Analyze the Development Economics – Understanding economic development Essay – Flashcards

Economic growth refers to increases in output and incomes over time, often measured on a per capita basis. Economic development refers to a process that leads to improved standards of living for a population as a whole.

Economists began to understand that since economic growth, where it did occur, did not always work to eliminate widespread poverty and improve standards of living, what was needed was an approach that would directly deal with the problems of developing countries, and specifically the problem of persisting poverty. In a new view, less developed countries should combine the older focus on economic growth with new ideas on redistribution of income and wealth, and improved access of the poor to basic goods and services.

Economic development can be defined as a process where increases in real per capita output and incomes are accompanied by improvements in standards of living of the population and reductions in poverty, increased access to goods and services that satisfy basic needs (including food, shelter, health care, education, sanitation and others), increasing employment opportunities and reduction of unemployment, and reductions of serious inequalities in incomes and wealth.

1. Life sustenance refers to access to basic services (merit goods) such as education and health care services, as well as satisfaction of basic needs like food, clothing and shelter. 2. Self-esteem involves the feeling of self-respect; development is desirable because it provides individuals with dignity, honour and independence. Self-esteem is related to the absence of exploitation and dominance associated with poverty and dependence. 3. Freedom involves freedom from want, ignorance and squalor; it is freedom to make choices that are not available to people who are subjected to conditions of poverty.

Human development is a process of expanding human freedoms: the freedom to satisfy hunger; to be adequately fed; to be free of preventable illnesses; to have adequate clothing and shelter; to have access to clean water and sanitation; to be able to read, write and receive an appropriate education; to be knowledgeable; to be able to find work; to enjoy legal protection; to participate in social and political life; and, in general, to have the freedom to develop one's potential and lead a full and productive life.

1. Increases in quantities of physical capital 2. Increases in quantities of human capital 3. The development and use of new technologies that are appropriate to the conditions of the economically less developed countries 4. Institutional changes

Physical capital is an important source of growth because it makes possible increases in labour productivity (output per unit of labour input). It is especially important in developing countries, which tend to have relatively limited amounts of capital in relation to their large supplies of labour. This means that labour productivity tends to be low relative to what we find in economically more developed countries.

Human capital is also a very important source of growth because of its contribution to increasing the productivity of labour. In developing countries it acquires a special significance because there are large portions of populations in many countries that have relatively low levels of educational attainment, and also low levels of health. This means that there is a huge scope for increasing the amount of human capital, and this can make a very significant difference to productivity, employment opportunities, output growth and development prospects.

New technology contributes to improving the quality of physical capital. While new technology in general contributes to economic growth, in developing countries it is especially important to consider the appropriateness of new technologies to local conditions. There are many technologies developed and used in economically advanced countries that are not well- suited to the conditions of less developed ones. More developed and less developed often differ from each other not only with respect to economic factors, and also climatic, ecological and geographical conditions, and this sometimes means that countries require technologies that are well-suited to their particular local conditions.

In many economically less developed countries, there is a need to develop institutions relating to property rights (laws and regulations that define rights to ownership, use and transfer of property); a well-functioning legal system that provides effective enforcement of laws, contracts and mechanisms for settling conflicts; an efficient, fair and transparent tax system; banking and credit institutions that provide effective links between savers and investors, and broad access by the population (including the poor) to credit; institutions that protect against corruption; and more. Many developing countries are making great efforts to build strong market economies, yet a market system cannot function well without well-developed institutions such as these.

Economic growth can occur without economic development. Can economic development occur without economic growth? Some economic development is possible in the absence of rapid growth, if appropriate policies are followed to provide access to basic social services for the poor. The production possibilities model shows how this can occur. An economy produces some combination of industrial goods (measured on the vertical axis) and merit goods (measured on the horizontal axis). An economy that does not experience growth can still achieve some economic development, by reallocating its resources such that it cuts back on industrial production and increases merit goods production. Over long periods of time, the possibilities for improving the population's well-being by moving along the same PPC will be exhausted, and further improvements will depend on outward PPC shifts, such as from PPC1 to PPC2. Such outward shifts, representing economic growth as an increase in production possibilities, are therefore necessary for economic development to be maintained. Growing output per capita translates into higher incomes and an improved ability to provide the goods and services needed by the population. However, economic growth does not guarantee that economic development will occur.

