Exercises: Development and well-being indicators

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.

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.

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.

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.

1. a) How is this combination possible? Explain what Osia must be doing right.
2. b) Which country would you choose to live in and what criterion do you use to decide?

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.

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).

1. a) Which country has the best combination of income and quality of life? Justify your answer using the graph.
2. 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.

1. a) Assess the region's "well-being" using several indicators, not just economic ones.
2. b) Propose two measures to improve its development without shutting down activity all at once.

Design a quality-of-life index for your city.

1. a) Choose five variables (with their unit of measurement) and explain why each one deserves to be in the index.
2. b) How would you weight them? Justify your decision and mention a practical difficulty in collecting the data.

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.

1. 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.
2. 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.