Description
The report describes about the relationship between GDP(gross domestic product) and HDI(Human Development Index).
2008
Relationship between GDP and HDI
Lopamudra Biswas (307) Deepti Raja Mayank Jain Saurabh Natu Kartikey Sharma (310) (325) (343) (352)
Sriram Ramamurthy (361) Vikas Soni (369)
SBM, NMiMS University 12/13/2008
Relationship between
1
GDP and HDI
TABLE OF CONTENTS
INTRODUCTION ...................................................................................................................................... 3 GROSS DOMESTIC PRODUCT ................................................................................................................. 3 ADVANTAGES ...................................................................................................................................... 4 LIMITATIONS ....................................................................................................................................... 4 HUMAN DEVELOPMENT INDEX ............................................................................................................. 5 COMPARATIVE STUDY ........................................................................................................................... 6 UNITED STATES OF AMERICA ............................................................................................................. 6 SWEDEN .............................................................................................................................................. 8 BANGLADESH ...................................................................................................................................... 9 CONCLUSION ........................................................................................................................................ 13 REFERENCES ......................................................................................................................................... 13
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Relationship between
GDP and HDI
INTRODUCTION
The early leaders of quantification in economics kept their main focus on people, a focus that in recent years has been blurred. Although development has been a constant concern of government policymakers, economists and other social scientists - and has touched the lives of more people than ever before - there has been little agreement on what constitutes development, how it is best measured and how it is best achieved.
GROSS DOMESTIC PRODUCT
The well-being of a nation has been historically measured in terms of income or the money value of goods and services produced in an economy. Measures like Gross Domestic Product (GDP), per capita GDP, Gross National Product or per capita GNP have widely been used to assess not only the growth, but also the development of an economy. GDP, also referred to as gross domestic income (GDI) is defined as the total money value of all final goods and services produced within an economy, in a given period of time. GDP can be measured by 3 ways:? ? ? Income method Expenditure method Value added method
The most common approach to measuring and understanding GDP is the expenditure method: GDP = consumption+ gross investment + government spending + (exports ? imports) i.e. GDP = C + I + G + (X-M) where C (Consumption) comprises private consumption, and public sector spending. Here, C is private consumption in the economy. It includes most personal expenditures of households such as food, rent, medical expenses etc. I (Investment) include spending by businesses or households on capital. Residential spending by households is also included. G (Government spending) is the sum of government expenditures on final goods and services. It includes any investment expenditure, salaries of public servants, purchase of weapons for the military, by a government. X (Exports) capture the amount a country produces, including goods and services produced for other nations' consumption.
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M (Imports) are subtracted since they will be included in the terms G, I, or C, and must be deducted to avoid counting foreign production as domestic. The difference between GDP and GNP is that GNP includes net foreign income rather than net exports and imports. GDP pertains to the region in which income is generated which means that it focuses not on who produced the output but where the output was generated. GNP on the other hand focuses on who owns the production. The rationale behind using GDP per capita as an indicator of standard of living in an economy is that all citizens would benefit from their country's increased economic production.
ADVANTAGES
The advantages of using GDP per capita as an indicator of standard of living are as follows ? ? ? It is measured frequently and widely ie. Practically all countries provide information on GDP on a quarterly basis which facilitates trend spotting easily. It is measured consistently wherein the technical definitions used within GDP are relatively consistent between countries. This facilitates international comparisons. It reflects an economy's present and future consumption opportunities.
LIMITATIONS
The limitations of GDP as an indicator of standard of living are as follows GDP is intended to be a measure of particular types of economic activity within a country and is not an absolute indicator of the living standards in a country. ? ? ? ? GDP does not take disparity in incomes between the rich and poor into account. It does not include certain productive activities like voluntary work, subsistence production, etc. Though primarily a measure of production in the economy , GDP does not take into account the quality of goods and services produced. GDP ignores externalities such as damage to the environment. Economic growth at the expense of environmental degradation can end up costing dearly to clean up, which is clearly left unaccounted in the GDP. ? It does not measure the sustainability of growth. A country may achieve a temporarily high GDP by over-exploiting natural resources or by misallocating investment. Economies experiencing an economic bubble or a low private-saving rate tend to appear to grow faster owing to higher consumption, mortgaging their futures for present growth.
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Relationship between
?
GDP and HDI
Official GDP estimates do not take into account the black market. It also fails to incorporate the non-monetary economy, where no money comes into play at all. This results in inaccurate or low GDP figures.
?
Cross-border comparisons of GDP can be inaccurate as they do not take into account local differences in the quality of goods, even when adjusted for purchasing power parity.