The World Bank divides countries into four groups according to their level of GNI (GNP) per capita. 1. Economically less developed countries: - low income, - lower middle income - upper middle income 2, Economically more developed countries: high income The first three groups (low, lower middle and upper middle income) comprise the economically less developed countries, while the high income economies are the economically more developed countries. However, it must be stressed that classifying countries by level of GNI (or any other output or income measure) does not accurately represent their level of development. Further, it is important to note that classifying countries as developing or developed based on per capita GNI levels hides the lack of uniformity within countries.

1. Low levels of GDP per capita 2. High levels of poverty 3. Relatively large agricultural sectors 4. Large urban informal sectors 5. High birth rates and population growth 6. Low levels of health and education 7. Low levels of productivity 8. Dual economies

By definition, according to the World Bank, economically less developed countries are those with GNI per capita levels below a certain level. However, within the three groups of economically less developed countries, there are huge differences in income levels.

All countries in the world have poverty. However, almost all of extreme poverty (living on less than $1.25 per day) and most of moderate poverty (living on less than $2.00 per day) are concentrated in less developed countries. Yet there are huge differences between countries in amounts of poverty, both in terms of absolute numbers and in terms of the proportion of a country's population that is poor.

Economically less developed economies have large agricultural sectors (and large primary sectors generally). Relatively low income elasticities of demand for agricultural products play a role in reducing the relative size of the agriculture sector as countries grow and develop, while agriculture increasingly becomes replaced by industry and services. The developed countries of today were in the same situation decades ago. Listing several countries in order of declining GNI per capita (in US$ PPP (purchasing power parity), and shows the contribution of agriculture to GDP. The lower the level of per capita GNI, the larger the contribution of the agricultural sector.

A formal sector refers to the part of an economy that is registered and legally regulated; an informal sector by definition lies outside the formal economy, and refers to economic activities that are unregistered and legally unregulated. Informal sectors exist everywhere in the world, but are much more important in developing countries. The term urban informal sector refers to the unregistered urban sector in developing countries, and the vast range of activities of a large and growing share of the urban population as a way of survival. This range of activities includes everything from barbers, cobblers, carpenters, tricycle and pedicab drivers, garbage collectors and small shop owners and street vendors (selling an enormous variety of foods and snacks as well as clothing, detergents, soaps and almost every conceivable household item), to working in restaurants, hotels and sweatshops (manufacturing enterprises where workers are paid very low wages and work long hours under unhealthy conditions), in construction, in domestic household work, or in offices as temporary help.

The large size and growth of the urban informal sector is due to several factors. One has to do with policy failures of the 1950s, 1960s and beyond, that focused on industrialisation and completely neglected the agricultural sector. If rural incomes and rural employment possibilities had increased, the massive departure of the rural poor towards urban areas might have been avoided. Secondly, it is related to rapid population growth (see below). Thirdly, cities still attract people from rural areas who are poor, landless and destitute, looking for work that will enable them to make a better living or simply to survive. However, employment opportunities in the urban formal sector are limited, and the formal sector demands skills that rural migrants lack.

The informal sector is responsible for a large and rising share of urban employment. In developing countries, one-half to three-quarters of total non- agricultural employment is in the informal sector. Moreover, employment in the informal sector is growing more rapidly than employment in the formal sector, especially during times of economic recession. As firms in the formal sector cut back on employment, all those who lose their jobs are forced to seek work in the informal sector. The informal sector poses many problems: no worker protection; workers are vulnerable to exploitation; environmental dangers and health hazards in slums with no basic services like water sanitation and sewerage; no access to credit for workers; limited possibilities for education and training, and many more.

