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Indicators of Economic Development

In this article we will learn about Net Economic Welfare (NEW), Real Per Capita Income, Physical Quality of Life Index (PQLI), Human Development Index (HDI) etc.

The process of enhancing an economy’s economic wellbeing is known as economic development. Economic growth can entail a stronger economy that allows for a wider range of social services to boost a country’s well-being. An underdeveloped economy, for example, will be centered mostly on agriculture with relatively minimal social services like education and healthcare. Economic growth entails a rise in real earnings, a longer life expectancy, a reduction in poverty, and more essential services.

  • Economic development refers to economic growth, which is accompanied by an improvement in the well-being of the people. 
  • To expand economic potential, economic development needs political stability, capital, and a combination of public and private initiatives.
  • It indicates a progressive change in socio-economic structure in the economy and focuses on both quantitative and qualitative growth of the economy. 
  • It measures all aspects like Wealth, Health, Education, etc.

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Key Pointers

  • Real per capita income is a measure of a country’s economic output. The overall economic production of a country is the same as the country’s revenue.
  • Absolute poverty levels, such as the percentage of the population earning less than the bare minimum to fulfil basic needs.
  • Malnutrition levels are high. Malnutrition levels are calculated as a percentage of the population having inadequate food.
  • Safe drinking water is available. Percentage of the population who have access to safe drinking water and sanitation.
  • The physical quality of life index grows in tandem with economic development.
  • The idea of net economic welfare is a larger indicator of economic welfare than the gross national product.

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Indicators of Economic Development

Net Economic Welfare (NEW)

  • It is a broader concept than Gross National Product (GNP) to measure economic welfare. 
  • It adjusts GNP by adding the value of beneficial non-market activities such as leisure and Subtracting’ bads’ from it such as pollution. 
  • NEW = GNP + Value of Housewives Services + Value of leisure – Expenditure on defence – Cost of Environment Degradation. 
  • It is a theoretical concept that highlights the limitations of GDP.

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Real Per Capita Income

  • Real GDP per capita is a Real GDP divided by the number of people. 
  • It is used to compare the standard of living between countries and expressed in terms of commonly used international currencies such as the Dollar, Euro etc.
  • Real GDP helps to ascertain the country’s development status. 
  • Real GDP is not a satisfactory measure of economic development because:
  • It is based on the value but does not consider its various sector composition (agriculture, secondary or tertiary Sector).
  • Real GDP does not consider the distribution of National income, i.e., the inequalities present in the society.
  • It is silent on the welfare dimension of economic development, namely reduction in poverty, political liberty, literacy etc. 
  • Real per capita income was used earlier because of the lack of any satisfactory quantitative indicator of economic development. 

Physical Quality of Life Index (PQLI)

  • It attempts to measure national well-being using social indicators. 
  • These indicators are: Life Expectancy at birth, Infant mortality rate and Literacy Rate. 
  • All three indicators are measured on a scale that ranges from 1 to 100, where 1 represents the worst performance, and 100 is the best performance. 
  • The average value of a three-component is PQLI. Economist Morris David Morris developed it.

Human Development Index (HDI)

  • This index is used to gauge a country’s general accomplishment in its social and financial aspects.
  • The Human Development Index (HDI) was introduced by the United Nations Development Programme (UNDP) in the World Human Development Report in 1990 to measure well-being. 
  • Economist Mahbub ul Haq developed HDI. 
  • A healthy and long life: Calculated by life expectancy. 
  • Access to Education: Measured by the adult literacy rate and enrolment ratio. 
  • A decent standard of living: Assessed by Gross National Income (GNI) per capita adjusted for the country’s price level. 
  • The HDI helps the United Nations determine which countries need assistance, specifically Least Developed Countries (LDC)

Gross Domestic Product (GDP)

The gross domestic product (GDP) is a lagging indicator. This is one of the first measures used to assess an economy’s health. GDP measurement can be difficult, however there are two primary approaches.

  • A rise in GDP indicates that businesses are profiting more.
  • It also implies that the citizens of that country will have a higher level of life.
  • When GDP falls, it means the opposite is true.

Global Positioning Index (GPI)

The GPI aims to provide a more accurate picture of a country’s well-being than GDP alone (gross domestic product). The GPI (Global Positioning Index) suggests that as economies expand in GDP, so does economic well being; nevertheless, there comes a point where GPI begins to rise more slowly and finally stagnates. In other words, increased GDP does not always imply economic progress since the costs of expansion outweigh the benefits. GPI uses GDP as a starting point, but it also considers environmental and social concerns like:

  • Pollution
  • Poverty rates
  • Crime rates
  • Cost of pollution abatement
  • Health standards
  • Inequality rates
  • Cost of commuting
  • Value of housework and parenting


Economic development indicators are important statistics regarding the economy that can help you understand where it’s going. These indications can assist investors in determining when to purchase and sell securities.