HUMAN DEVELOPMENT INDEX
In the post world war period, in the 1950s and 1960s, it was observed that even though a large number of third world countries achieved the overall growth targets of the United Nations, the living standards of the masses remained unchanged and there were highly inequitable distribution of income. This revealed the inadequacy of income as the sole indicator of human well-being. The objective of development has now come to be seen is to expand the opportunities and choices available to people and enhance human capabilities and not solely economic growth. This view on the development led to the introduction of the human development index (HDI). HDI is a summary composite index that measures a country's average achievements in three basic aspects of human development: ? ? Health : measured by life expectancy at birth; Knowledge : measured by a combination of the adult literacy rate (with two-thirds weight) and the combined primary, secondary, and tertiary gross enrolment ratio (with one third weight) and; ? Standard of living: measured by GDP per capita (PPP US$).
The HDI attempts to make an assessment of 177 very diverse countries and areas, with very different price levels and currency values. To compare economic statistics across countries, the data must first be converted into a common currency. Unlike conventional exchange rates, PPP (Purchasing Power Parity) rates of exchange allow this conversion to take account of price differences between countries. GDP per capita (PPP US$) accounts for price differences between countries and therefore better reflects people's living standards. In theory, at the PPP rate, 1 PPP dollar has the same purchasing power in the domestic economy of a country as 1 US dollar has in the US economy.
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Relationship between
GDP and HDI
For calculation of HDI, an index is created for each of these dimensions. To calculate these indices minimum and maximum values are chosen for each underlying indicator. Performance of each dimension is expressed as a value between 0 and 1 by applying the following formula. Dimension Index = (actual value – minimum value) / (maximum value – minimum value). The HDI is then calculated as a simple average of the dimension indices. Indicator Life expectancy at birth Adult literacy rate Combined gross enrolment ratio GDP per capita (PPP $) Maximum 85 100 100 40000 Minimum 25 0 0 100
HDI = 1/3(life expectancy index) + 1/3(education index) +1/3(GDP index) The idea is to rank countries on the basis of human development and questions the policy choices of countries by comparing two countries with same per capita income but different HDI levels.
COMPARATIVE STUDY
We now conduct a comparative study of USA, Sweden and Bangladesh with regard to their economic and social development.
UNITED STATES OF AMERICA
The United States is a highly developed capitalist mixed economy, fuelled by abundant natural resources, a well-developed infrastructure, and high productivity. According to the International Monetary Fund, the U.S. GDP of $14.3 trillion constitutes 23% of the gross world product at market exchange rates and almost 21% of the gross world product at purchasing power parity (PPP). Its per capita GDP of $41,890 in 2007 was second only to Luxembourg ($ 60,228).
Year GDP per capita (PPP-U.S. $) 1975 7 530 1980 12 230 1985 17 540 1990 23 130 1995 27 820 2000 34 160 2005 35 750 2007 41890
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Year Human Development Index 1975 0.866 1980 0.886 1985 0.899 1990 0.914
GDP and HDI
1995 0.926 2000 0.935 2005 0.951 2007 0.944
High levels of GDP have been owing to high levels of productivity. However, despite such increases in productivity, low unemployment, and low inflation, income gains since 1980 have been slower than in previous decades, less widely shared, and accompanied by increased economic insecurity. The richest 10% of the adult population possesses 69.8% of the country's household wealth, the second-highest share among developed nations. The top 1% possesses 33.4% of net wealth. Also, the US has a higher percentage of children living in poverty than any of the world's richest countries. American public education is operated by state and local governments, regulated by the United States Department of Education through restrictions on federal grants. The basic literacy rate for both genders is approximately 99%.The country spends approximately 6% of its GDP on education. The U.S. health care system far outspends any other nation, measured in both per capita spending and percentage of GDP .The country spends well over $5bn each day on healthcare - more per person than any other country. Despite spending $230m (£115m) an hour on healthcare, life expectancy rate over the last 15 years is at 77 years at birth; a rank of 42nd in the latest Human Development Report and lower than most developed countries
Year Life expectancy at birth (Number of years) 1955 68.9 1960 69.7 1970 70.4 1980 73.3 1990 74.4 2000 76.2 2005 77.4 2007 77.9
The infant mortality rate is 6.37 per thousand. It has been said that if the US could match topranked Sweden in terms of human development, about 20,000 more American babies a year would live to their first birthday. Also, approximately one-third of the adult population is obese and an additional third is overweight; the obesity rate, the highest in the industrialized world, has more than doubled in the last quarter-century. However, health care coverage in the United States is not universal, and largely relies on private funding.
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Relationship between
GDP and HDI
From a HDI rank of 2 in 1995, the country slipped to 12 in 2007 and the GDP per capita minus HDI rank has slipped from -1 to -10. The economy shows each of the 11 countries that rank higher than the US in human development has a lower per-capita income.