It is also seen as an opportunity for increased employment opportunities in countries that cannot create enough formal sector jobs. To take advantage of these opportunities, governments must adopt policies to assist the informal sector, such as access to credit to allow businesses to be set up or expanded; training and education for activities important in the informal sector; provision of necessary infrastructure (water, sanitation, etc.); and improved access to health services and education. Such measures would promote the creation of new jobs and improved standards of living for informal sector workers.

1. The problem of high birth rates 2. The challenges of population growth

Developing countries usually have higher birth rates, and this contributes to higher population growth rates. In 2010, nearly 85% of the world's population was living in developing countries, and due to higher birth rates in these countries the share of their population is expected to increase. In developed countries nearly half of the population is dependent on the working population. A high dependency ratio means that the income of a family must be stretched to cover the needs of more family members. When the family income is low to begin with, as in most households in many developing countries, the income per person that results is often barely enough to cover basic needs.

Increased population places an enormous burden on the developing world in terms of abilities to absorb the growing numbers of people by creating employment opportunities, avoiding pressures on the environment, improving quality of health services, education, infrastructure and other services, and improving standards of living of the poor. While there is no birth rate or population growth rate that is considered to be the 'right' one for any country, it is believed that high birth and population growth rates may slow down economic growth and development because: 1. rapid population growth requires an even more rapid output and income growth in order for per capita income and output to increase 2. high population growth entails a high dependency burden, yet the more the dependent members of a family, the less income there is per person; very often a large family size pushes the family into poverty 3. there are negative consequences for mothers whose health is adversely affected by frequent and numerous childbirths 4. rapid population growth contributes to environmental degradation, which is borne more heavily by the poor

Developing countries tend to have low levels of health as well as education.

Low levels of health and education, as well as a scarcity of capital goods and appropriate technology, translate into low levels of productivity of labour in developing countries, or lower levels of output produced per hour of work. Improvements in labour productivity are a key source of economic growth, and this in turn is made possible by increases in the quantities of physical capital, improvements in the quality of capital through the increased use of appropriate technology, and increases in human capital (investments in education and health).

A dual economy (or dualism) arises when there are two different and opposing sets of circumstances that exist simultaneously. Examples include: • wealthy, highly educated people and poor, illiterate people • a formal and informal urban sector • a high-productivity industrial sector and a low- productivity traditional sector • a low-productivity agricultural sector and a high-productivity, urban industrial sector • a 'modern' commercial agricultural sector and a 'traditional' subsistence agricultural sector. Various kinds of dualism often characterise less developed countries. One of the challenges of economic development is to eliminate every aspect of dualism and develop less polarised and more uniform economic and social structures.

Poverty is caused by many factors, but one of the key causes of poverty in some situations can be poverty itself. When conditions of poverty feed on themselves and create more poverty, they give rise to the poverty cycle, also known as the poverty trap.

A poverty cycle (poverty trap) arises when low incomes result in low (or zero) savings, permitting only low (or zero) investments in physical, human and natural capital, and therefore low productivity of labour and of land. This gives rise to low, if any, growth in income (sometimes growth may be negative), and hence low incomes once again. A poverty cycle may occur in a family, a community, a part of an economy, or in an economy as a whole. An important feature of the poverty cycle is that poverty is transmitted from generation to generation.

There are a number of ways that poverty is transmitted across generations: 1. People who earn very low incomes usually have very low productivity because of their low skill levels or poor levels of health, as well as low levels of physical capital (such as agricultural equipment, irrigation, clean water supplies, sanitation). 2. They often cannot afford to send their children to school, either because the children work to supplement the family income, or because the parents cannot afford transport costs to school or the school fees. 3. They also cannot afford the necessary medical care for themselves or for their children, and sometimes cannot provide enough food for the family, leading to malnourished and physically disadvantaged children. 4. They often have large families, whether because they see children as a source of additional income (if the children work), or as a source of security in old age, or because they do not have access to family planning services. Large families increase the level of poverty, as the income of the parents must be stretched to cover the needs of more people.

