albania (28.2)
4 Sweden (24)
Anyway?14 Germany (28.3)
5 Czech Republic (25.4) 15 Slovenia (28.4)
6 Slovakia 25.8) 16 Rwanda (28.9)
7 Norway (25.8) 17 Croatia (29)
8 Bosnia and Herzegovina (26.2) 18 Austria (29.1)
9 Uzbekistan (26.8) 19 Bulgaria (29.2)
10 Finland (26.9) 20 Belarus (29.7)
 The United Nation’s Life Expectancy Rankings (2005)

1 Japan (82.2) 11 Norway (79.6)

2 Hong Kong (81.8) 12 France (79.6)
3 Iceland (80.9) 13 New Zealand (79.3)
4 Switzerland (80.7) 14 What’s the
Austria (79.2)
5 Australia (80.5) 15 Economy
Belgium (79.1)
6 Sweden (80.3) 16 Germany (78.9)
for,
7 Italy (80.2) 17 Singapore (78.9)
8 Canada (80.2) 18 Anyway?
Finland (78.7)
9 Israel (80) 19 Cyprus (78.7)
10 Spain (79.7) 20 Malta (78.76)
 The United Nation’s Infant Mortality Rankings (2006)

1 Iceland (2.9) 11 Belgium (4.2)

2 Singapore (3) 12 France (4.2)
3 JapanWhat’s
(3.2) the Economy
13 Spain for,
(4.2)
4 Sweden (3.2) 14 Germany (4.3)
Anyway?
5 Norway (3.3) 15 Denmark (4.4)
6 Hong Kong (3.7) 16 Austria (4.4)
7 Finland (3.7) 17 Australia (4.4)
8 Czech Republic (3.8) 18 Luxembourg 4.5)
9 Switzerland (4.1) 19 Netherlands (4.7)
10 South Korea (4.1) 20 Israel (4.7)
• In November of 2007, the European Commission, the
European Parliament, the Club of Rome, the World Wildlife
Foundation, and the Organization for Economic
Cooperation and Development put on a conference entitled
“Beyond GDP.”
• The conclusion that emerged from the conference was the following:
• “GDP, the best-recognized measure of economic performance in the
world, is often used as a generic indicator of progress. However, the
relationship between economic growth as measured by GDP and other
dimensions of societal progress is not straightforward. Effectively
measuring progress, wealth and well-being requires indices that are as
clear and appealing as GDP but more inclusive than GDP—ones that
incorporate social and environmental issues. This is especially
important given global challenges such as climate change, global
poverty, pressure on resources and their potential impact on societies.”
Human Development Index
How the UNDP Measures Human Development
The HDI consists of three equally weighted components:

(1) “A long and healthy life” (Health)

(2) “Knowledge” (Education)

(3) “A decent standard of living” (Wealth)

Each component of the HDI is measured in the following way:

● Health
○ Measured by life expectancy at birth.
● Education
○ Measured as a combination of adult literacy (with two-thirds weight) and
gross enrollment (with one-third weight).
● Wealth
○ Measured by GDP per capita.
●
GDP vs. GDP per Capita
1. United States (GDP: 21.41 trillion)
2. China (GDP: 15.54 trillion)
3. Japan (GDP: 5.36 trillion)
4. Germany (GDP: 4.42 trillion)
5. India (GDP: 3.16 trillion)
6. France (GDP: 3.06 trillion)
7. United Kingdom (GDP: 3.02
trillion)
8. Italy (GDP: 2.26 trillion)
9. Brazil (GDP: 2.26 trillion)
10. Canada (GDP: 1.91 trillion)
http://statisticstimes.com/economy/projected-world-gdp-capita
-ranking.php
Is the HDI Enough to Measure a Country’s Level of Development?

According to the UNDP, the answer is:

● “Not at all.”
● “The concept of human development is much broader than what can be
captured in the HDI, or any other composite indices…”
● “The HDI and the other composite indices can only offer a broad proxy on
some of the key the issues of human development…”
● “A fuller picture of a country's level of human development requires analysis
of other human development indicators and information.”
A Sampling of Other Development Indexes

•The Economist’s “Quality of Life” Index

•UNICEF’s “Child-Welfare” Index
•The “Happy Planet” Index
•The UNDP’s “Human Poverty Index”
•The UNDP’s “Gender Empowerment Measure”
•International Living’s “Quality of Life” Index
•The “Global Peace Index”
•Freedom House’s “Freedom Rankings”
Three Issues to Consider When Evaluating
Indexes Like the HDI
Validity
● What is the index supposed to measure?
● What indicators make up the index?
● Are these the best indicators for this index?
● How are the indicators calculated?
● Are there better ways to calculate these indicators?
● In short, how well does the index actually measure what it is supposed to be
measuring?
Reliability
● Who or what organization collected the data?
● How were the data collected?
● In short, if you or someone else were to try to replicate the index would you
end up with more or less the same results?
●
●
Parsimony
● The whole point of an index is to simplify the measurement of a
particular phenomenon.
● In short, does the index rely upon as few indicators as reasonably
possible without undermining its validity?