SWEDEN
Sweden's economic structure relies heavily on its industrial sector. The abundance of natural resources such as extensive forests, rich iron ore deposits and hydroelectric power along with a diligent workforce has enabled the country to become a major exporter and producer of various goods. Agriculture was once the backbone of Sweden's economy and contributed significantly to its GDP but the industries and technological sector have now replaced agriculture which barely employs 3% of the total workforce. Unemployment is higher amongst younger people. Because of the contradiction — unemployment despite a growing commercial enterprise economy — politicians and analysts often speak of the "jobless growth". The unemployment rate in February 2007 was at 6.7% down from 7.4% from February 2006. The trend in GDP per capita is shown in the table below:
Year 1975 6060 1980 9170 1985 13200 1990 17100 1995 19620 2000 24530 2002 26050
GDP per capita (PPP U.S. $)
HDI value HDI rank
1960 0.867 1
1970 0.881 2
1980 0.899 5
1990 0.929 10
1995 0.929 10
2000 0.926 6
2005 0.949 6
2007 0.956 6
. The development over time shows that although Sweden’s position vis-a-vis other economies had deteriorated slightly over the period 1960 to 1990, the HDI shows a highly positive development between throughout 1960 to 2007. Income differentials in Sweden are even. Inequality accentuated in the 1990s largely owing to factors like rising unemployment, successive tax reforms benefiting high-income groups, and reductions of a number of welfare schemes after the macroeconomic crisis in the 1990s. Today, however, income distribution in Sweden remains rather even, when compared to international levels.
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The coverage of basic social services like health and education also remains very broad. Life expectancy in Sweden is currently one of the longest in the world at over 80 years while the world average is at 66.7 years. The health care is mainly funded by taxes, with nominal fees for patients. This has been achieved through cost sharing, and a move towards privatisation of public services.
Year Life expectancy at birth (Number of years) 1955 1960 1970 1980 1990 2000 2005 2007
72
73
74
75
77
79
80
81
The adult literacy rate has Children aged 1-5 years old are guaranteed a place in a public kindergarten, between the ages of 6 and 16, children attend compulsory comprehensive school. The school system is largely financed by taxes. School lunch is free for all students in Sweden and some schools, especially kindergartens and middle schools, even serve breakfast for free to those who want to eat before school starts. Sweden ranks high in life expectancy and in safe drinking water. The health care is mainly funded by taxes, with nominal fees for patients
BANGLADESH
After its independence in the early 70’s, Bangladesh tried to shift from a socialist model to a market oriented model for its development. The growth rates were modest and per capita GDP growth was about 2 per cent per annum. The growth performance had started improving over the 1996-99 period.
Year GDP per capita (PPPdollar) 1975 370 1980 590 1985 770 1990 950 1995 1 210 2000 1 560 2005 1 770 2007 2053
Year Human Development Index
1975
1980
1985
1990
1995
2000
2005
2007
0.345
0.363
0.388
0.417
0.445
0.497
0.52
0.547
Over the 1980s and 1990s, Bangladesh witnessed faster human development and in some respects, achievements were remarkable. By the late 1990s Bangladesh witnessed significant decline in fertility and this was achieved at a low level of income. The pace of reduction of total fertility rate between 1975 and 1997 was highest in Bangladesh as compared to the average for other developing countries.
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There had also been a decline in infant and child mortality rate since the mid-1980s. Underfive mortality rate reduction was about 2 per cent per year over the 1975-90 period, again higher than the figures for South Asia and the developing countries. The current level of under-five mortality in Bangladesh is 77 per thousand live-births. Significant progress was made in reducing child malnutrition despite slow progress in income-poverty. Better preventive health care, promotive health care improvement in environmental health contributed to this progress. The life expectancy rates are shown below
Year Life expectancy at birth 1955 1960 1970 1980 1990 2000 2005 2007
37.5
39.3
43.4
46.9
53
58.4
62.8
63.1
Significant progress was achieved in reducing adult illiteracy and in expanding primary education. The level of adult literacy had risen to 61 per cent by 1999, while the net enrolment rate at the primary level had exceeded 75 per cent. The gender gap in adult literacy was also narrowing as manifested through the spread of female education, and little difference in primary enrolment rate between boys and girls. However, development needs of the economy continue to remain huge. Close to 50% of children are underweight for their age, 1 million live on the streets and about 17% are involved in child labour and at least 3 million children of primary school age receive no education. Life expectancy rate is at 62.5 years. 82.8 % of the population lives on under $2 a day. The economy is largely based on agriculture with relatively small industrial manufacturing sector. Even thought the percent of people employed in agriculture has decreased from 85% in 1961 to 63% in 1996, it still is the biggest contributor in their GDP. With the growth of computers and services industry, the contribution of the service sector has increased. Bangladesh has one of the lowest per capita annual incomes in the world ($2053 in 2005 US PPP).Income levels in rural and urban areas differ significantly. In rural areas opportunities for wage employment are limited, and wage rates are low. The level and composition of consumption expenditure also differ in rural and urban areas. Despite various economic reforms, the country till date is in a state of turmoil and further social development can be achieved only with higher economic development.