In all these cases, the children are penalised for life, as they grow into adulthood lacking skills, often unable to realise their full health potential, and condemned to low productivity and low incomes. Moreover, poor people who are unable to buy or invest in modern agricultural inputs (fertilisers, irrigation facilities, improved seeds) because their incomes are too low are forced to overuse their land, thus depleting the soil of essential nutrients, with the result that their children will be forced to work on soils of poorer quality that have lower yields (lower output per unit of land). Once again, poverty is transmitted to the next generation. Similar conclusions hold for any aspect of environmental degradation caused by the survival needs of poor people. Since poor people cannot make investments because they do not have enough savings, it would help if they could borrow to finance the necessary investments in human, physical and natural capital, all of which would raise their productivity and increase their incomes. However, banks do not usually lend to poor people, who lack the necessary collateral. Therefore, the poor remain without access to the credit that could help raise them out of their poverty, and poverty is carried into the next generation.

Poor people and poor communities trapped in a poverty cycle cannot emerge from this on their own. They require the intervention of the government, which must undertake investments in human capital (health services, education, nutrition), physical capital in the form of infrastructure (sanitation, water supplies, roads, power supplies and irrigation), and natural capital (conservation and regulation of the environment to preserve environmental quality). Further, the government must take the necessary steps to ensure that poor people can participate in private sector activities, such as ensuring access to credit so that the poor can borrow to finance private investments. However, the public investments needed to break out of the poverty trap depend on the availability of government revenues. What if the country is so poor and overall savings so low that the government does not have the revenues required to undertake the necessary investments? When an entire nation is trapped in a poverty cycle, it cannot make the necessary public investments on its own. Escape from the poverty cycle is then only possible if resources are provided through foreign aid.

1. Resource endowments 2. Climate 3. History (colonial or otherwise) 4. Political systems 5. Degree of political stability.

1. Natural resource endowments 2. Human and capital resource endowments

Countries differ vastly with respect to their natural resource endowments (the resources they posses through nature). Some have marketable natural resources (oil, natural gas, minerals, etc.), while others have few or none. Some countries have large coastlines, while others have small ones or are landlocked. Some are mountainous, others are dominated by deserts, while others have fertile plains.

Countries differ from each other also with respect to their human and capital resources. In general, economically less developed countries tend to have more labour resources relative to capital, while more developed countries tend to have more capital rather than labour. These factors affect their relative prices; as labour is relatively abundant and capital is scarce, labour has a relatively lower price than capital in less developed countries. In more developed countries the opposite holds. In addition, countries differ with respect to the quality of human and capital resources, with less developed countries generally having lower levels of human capital, as well as less advanced technologies. All resource endowments, natural as well as human and capital, often play an important role in determining patterns of specialisation of production and the paths taken by countries in their economic growth and development. Differences in resource endowments form the basis of the theory of comparative advantage. An important difference, however, is that while natural resources are given by nature and do not usually change (except through ecological destruction), human and capital resources can and do change. In fact, key objectives of developing countries include improving the quality of labour resources (human capital) and the quantity and quality of physical capital through technological improvements.

Countries differ in their climate, which is also important in determining the nature of economic activities. Climate differences are a factor determining types and methods of agricultural production, animal husbandry, and even labour productivity. For example, heat and humidity may reduce labour productivity, while tropical and subtropical climates are known to reduce soil quality and negatively affect the health of both humans and animals. On the other hand, it should be noted that while there are obviously climate differences from country to country, on the whole most developed countries have temperate climates, while almost all developing countries have tropical and subtropical climates. This is considered to be a factor that has contributed to the different development patterns of developed and developing countries.

Many developing countries are former colonies of European powers. Some acquired their independence much later than others. Their experiences as colonies have influenced the development of their institutions. According to a well-known economic development textbook, 'The systems the colonisers put in place to extract resources while maintaining their own dominance, rather than to encourage economic development, in all too many cases still remain in place and have proved tragically difficult to reform.

Countries differ in the type of political system they have. A political system is a set of legal institutions that define how a government is structured and functions. There is a very broad variety in types of political systems, including monarchies, democracies, republics, oligarchies, and others, with varying forms of legal, constitutional and organisational arrangements. Also important is a country's political structure, involving the relationships between various groups within a society and the degree of political power they control. Elite groups within a society, whether these are landowners, industrialists or bankers, may influence the kinds of development policies that can be pursued, and these differ broadly among developing countries. In general, it is difficult to carry out a development programme without the support of political elites.

