5 Main Indicators of Economic Development (Explained)

The most often used index of economic development is a substantial increase in real national income. However, in recent years some of the indicators of economic development have been added.

indicators of economic development
indicators of economic development

Indicators of Economic Development

The following are the main indicators of economic development:

1. National Income Index

Economic development takes place if real national income increases over time.

There are various reasons for using national income as an indicator of economic development is given under:

  1. The index helps us to concentrate on the performance of the economy.
  2. A rise in the national income of a country reveals an enlarged absolute size of the economy. It makes a country powerful internally and externally.
  3. The national income reveals the components like consumer goods and investment goods and their trends.

This indicator is not useful as it is used for comparing the performance of two economics with different population bases.

In such comparison per capita income would be the better measurement.

Related: 15 Major Role of Entrepreneur in Economic Development.

2. Per Capita Income Group

The national income indicator does not reflect the true picture of the development of the economy.

The per capita income index is prepared for the following reasons:

  1. It reveals the increase in the availability of goods and services per head.
  2. This index is very useful for developing countries because it reveals the population growth. If the per capita income is very low and the population is rising rapidly, a rise in per capita income as a measure of removal of poverty can be used.
  3. The index can be used for comparing the standard of living in different countries.

But this measure (index of economic development) has been criticized on the following grounds:

  1. The per capita income index does not take into consideration the distribution aspect.
  2. The indicator measures the number of goods and services but it is not the qualitative aspects of life, education and health facilities, etc. Which should not be promoted by economic development.

3. Physical Quality of life Index

In many developing countries despite economic development, no improvement has taken place in the quality of life.

The physical quality of life index into consideration the non-income elements of life.

This index consists of life expectancy, infant mortality, and literacy.

Related: 19 Factors Influencing Entrepreneurship Development.

The country has a high life expectancy, the lowest infant mortality and the highest literacy is considered to be superior to other countries.

This index of development is superior to the per capita income index because it reveals the end result of the use of National Income in the country concerned.

But the index is not suitable for those countries with a vast and rapidly rising population as these countries have the very little amount for the improvement of the physical quantity of life.

4. Basic Needs Approach

According to this indicator of economic development, the development of an economy is judged in terms of the extent to which the basic needs of the masses are satisfied.

The components of basic needs are food, pure drinking water, sanitation, health, and education, etc.

The index of development is useful especially from the common man’s point of view as he is more concerned with his basic needs rather than the total production in the country.

Related: 13 Biggest Challenges Business Leaders Face Today (Updated).

5. Human Development Index

This index of economic development has been prepared by the United Nations called the Human Development Index (HDI).

It consists of per capita income, educational attainment, and life expectancy.

The first is an economic indicator while the last two are non-economic indicators.

The index does not measure the absolute level of human development. It ranks countries in relation to one another.

The index is superior to other indicators of economic growth as it takes into consideration both income and non-income factors.

Thus, now you know the key indicators of economic development.

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