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1.2
Human Development Index
1 0.863 0.8 0.6 0.4 0.2
0.873 0.866
0.885
0.985 0.899
0.943 0.928 0.914 0.926
0.949 0.935
0.956 0.944 0.951
0.886
0.345
0.363
0.388
0.417
0.445
0.497
0.520
0.547
Sweden
USA
0
1975 1980 1985 1990 1995 2000 2005 2007
Bangladesh
Year
45000 40000 35000 GDP Per capita(PPP) 30000 25000 20000 15000 10000 12230 17540 13200 23130 19620 17100 27820 24530 34160 37562
41890
32525 26750 Sweden USA Bangladesh
7530
9170 590 1980 770 1985 950 1990 1210 1995 1560 2000 1770 2005 2053 2007
5000 6060 370 0 1975
Year
GDP per capita (PPP US$) (2007) HDI (2007) Correlation GDP rank – HDI rank (2007) GDP rank – HDI rank (2007) GDP rank – HDI rank (2007)
United States 41,890 0.951 .605 -10 -6 -6
Sweden 32, 525 0.956 .885 7 11 14
Bangladesh 2,053 0.547 .784 0 7 -1
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The following observations can be made based on the graph and Table comparing the GDP and HDI of United States of America, Bangladesh and Sweden 1. The GDP per capita in PPP terms is highest for the U.S., moderate for Sweden and least for Bangladesh. Inference – The World Bank classifies the economies as follows:
Economy GDP per (PPP) capita Lower Income With $825 or less Lower Middle Income With $826-3255 Upper Middle Income With $3256 – 10065 High Income With $ 10066 or More
It can be observed that GDP per capita based on Purchasing Power Parity is a true indicator on standard of living and its comparison reflects the cost of living in the economy. Hence it can be observed that U.S. has a high standard of living compared to that of Sweden in terms of purchasing power. Bangladesh is considered to be a lower middle income economy. 2. The HDI for U.S. and Sweden is above 0.9 and below 0.6 for Bangladesh. Inference - If the HDI of a country is above 0.9 it is considered to be advanced by the International Monetary Fund hence U.S. and Sweden can be considered to be advanced economies whereas Bangladesh is still considered to be a developing country with respect to human development 3. The Correlation coefficient for Sweden is comparatively higher than Bangladesh and U.S. Inference – The correlation coefficient shows the relation between the GDP and HDI of the countries. It demonstrates the linearity in the behavior between GDP and HDI. The higher the numerical value it implies that the behavior of HDI trend over the years can be explained more by the GDP (PPP). Hence for Sweden and Bangladesh the HDI is a direct reflection of its GDP.
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4. Though U.S. is ranked higher than Sweden in GDP per capita (PPP) but it still lags behind Sweden in the HDI rank Inference – HDI gives an indication about the development of the country based on three parameters Life Expectancy Index, Education Index and the GDP Index. Though GDP is higher for U.S. but the average life expectancy of 77.5 years and education index of .978 is much higher than that of 75.5 years and 0.971 for the U.S. In HDI as the improvement in life expectancy and education development takes a longer time it is given higher weight than GDP. Hence Sweden is ranked higher in HDI than U.S. in spite of U.S. having a higher GDP.
CONCLUSION
It can be observed from the data available for Sweden, United States and Bangladesh that the classification done based on HDI tends to be more or less reflected by the GDP per capita (PPP) of these countries. We have seen that while GDP is reflective of economic growth of a country, HDI is an indicator of development. However, people of any country need to be a part of both processes and the benefits of growth cannot be restricted to a minority. To this effect, it must be remembered that development and economic growth are not mutually exclusive as development cannot take place without economic development. The more an economy produces and progresses so does the society’s capacity to improve. Growth should therefore not be seen as an end in itself, but as the means to achieve ends of higher human and social development.
REFERENCES
ARTICLES
Country Profile Study On Poverty, Bangladesh, March 2003 Japan International Cooperation Agency Planning and Evaluation Department, March 2003
WEB SITES
http://hdr.undp.org/docs/publications/ocational_papers/oc26c.htm hdrstats.undp.org/countries/country_fact_sheets/cty_fs_swe.html http://hdr.undp.org/en/ www.worldbank.org.in http://globalis.gvu.unu.edu/indicator_detail.cfm?country=bd&indicatorid=19
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doc_271860111.pdf
The report describes about the relationship between GDP(gross domestic product) and HDI(Human Development Index).