Political stability refers to stable government and its ability to withstand forcible removal from power. Countries differ enormously with respect to their degree of political stability. The presence of political stability is associated with higher rates of growth and improved development outcomes for the following reasons. 1. A stable government is necessary for effective government decision-making and for implementing economic and other policies that have continuity over some years, creating a stable economic environment. 2. Political instability creates an environment of uncertainty related to economic policy, property rights, possibility of expropriation, and taxation rules, all of which make both domestic and foreign investments far riskier, thereby reducing investments. 3. Political instability often leads to an outflow of financial capital as people seek safety for their financial assets, depriving the country of its scarce financial resources and contributing to balance of payments deficits. 4. Political instability increases vulnerability to hunger and famine, as it deprives governments of the capacity to provide relief, while resources are diverted to military or police activities.

There is a close relationship between political instability and levels of income: in general, low levels of income per capita are associated with higher levels of political instability. The causality (cause and effect) runs in both directions: political instability is a cause of low incomes because it gives rise to low economic growth for the reasons listed above; and low incomes are a cause of political instability because they lead to widespread dissatisfaction and frustration with economic conditions for which the government is held responsible, and therefore to politically destabilising activities.

Economic development, being a complex and multidimensional process, is not accurately reflected in any single measure. Economists therefore consider individual economic attributes or characteristics that distinguish countries according to their level of economic or human development. Individual attributes and characteristics are measured by use of indicators. An indicator is a measurable variable that indicates the state or level of something being measured. For example, GDP per capita is an indicator of the level of output per person. The number of years of life expectancy is an indicator of a population's state of health. The proportion of a population that can read and write (literacy) is an indicator of the level of education. All these are attributes of economic or human development.

Indicators are extremely useful for: 1. monitoring how a country changes (develops) over time with respect to the attribute measured by the indicator 2. making comparisons between countries with respect to the attribute 3. assessing how well a country is performing with respect to particular goals or targets of development (for example, an increase in the literacy rate indicates an improvement in educational level) 4. devising appropriate policy measures to deal with specific problems.

A composite indicator is a summary measure of several dimensions or goals of development.

1. Each indicator measures only one aspect of development. Since development is a multidimensional process, it is often necessary to combine the use of many indicators to obtain an overall picture of a country's level of development. 2. Indicators are based on statistical information, and this poses a distinct set of problems: - Some countries have a limited capacity for collection of statistical data. - Data are not fully available in many countries. - Definitions of variables and methods used by statistical services vary from country to country, despite efforts by international organisations to achieve standardisation. These statistical problems mean that the indicators cannot always be precise and should be used as rough guides of trends over time or differences between countries, rather than as very precise measures.

For some countries the difference in the sizes of GDP per capita and GNI per capita is not very large. This happens when inflows of income into a country are roughly balanced by income outflows, or if most of the production in a country is by factors of production owned by its residents. Otherwise, the difference can be quite significant. The factors of production that mainly account for differences are labour and capital. When a country has many workers from other countries (labour) who send part of their wages back home, or foreign corporations (capital) that send their profits back home, this works to decrease GNI relative to GDP, because the wages and profits of the foreigners are excluded from the country's GNI though they are included in GDP. In such cases, domestic incomes received on average (GNI per capita) are lower than the value of output produced in the country (GDP per capita). On the other hand, inflows of money into a country from workers abroad or from corporations located abroad increase the size of GNI relative to GDP, making domestic incomes on average (GNI per capita) higher than the value of output produced in the country (GDP per capita). It follows therefore that: GNI per capita is a better indicator of the standards of living of a country, because it represents income per person received by the residents. GDP per capita is a better indicator of the level of output per person produced in a country.

