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IGCSE Economics MEASURING ECONOMIC DEVELOPMENT AND THE STANDARD OF LIVING The standard of living in a country is traditionally measured by real national income per capita. This is found that dividing real national income (GDP or GNP) by the total population. When categorising different countries we often make the following distinctions: High income countries Incomes above 9,500$ Middle Income countries: Between 750-9500 Low Income countries: Below 750 (all figures GNP per capita 2002 UN HDR) However real GDP per capita does have some other limitations when assessing the standard of living, such as: Differences in living costs between countries Adjustments can also be made for variations in price levels and the average cost of living between countries. Incomes and earnings may be very unequally distributed among the population and rising national income can still be accompanied by rising relative poverty. (but a decline in absolute poverty) Economic growth and externalities Rising national output might have been accompanied by an increase in pollution and other negative externalities which have a negative effect on economic welfare. “If a truckload of toxic chemicals spills somewhere, the money spent cleaning it up is added to the GDP. “If a forest is cut down, or farmland is turned into a car-park, GDP tells us that more money flows around the economy and we mistakenly think this is progress” •Michael Carley and Philippe Spapens (Friends of the Earth, 1997). So we actually need to reassess economic growth, and consider that if it is at the cost of the environment, or possibly at the cost of future growth (many resources are non renewable) then economic growth may not necessarily be a positive thing Leisure and working hours Rising national output might have been achieved at the expense of leisure time if workers are working longer hours The black economy and non-monetised sectors GDP figures might understate the true living standards because of the existence and growth of the black economy. Also there is no guarantee that each country measures national output and incomes with the same degree of accuracy. Alternative indicators when measuring living standards To come to a general judgement on living standards within an economy we can use a range of alternative indicators These could include: Ownership of consumer durables such as televisions, dish washers, home computers Estimates of pollution levels Home ownership levels and other indicators of household wealth SOCIAL WELFARE STATISTICS TO MEASURE THE QUALITY OF LIFE the number of patients per doctor - a measure of health provision in a country hospital waiting lists for important operations the number of children per thousand of the population who die each year (infant mortality rates) the average food intake per person (measured by average calorific intake) the proportion of the population that can read or write - literacy rates average educational attainment at different age levels crime rates divorce rates These statistics should indicate what proportion of the population is enjoying a minimum standard of living although perceptions of what is needed for a basic quality of life vary widely. Ultimately we should compare these with broader measures which attempt to look at Economic Development, Sustainable Economic Development etc. What is Economic Development and how is it measured? Dudley Seers' (1969) definition of development is widely accepted. Development occurs with: the reduction and elimination of poverty, inequality and unemployment within a growing economy. It is usually measured by the UN HDI index How is this measured? What different categories of countries are there, according to the UN HDI report (see server for latest report) What is Sustainable Development "Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs." 1992 UN Rio Declaration “ensuring a better quality of life for everyone, now and for generations to come”.