2008
Relationship between GDP and HDI
Lopamudra Biswas (307) Deepti Raja Mayank Jain Saurabh Natu Kartikey Sharma (310) (325) (343) (352)
Sriram Ramamurthy (361) Vikas Soni (369)
SBM, NMiMS University 12/13/2008
Relationship between
1
GDP and HDI
TABLE OF CONTENTS
INTRODUCTION ...................................................................................................................................... 3 GROSS DOMESTIC PRODUCT ................................................................................................................. 3 ADVANTAGES ...................................................................................................................................... 4 LIMITATIONS ....................................................................................................................................... 4 HUMAN DEVELOPMENT INDEX ............................................................................................................. 5 COMPARATIVE STUDY ........................................................................................................................... 6 UNITED STATES OF AMERICA ............................................................................................................. 6 SWEDEN .............................................................................................................................................. 8 BANGLADESH ...................................................................................................................................... 9 CONCLUSION ........................................................................................................................................ 13 REFERENCES ......................................................................................................................................... 13
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Relationship between
GDP and HDI
INTRODUCTION
The early leaders of quantification in economics kept their main focus on people, a focus that in recent years has been blurred. Although development has been a constant concern of government policymakers, economists and other social scientists - and has touched the lives of more people than ever before - there has been little agreement on what constitutes development, how it is best measured and how it is best achieved.
GROSS DOMESTIC PRODUCT
The well-being of a nation has been historically measured in terms of income or the money value of goods and services produced in an economy. Measures like Gross Domestic Product (GDP), per capita GDP, Gross National Product or per capita GNP have widely been used to assess not only the growth, but also the development of an economy. GDP, also referred to as gross domestic income (GDI) is defined as the total money value of all final goods and services produced within an economy, in a given period of time. GDP can be measured by 3 ways:? ? ? Income method Expenditure method Value added method
The most common approach to measuring and understanding GDP is the expenditure method: GDP = consumption+ gross investment + government spending + (exports ? imports) i.e. GDP = C + I + G + (X-M) where C (Consumption) comprises private consumption, and public sector spending. Here, C is private consumption in the economy. It includes most personal expenditures of households such as food, rent, medical expenses etc. I (Investment) include spending by businesses or households on capital. Residential spending by households is also included. G (Government spending) is the sum of government expenditures on final goods and services. It includes any investment expenditure, salaries of public servants, purchase of weapons for the military, by a government. X (Exports) capture the amount a country produces, including goods and services produced for other nations' consumption.
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Relationship between
GDP and HDI
M (Imports) are subtracted since they will be included in the terms G, I, or C, and must be deducted to avoid counting foreign production as domestic. The difference between GDP and GNP is that GNP includes net foreign income rather than net exports and imports. GDP pertains to the region in which income is generated which means that it focuses not on who produced the output but where the output was generated. GNP on the other hand focuses on who owns the production. The rationale behind using GDP per capita as an indicator of standard of living in an economy is that all citizens would benefit from their country's increased economic production.
ADVANTAGES
The advantages of using GDP per capita as an indicator of standard of living are as follows ? ? ? It is measured frequently and widely ie. Practically all countries provide information on GDP on a quarterly basis which facilitates trend spotting easily. It is measured consistently wherein the technical definitions used within GDP are relatively consistent between countries. This facilitates international comparisons. It reflects an economy's present and future consumption opportunities.
LIMITATIONS
The limitations of GDP as an indicator of standard of living are as follows GDP is intended to be a measure of particular types of economic activity within a country and is not an absolute indicator of the living standards in a country. ? ? ? ? GDP does not take disparity in incomes between the rich and poor into account. It does not include certain productive activities like voluntary work, subsistence production, etc. Though primarily a measure of production in the economy , GDP does not take into account the quality of goods and services produced. GDP ignores externalities such as damage to the environment. Economic growth at the expense of environmental degradation can end up costing dearly to clean up, which is clearly left unaccounted in the GDP. ? It does not measure the sustainability of growth. A country may achieve a temporarily high GDP by over-exploiting natural resources or by misallocating investment. Economies experiencing an economic bubble or a low private-saving rate tend to appear to grow faster owing to higher consumption, mortgaging their futures for present growth.
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Relationship between
?
GDP and HDI
Official GDP estimates do not take into account the black market. It also fails to incorporate the non-monetary economy, where no money comes into play at all. This results in inaccurate or low GDP figures.
?
Cross-border comparisons of GDP can be inaccurate as they do not take into account local differences in the quality of goods, even when adjusted for purchasing power parity.