In more developed countries, the inflows and outflows tend to cancel out to some extent (though not entirely in many cases). In less developed countries, we often see greater differences between the two measures. Usually, these are due to multinational corporations sending their profits back home ('profit repatriation'), thus making GNI smaller than GDP; or they are due to workers living abroad who send some of their income back home ('worker remittances'), thus making GNI larger than GDP. 1. In most high-income countries, the difference between the two measures is roughly plus or minus 10%. 2. In middle and low income countries, the differences between GNI and GDP are often relatively small, as in high-income countries

Purchasing power parity literally means 'buying power equivalence'. It is defined as the amount of a country's currency that is needed to buy the same quantity of local goods and services that can by bought with US$1 in the United States. A PPP exchange rate is an exchange rate between currencies that makes their buying power equal to the buying power of US$1, and therefore equal to each other.

However, if we wanted to compare GDP per capita (or GNI per capita) across countries, the information in this table would give us misleading results. The reason is that different countries have different price levels. If we do not take price level differences into account, we will not get an accurate picture of differences across countries in the value of output they produce. We therefore need a method of currency conversions accounting for different price levels, and therefore different purchasing powers across countries. Such a method is provided by special exchange rates called purchasing power parities (PPPs). Therefore, comparisons of GDP per capita (or GNI per capita) across countries require measures of per capita output or income based on conversions of national currencies into US$ by use of purchasing power parities (PPPs), to eliminate the influence of price differences on the value of output or income.

There is an interesting pattern: for the poorer countries, GDP figures based on PPPs are higher than those based on exchange rates; for the wealthier countries at the bottom of the table, GDP figures based on PPPs are lower than those based on exchange rates. The reason for this is that prices of goods and services on average tend to be lower in countries with low per capita GDPs, and higher in countries with high per capita GDPs. To understand what this means, consider two countries that produce an identical quantity of output, but that have different prices for this output. When the value of output is calculated in terms of US$ using exchange rates, it appears lower in the lower price country than in the higher price country, even though the quantity of output is the same. Comparing Ireland with Burundi, we see that Ireland's GDP per capita based on exchange rates is 516 times greater than Burundi's; based on purchasing power parities, it is 129 times greater than Burundi's. The second comparison is a much better indicator of the differences in output produced in Burundi and Ireland.

Health indicators measure characteristics of populations related to health. Three commonly used health indicators are life expectancy at birth, infant mortality and maternal mortality. Life expectancy at birth refers to the number of years one can expect to live, calculated as the average number of years of life in a population. It is one of the most commonly used indicators of development. Infant mortality refers to the number of infant deaths from the time of birth until the age of one, per 1000 live births. Maternal mortality refers to the number of women who die per year as a result of pregnancy-related causes, per 100,000 live births. Higher levels of GDP per capita (US$ PPP) tend to be linked with higher life expectancies, and lower infant and maternal mortalities. This is what we would expect, since higher income countries have more resources to provide the necessary services and appropriate living conditions for their populations. However, there are very wide departures from this broad pattern, suggesting that income per capita is not the only factor that determines health outcomes in a country.

Among more developed countries, the United States stands out for its lower life expectancy and higher infant and maternal mortalities compared to other more developed countries. Among less developed countries, we find some very surprising health outcomes. For example, Sri Lanka, with GNI per capita less than one-third of Russia's, surpasses Russia in life expectancy by six years. Moldova and Sri Lanka stand out for their low infant mortality compared to many countries with much higher incomes per capita. Moldova, especially, is striking for its very low maternal mortality.

The answer is that for any given level of income per capita, life expectancy is higher, and infant mortality and maternal mortality are lower, when there are: 1. Adequate public health services (such as immunisation, provision of health information and education), and prevention of communicable diseases (such as malaria, tuberculosis, HIV/AIDS) 2. Adequate health care services with broad access by the entire population 3. A healthy environment, including safe drinking water, sewerage and sanitation, and low levels of pollution 4. An adequate diet and avoidance of malnutrition 5. A high level of education of the entire population 6. Absence of serious income inequalities and poverty.

