A city can have more factories, more cars, and more shopping centers than it did ten years ago and still have unbreathable air, overcrowded hospitals, and young people with no opportunities. Is life better there? Growing and living better are not always the same thing, which is why we need to measure more than GDP.
Growth and development
Growth is part of development: it is one of its pieces, but not the only one.
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Explain the difference between economic growth and development. Can a country's GDP grow without improving the lives of the majority? Give a reasoned example.
Explain the difference between economic growth and development. Can a country's GDP grow without improving the lives of the majority? Give a reasoned example.
The HDI ranges from $0$ to $1$ and has no units. It is considered more complete than GDP per capita because income is only one of its three pieces: a very rich country with poor health and weak schools gets a modest HDI. In addition, income enters on a logarithmic scale because, beyond a certain level, more money adds less and less to people's lives.
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What does the Human Development Index (HDI) measure and which three dimensions does it combine? Explain why it is considered a more comprehensive measure than GDP per…
What does the Human Development Index (HDI) measure and which three dimensions does it combine? Explain why it is considered a more comprehensive measure than GDP per capita.
Two imaginary countries: Kolia has an income per capita of $\$800\,000$ and a medium HDI; Osia has $\$560\,000$ and a very high HDI. a) How is this combination possible?…
Two imaginary countries: Kolia has an income per capita of $\$800\,000$ and a medium HDI; Osia has $\$560\,000$ and a very high HDI.
a) How is this combination possible? Explain what Osia must be doing right.
b) Which country would you choose to live in and what criterion do you use to decide?
Name three quality-of-life indicators other than GDP (related, for example, to health, education, the environment or leisure time) and explain what each one captures…
Name three quality-of-life indicators other than GDP (related, for example, to health, education, the environment or leisure time) and explain what each one captures that GDP does not.
Give three reasons why GDP does not accurately measure well-being, focusing on unpaid work, the shadow economy and environmental damage. For each one, explain with an…
Give three reasons why GDP does not accurately measure well-being, focusing on unpaid work, the shadow economy and environmental damage. For each one, explain with an example how it distorts the measure.
Country B has less income than A and C, but the best quality of life.
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The figure compares three imaginary countries using two indicators: income per capita in thousands of pesos (bars) and the score on a quality-of-life index from $0$ to…
The figure compares three imaginary countries using two indicators: income per capita in thousands of pesos (bars) and the score on a quality-of-life index from $0$ to $100$ (dots).
a) Which country has the best combination of income and quality of life? Justify your answer using the graph.
b) Which country seems to "buy" little quality of life with its income? What might be going wrong there?
A region depends on a highly polluting mine: local GDP is high, but air quality is poor, life expectancy is low and young people are leaving. a) Assess the region's…
A region depends on a highly polluting mine: local GDP is high, but air quality is poor, life expectancy is low and young people are leaving.
a) Assess the region's "well-being" using several indicators, not just economic ones.
b) Propose two measures to improve its development without shutting down activity all at once.
A family can earn enough to eat and still live without medical service, without social security, and in a house without drainage. Measuring poverty by income alone would classify it as "not poor." That is why Mexico uses a multidimensional measurement, which CONEVAL calculates with data from INEGI.
How a composite index is built
Variables such as years, minutes, or pesos have different units, so they cannot simply be added together. A composite index, like the HDI, is put together in three steps: normalize each variable so that it ranges from $0$ to $1$, assign weights that add up to $1$ according to the importance of each variable, and add the weighted values.
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Design a quality-of-life index for your city. a) Choose five variables (with their unit of measurement) and explain why each one deserves to be in the index. b) How…
Design a quality-of-life index for your city.
a) Choose five variables (with their unit of measurement) and explain why each one deserves to be in the index.
b) How would you weight them? Justify your decision and mention a practical difficulty in collecting the data.
Subjective well-being studies show that, in poor countries, more income greatly raises life satisfaction (basic needs have to be met). In rich countries, each extra peso adds less and less, because of the diminishing marginal utility of income. This is called the Easterlin paradox: within a country, the richest are more satisfied, but in the long run, when the whole country gets richer, average satisfaction barely rises. In addition to the amount of income, how it is distributed matters: more inequality tends to reduce satisfaction.
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Observe the following data from three countries in 2023: Country A: GDP per capita = 46,000 pesos; Gini Index = 0.39; Average life satisfaction = 6.2 out of 10. Country…
Observe the following data from three countries in 2023:
Country A: GDP per capita = 46,000 pesos; Gini Index = 0.39; Average life satisfaction = 6.2 out of 10.
Country B: GDP per capita = 29,000 pesos; Gini Index = 0.24; Average life satisfaction = 7.5 out of 10.
Country C: GDP per capita = 2,800 pesos; Gini Index = 0.44; Average life satisfaction = 3.9 out of 10.
a) Use the Easterlin paradox and the law of diminishing marginal utility of income to explain why the jump in income between country C and country B generates a substantial increase in subjective well-being, while between country B and country A the relationship seems to reverse.
b) An analyst states: "To achieve the life satisfaction of country B, country A simply needs to accelerate its economic growth." Refute their statement by proposing at least two dimensions of development (relying on indicators such as the HDI or the OECD Better Life Index) that GDP does not capture and that explain this difference.
Back to the beginning: the city with more factories and shopping centers but with dirty air and overcrowded hospitals has growth, not necessarily development. To know whether life is better, you have to look at the HDI, multidimensional poverty, inequality, and the environment, not just GDP.
Summary
Let's practice! 3 medium exercises in this section