HUMAN DEVELOPMENT INDEX
In the post world war period, in the 1950s and 1960s, it was observed that even though a large number of third world countries achieved the overall growth targets of the United Nations, the living standards of the masses remained unchanged and there were highly inequitable distribution of income. This revealed the inadequacy of income as the sole indicator of human well-being. The objective of development has now come to be seen is to expand the opportunities and choices available to people and enhance human capabilities and not solely economic growth. This view on the development led to the introduction of the human development index (HDI). HDI is a summary composite index that measures a country's average achievements in three basic aspects of human development: ? ? Health : measured by life expectancy at birth; Knowledge : measured by a combination of the adult literacy rate (with two-thirds weight) and the combined primary, secondary, and tertiary gross enrolment ratio (with one third weight) and; ? Standard of living: measured by GDP per capita (PPP US$).
The HDI attempts to make an assessment of 177 very diverse countries and areas, with very different price levels and currency values. To compare economic statistics across countries, the data must first be converted into a common currency. Unlike conventional exchange rates, PPP (Purchasing Power Parity) rates of exchange allow this conversion to take account of price differences between countries. GDP per capita (PPP US$) accounts for price differences between countries and therefore better reflects people's living standards. In theory, at the PPP rate, 1 PPP dollar has the same purchasing power in the domestic economy of a country as 1 US dollar has in the US economy.
Group 2
Page 5
Relationship between
GDP and HDI
For calculation of HDI, an index is created for each of these dimensions. To calculate these indices minimum and maximum values are chosen for each underlying indicator. Performance of each dimension is expressed as a value between 0 and 1 by applying the following formula. Dimension Index = (actual value – minimum value) / (maximum value – minimum value). The HDI is then calculated as a simple average of the dimension indices. Indicator Life expectancy at birth Adult literacy rate Combined gross enrolment ratio GDP per capita (PPP $) Maximum 85 100 100 40000 Minimum 25 0 0 100
HDI = 1/3(life expectancy index) + 1/3(education index) +1/3(GDP index) The idea is to rank countries on the basis of human development and questions the policy choices of countries by comparing two countries with same per capita income but different HDI levels.
COMPARATIVE STUDY
We now conduct a comparative study of USA, Sweden and Bangladesh with regard to their economic and social development.
UNITED STATES OF AMERICA
The United States is a highly developed capitalist mixed economy, fuelled by abundant natural resources, a well-developed infrastructure, and high productivity. According to the International Monetary Fund, the U.S. GDP of $14.3 trillion constitutes 23% of the gross world product at market exchange rates and almost 21% of the gross world product at purchasing power parity (PPP). Its per capita GDP of $41,890 in 2007 was second only to Luxembourg ($ 60,228).
Year GDP per capita (PPP-U.S. $) 1975 7 530 1980 12 230 1985 17 540 1990 23 130 1995 27 820 2000 34 160 2005 35 750 2007 41890
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Year Human Development Index 1975 0.866 1980 0.886 1985 0.899 1990 0.914
GDP and HDI
1995 0.926 2000 0.935 2005 0.951 2007 0.944
High levels of GDP have been owing to high levels of productivity. However, despite such increases in productivity, low unemployment, and low inflation, income gains since 1980 have been slower than in previous decades, less widely shared, and accompanied by increased economic insecurity. The richest 10% of the adult population possesses 69.8% of the country's household wealth, the second-highest share among developed nations. The top 1% possesses 33.4% of net wealth. Also, the US has a higher percentage of children living in poverty than any of the world's richest countries. American public education is operated by state and local governments, regulated by the United States Department of Education through restrictions on federal grants. The basic literacy rate for both genders is approximately 99%.The country spends approximately 6% of its GDP on education. The U.S. health care system far outspends any other nation, measured in both per capita spending and percentage of GDP .The country spends well over $5bn each day on healthcare - more per person than any other country. Despite spending $230m (£115m) an hour on healthcare, life expectancy rate over the last 15 years is at 77 years at birth; a rank of 42nd in the latest Human Development Report and lower than most developed countries
Year Life expectancy at birth (Number of years) 1955 68.9 1960 69.7 1970 70.4 1980 73.3 1990 74.4 2000 76.2 2005 77.4 2007 77.9
The infant mortality rate is 6.37 per thousand. It has been said that if the US could match topranked Sweden in terms of human development, about 20,000 more American babies a year would live to their first birthday. Also, approximately one-third of the adult population is obese and an additional third is overweight; the obesity rate, the highest in the industrialized world, has more than doubled in the last quarter-century. However, health care coverage in the United States is not universal, and largely relies on private funding.
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Relationship between
GDP and HDI
From a HDI rank of 2 in 1995, the country slipped to 12 in 2007 and the GDP per capita minus HDI rank has slipped from -1 to -10. The economy shows each of the 11 countries that rank higher than the US in human development has a lower per-capita income.