1. Health outcomes in the United States may be due to inequalities in income and education resulting in pockets of poverty, connected to poor housing and living conditions, poor nutrition and health, and insufficient access to medical care (due to lack of medical coverage). Such factors result in worse health outcomes among low-income groups, which lowers the average over the entire American population. 2. Health outcomes in countries like Moldova and Sri Lanka (and many others) are due to government policies placing a high priority on public health and the provision of health care services for low-income groups, as well as on education. 3. Health outcomes in sub-Saharan African countries are due to a very large extent to the disastrous impacts of HIV/AIDS, as well as problems with sanitation, safe drinking water, lack of education and information, poor public health and health care services, and premature deaths due to diseases that are both preventable and treatable (such as malaria).

1. GNI per capita (or any other income or output measure) is an insufficient indicator of health outcomes. 2. Limited resources, due to low GNI per capita, are not always the most important cause of poor health outcomes. Most (if not all) countries, both more and less developed, can do more with their available resources to meet economic development goals. They can reallocate resources towards provision of more social services and merit goods, improving the institutions through which these services are delivered, as well as reducing poverty. 3. Some development issues apply not only to developing, but to developed countries as well, because of the presence of poverty in wealthy societies that make people on low incomes subject to similar deprivations as poor people in developing economies.

Education indicators measure levels of educational attainment. The first education indicator is the adult literacy rate, which measures the percentage of people aged 15 or more in the population who can read and write. The second indicator, primary school enrolment, measures the percentage of school-age children who are enrolled in primary school (elementary school). The third indicator, secondary school enrolment, measures the percentage of children enrolled in secondary school

As income per capita increases, all three indicators tend to increase. However, as in the case of health indicators, there are many exceptions, involving countries with relatively low incomes that have high levels of educational attainment, especially in adult literacy and primary school enrolment. 1. Former communist countries have very good education outcomes because historically, communist governments placed a high priority on education. 2. Some governments have made a special effort to provide education services to their populations. We therefore see countries with very good education outcomes compared to countries with comparable or higher incomes per capita. The case of secondary enrolment is different. Countries that are economically less developed must use their scarce resources to provide primary education to achieve universal literacy, which is an important precondition for economic growth and development. Secondary education is less of a priority for low-income countries. Therefore, it is not surprising that countries with very good achievements in primary enrolment lag behind in secondary enrolment.

Countries can achieve universal literacy and universal primary education even if they have relatively low per capita incomes, provided their governments allocate enough resources to education services, and ensure that all children have access to these.

Composite indicators are summary measures of more than one dimension of development. By including more than one dimension, composite indicators are more accurate measures of development. Composite indicators attempt to measure aspects of human development. They are usually expressed as an 'index', or a set of numbers showing the relative position of a variable in a list. This will become clearer later in this set!

The Human Development Index (HDI), is a summary measure of human development. The HDI measures average achievement in three dimensions: a long and healthy life, access to knowledge and a decent standard of living. As of 2010, these three dimensions are measured by the following indicators: • a long and healthy life is measured by life expectancy at birth • access to knowledge is measured by mean years of schooling and expected years of schooling • a decent standard of living is measured by GNI per capita (US$ PPP). Each dimension is expressed as a value between 0 and 1, with 0 being the lowest possible value for the dimension, and 1 being the highest. The HDI is very useful as a tool for governments wishing to devise policies focusing on economic and human development, and it is far superior to single indicators as a measure of development. However, the HDI, too, has its shortcomings. This is because economic and human development are much broader concepts with more dimensions than are reflected in the HDI. The HDI does not provide us with information about income distribution, malnutrition, demographic trends, unemployment, gender inequalities, political participation, etc.

Countries have been selected to show how it is possible to achieve similar levels of human development with very different levels of GNI per capita. For example, Norway and Australia have similar HDIs, indicating that they have attained approximately the same level of human development, yet Australia has accomplished this with a lower GNI per capita.

Comparisons between HDIs and GNI per capita confirm the points made earlier: • GNI (or GDP) per capita used alone can be a poor measure of the different dimensions of development. • Many countries, even with their given levels of GNI per capita, are capable of making significant improvements in the well-being of their populations by making different choices regarding the resources allocated to health, education and other services or merit goods. • Economic and human development issues apply not only to developing countries, but to developed countries as well.