SWEDEN
Sweden's economic structure relies heavily on its industrial sector. The abundance of natural resources such as extensive forests, rich iron ore deposits and hydroelectric power along with a diligent workforce has enabled the country to become a major exporter and producer of various goods. Agriculture was once the backbone of Sweden's economy and contributed significantly to its GDP but the industries and technological sector have now replaced agriculture which barely employs 3% of the total workforce. Unemployment is higher amongst younger people. Because of the contradiction — unemployment despite a growing commercial enterprise economy — politicians and analysts often speak of the "jobless growth". The unemployment rate in February 2007 was at 6.7% down from 7.4% from February 2006. The trend in GDP per capita is shown in the table below:
Year 1975 6060 1980 9170 1985 13200 1990 17100 1995 19620 2000 24530 2002 26050
GDP per capita (PPP U.S. $)
HDI value HDI rank
1960 0.867 1
1970 0.881 2
1980 0.899 5
1990 0.929 10
1995 0.929 10
2000 0.926 6
2005 0.949 6
2007 0.956 6
. The development over time shows that although Sweden’s position vis-a-vis other economies had deteriorated slightly over the period 1960 to 1990, the HDI shows a highly positive development between throughout 1960 to 2007. Income differentials in Sweden are even. Inequality accentuated in the 1990s largely owing to factors like rising unemployment, successive tax reforms benefiting high-income groups, and reductions of a number of welfare schemes after the macroeconomic crisis in the 1990s. Today, however, income distribution in Sweden remains rather even, when compared to international levels.
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Relationship between
GDP and HDI
The coverage of basic social services like health and education also remains very broad. Life expectancy in Sweden is currently one of the longest in the world at over 80 years while the world average is at 66.7 years. The health care is mainly funded by taxes, with nominal fees for patients. This has been achieved through cost sharing, and a move towards privatisation of public services.
Year Life expectancy at birth (Number of years) 1955 1960 1970 1980 1990 2000 2005 2007
72
73
74
75
77
79
80
81
The adult literacy rate has Children aged 1-5 years old are guaranteed a place in a public kindergarten, between the ages of 6 and 16, children attend compulsory comprehensive school. The school system is largely financed by taxes. School lunch is free for all students in Sweden and some schools, especially kindergartens and middle schools, even serve breakfast for free to those who want to eat before school starts. Sweden ranks high in life expectancy and in safe drinking water. The health care is mainly funded by taxes, with nominal fees for patients
BANGLADESH
After its independence in the early 70’s, Bangladesh tried to shift from a socialist model to a market oriented model for its development. The growth rates were modest and per capita GDP growth was about 2 per cent per annum. The growth performance had started improving over the 1996-99 period.
Year GDP per capita (PPPdollar) 1975 370 1980 590 1985 770 1990 950 1995 1 210 2000 1 560 2005 1 770 2007 2053
Year Human Development Index
1975
1980
1985
1990
1995
2000
2005
2007
0.345
0.363
0.388
0.417
0.445
0.497
0.52
0.547
Over the 1980s and 1990s, Bangladesh witnessed faster human development and in some respects, achievements were remarkable. By the late 1990s Bangladesh witnessed significant decline in fertility and this was achieved at a low level of income. The pace of reduction of total fertility rate between 1975 and 1997 was highest in Bangladesh as compared to the average for other developing countries.
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Relationship between
GDP and HDI
There had also been a decline in infant and child mortality rate since the mid-1980s. Underfive mortality rate reduction was about 2 per cent per year over the 1975-90 period, again higher than the figures for South Asia and the developing countries. The current level of under-five mortality in Bangladesh is 77 per thousand live-births. Significant progress was made in reducing child malnutrition despite slow progress in income-poverty. Better preventive health care, promotive health care improvement in environmental health contributed to this progress. The life expectancy rates are shown below
Year Life expectancy at birth 1955 1960 1970 1980 1990 2000 2005 2007
37.5
39.3
43.4
46.9
53
58.4
62.8
63.1
Significant progress was achieved in reducing adult illiteracy and in expanding primary education. The level of adult literacy had risen to 61 per cent by 1999, while the net enrolment rate at the primary level had exceeded 75 per cent. The gender gap in adult literacy was also narrowing as manifested through the spread of female education, and little difference in primary enrolment rate between boys and girls. However, development needs of the economy continue to remain huge. Close to 50% of children are underweight for their age, 1 million live on the streets and about 17% are involved in child labour and at least 3 million children of primary school age receive no education. Life expectancy rate is at 62.5 years. 82.8 % of the population lives on under $2 a day. The economy is largely based on agriculture with relatively small industrial manufacturing sector. Even thought the percent of people employed in agriculture has decreased from 85% in 1961 to 63% in 1996, it still is the biggest contributor in their GDP. With the growth of computers and services industry, the contribution of the service sector has increased. Bangladesh has one of the lowest per capita annual incomes in the world ($2053 in 2005 US PPP).Income levels in rural and urban areas differ significantly. In rural areas opportunities for wage employment are limited, and wage rates are low. The level and composition of consumption expenditure also differ in rural and urban areas. Despite various economic reforms, the country till date is in a state of turmoil and further social development can be achieved only with higher economic development.
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Relationship between
GDP and HDI
1.2
Human Development Index
1 0.863 0.8 0.6 0.4 0.2
0.873 0.866
0.885
0.985 0.899
0.943 0.928 0.914 0.926
0.949 0.935
0.956 0.944 0.951
0.886
0.345
0.363
0.388
0.417
0.445
0.497
0.520
0.547
Sweden
USA
0
1975 1980 1985 1990 1995 2000 2005 2007
Bangladesh
Year
45000 40000 35000 GDP Per capita(PPP) 30000 25000 20000 15000 10000 12230 17540 13200 23130 19620 17100 27820 24530 34160 37562
41890
32525 26750 Sweden USA Bangladesh
7530
9170 590 1980 770 1985 950 1990 1210 1995 1560 2000 1770 2005 2053 2007
5000 6060 370 0 1975
Year
GDP per capita (PPP US$) (2007) HDI (2007) Correlation GDP rank – HDI rank (2007) GDP rank – HDI rank (2007) GDP rank – HDI rank (2007)
United States 41,890 0.951 .605 -10 -6 -6
Sweden 32, 525 0.956 .885 7 11 14
Bangladesh 2,053 0.547 .784 0 7 -1
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Relationship between
GDP and HDI
The following observations can be made based on the graph and Table comparing the GDP and HDI of United States of America, Bangladesh and Sweden 1. The GDP per capita in PPP terms is highest for the U.S., moderate for Sweden and least for Bangladesh. Inference – The World Bank classifies the economies as follows:
Economy GDP per (PPP) capita Lower Income With $825 or less Lower Middle Income With $826-3255 Upper Middle Income With $3256 – 10065 High Income With $ 10066 or More
It can be observed that GDP per capita based on Purchasing Power Parity is a true indicator on standard of living and its comparison reflects the cost of living in the economy. Hence it can be observed that U.S. has a high standard of living compared to that of Sweden in terms of purchasing power. Bangladesh is considered to be a lower middle income economy. 2. The HDI for U.S. and Sweden is above 0.9 and below 0.6 for Bangladesh. Inference - If the HDI of a country is above 0.9 it is considered to be advanced by the International Monetary Fund hence U.S. and Sweden can be considered to be advanced economies whereas Bangladesh is still considered to be a developing country with respect to human development 3. The Correlation coefficient for Sweden is comparatively higher than Bangladesh and U.S. Inference – The correlation coefficient shows the relation between the GDP and HDI of the countries. It demonstrates the linearity in the behavior between GDP and HDI. The higher the numerical value it implies that the behavior of HDI trend over the years can be explained more by the GDP (PPP). Hence for Sweden and Bangladesh the HDI is a direct reflection of its GDP.
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Relationship between
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4. Though U.S. is ranked higher than Sweden in GDP per capita (PPP) but it still lags behind Sweden in the HDI rank Inference – HDI gives an indication about the development of the country based on three parameters Life Expectancy Index, Education Index and the GDP Index. Though GDP is higher for U.S. but the average life expectancy of 77.5 years and education index of .978 is much higher than that of 75.5 years and 0.971 for the U.S. In HDI as the improvement in life expectancy and education development takes a longer time it is given higher weight than GDP. Hence Sweden is ranked higher in HDI than U.S. in spite of U.S. having a higher GDP.
CONCLUSION
It can be observed from the data available for Sweden, United States and Bangladesh that the classification done based on HDI tends to be more or less reflected by the GDP per capita (PPP) of these countries. We have seen that while GDP is reflective of economic growth of a country, HDI is an indicator of development. However, people of any country need to be a part of both processes and the benefits of growth cannot be restricted to a minority. To this effect, it must be remembered that development and economic growth are not mutually exclusive as development cannot take place without economic development. The more an economy produces and progresses so does the society’s capacity to improve. Growth should therefore not be seen as an end in itself, but as the means to achieve ends of higher human and social development.
REFERENCES
ARTICLES
Country Profile Study On Poverty, Bangladesh, March 2003 Japan International Cooperation Agency Planning and Evaluation Department, March 2003
WEB SITES
http://hdr.undp.org/docs/publications/ocational_papers/oc26c.htm hdrstats.undp.org/countries/country_fact_sheets/cty_fs_swe.html http://hdr.undp.org/en/ www.worldbank.org.in http://globalis.gvu.unu.edu/indicator_detail.cfm?country=bd&indicatorid=19
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