IB Docs (2) Team
Measuring development
Introduction
This page looks at how we measure and then rank nations by economic wealth and development. The page develops on the early ones in unit 4, taking slightly more sophisticated measurements of development than simply GDP per capita and HDI.Enquiry question
How do we distinguish between low, middle and high income nations? Should we simply use GDP / GNI per capita as a measure? A comparison of single index and composite index measurements.
Lesson time: 85 minutes
Lesson objectives:
Compare and contrast GDP per capita figures and GDP per capita figures at purchasing power parity (PPP) exchange rates for economically more developed countries and economically less developed countries.
Compare and contrast two health indicators for economically more developed countries and economically less developed countries.
Compare and contrast two education indicators for economically more developed countries and economically less developed countries.
Explain that composite indicators include more than one measure and so are considered to be better indicators of economic development.
Explain why a country’s GDP/ GNI per capita global ranking may be lower, or higher, than its HDI global ranking.
Teacher notes:
1. Beginning activity - begin with the opening video and the questions on activity 1. (Allow 20 minutes in total)
2. Processes - technical vocabulary - the students can learn the background information from the videos, activities and key terms which can be downloaded as a PDF. Allow 10 minutes for reading the key terms.
3. Applying the theory - activities 2 - 3 involve calculations and short answer responses, the focus of which is the use of PPP measurements in calculations of living standards. (20 minutes)
4. Developing the theory - activities 4 and 5 contain short answer and discussion on health and education measurements. (10 minutes)
4. Technical vocabulary - activities 6 - 8 focus on different, less established indexes - short answer responses. (10 minutes)
5. Link to TOK - activity 9 - allow 10 minutes for discussion.
6. Simulation - activity 11 (5 minutes)
Key terms:
HDI - a statistic composite index of life expectancy, education, and per capita income indicators, which are used to rank countries into four tiers of human development.
IEF - an index of economic freedom, which measures the level of individual freedom in the nation.
Gender related development index (GDI) - measures the level of gender equality in a country, or put another way the level of HDI adjusted for the level of gender inequality in an economy.
Human poverty index (HPI) - measures the level of deprivation in a country. It measures the % of citizens in a country without access to education or health services.
Genuine progress indicator (GPI) - an index which adjusts the level of economic growth in a nation for the negative externalities resulting from that growth - cost of crime, ozone depletion and resource depletion, e.t.c.
Dependency ratio - the % of the population not actively engaged in work. The higher the number the greater number of people supported by each working population.
Purchasing power parity (PPP) - a way of measuring economic variables between different countries so that irrelevant exchange rate variations do not distort comparisons.
Single measurement indicators - index that measure a single factor e.g. GNI per capita or dependency ratios.
Composite indicators - index that measure a range of factors in calculations e.g. HDI, IEF or the human poverty index.
Expected years of schooling - the number of years during which a 2-year-old child can expect to spend in schooling, based on the school enrolment rates at a given date.
Inequality-adjusted human development index (IHDI) - this index measures how a nation's HDI is distributed among its country's population by 'discounting' each dimension's average value according to its level of inequality.
Happy planet index - measures sustainable wellbeing for all, recording how well nations are doing at achieving long, happy and sustainable lives.
The activities on this page are available as a PDF file at: 
Measuring development
Activity 1: Measuring development
Begin with the following short video and then answer the questions that follow:
(a) What measurements of a nations living standards does the video identify?
GDP and GNI per capita, HDI, IEF, dependency ratio, % of people employed by economic sector and access to technology.
(b) What weaknesses does the video identify with GDP / GNI data?
Ignores the informal and illegal economy and ignores negative consumption externalities. It also ignores regional and national income inequalities, such as the vast inequalities of income in the UAE. A comparison of GDP / GNI data is also difficult when comparing living standards between nations, due to differences in exchange rates.
(c) How is the HDI index calculated?
Life expectancy, GNI per capita and mean years of schooling / expected years of schooling.
(d) What is the IEF measurement?
Index of economic freedom, which measures the level of individual freedom in the nation.
(e) What is the dependency ratio and what does it measure?
The % of the population not actively engaged in work. The higher the number the greater number of people supported by each working population.
(f) How is access to technology measured?
The % of the population with comfortable access to transportation and / or communications technology such as the internet.
Activity 2: Comparing prices and living standards between nations
Start by watching the following video and then answer the questions that follow:
(a) Explain why using PPP exchange rates is more effective when comparing prices and living standards between nations.
As the video highlights using crude exchange rate data to compare prices and living standards between nations is unreliable because very often the official exchange rate does not accurately reflect the differences in the price of identical items in different nations.
(b) The following table shows the price of a Big Mac in a range of nations (January 2021):
| Nation | Price of a Big Mac local currency | Official exchange rate value per $ | Implied exchange rate based on Big Mac price | Difference |
| USA | 5.66 | 1 | - | - |
| Switzerland | 6.50 CHF | 0.89 | 6.50 / 5.66 = 1.14 | (1.14-0.89)/0.89 x 100 = 28% overvalued |
| Israel | 17.00 ILS | 3.25 | 17 / 5.66 = 3 | (3-3.25)/3.25 x 100 = 7.69% undervalued |
| UK | 3.19 | 0.72 | 0.56 | (0.56-0.72)/0.72 x 100 = 22% undervalued |
| Russia | 135 RUB | 73.78 | 23.85 | 67.7% undervalued |
| Turkey | 14.99 | 7 | 2.65 | 62% undervalued |
(c) How does the above table illustrate the difference between PPP exchange rates and official exchange rates.
The above table shows how official exchange rates are often not a true reflection of price levels within different nations. While the video implies that exchange rates automatically adjust to changes in average price levels between nations, in reality demand and supply for different currencies depends on a range of factors, with price level just one of them.
Activity 3: Adjusting GDP / GNI for the differences in cost of living between nations (2019)
| GDP rank | Nation | GDP per capita $ | Cost of living index | Adjusted GDP per capita $ |
| 1 | Switzerland | 83,580 | 122 | 83.580 / 1.22 = 68,508 |
| 4 | USA | 62,850 | 71 | 88,521 |
| 8 | Singapore | 58,750 | 80 | 73,437 |
| 100 | Kosova | 4,230 | 27 | 15,667 |
| 104 | Jordan | 4,060 | 55 | 7,381 |
| 105 | Algeria | 4,060 | 31 | 13,096 |
| 133 | India | 2,020 | 25 | 8,080 |
| 155 | Pakistan | 1,580 | 18 | 8,778 |
| 172 | Afghanistan | 772 | 25 | 3,088 |
Complete the missing blanks in the table and use this information to explain the importance of using PPP measurements of national income when comparing living standards between nations.
Activity 4: Health measurements of development
The diagram to the right illustrates the life expectancy amongst nations.
(a) What patterns can be derived from the diagram?
A clear positive relationship between GDP and life expectancy - the wealthiest nations, unsurprisingly are also those with the longest life expectancy.
Women also out live men in every nation.
(b) Why might the world's poorest nations also have the lowest life expectancy?
Wealthier nations can afford better public services, including healthcare.
Nations that invest in better health services have a healthier working population and are likely to grow their national income more quickly.
(c) The table below illustrates the life expectancy in a range of Developed nations.
| Life expectancy (years) | GDP per capita | |
| USA | 78.87 | 62,850 |
| Greece | 82.14 | 18,613 |
| South Korea | 82.91 | 29,742 |
| Switzerland | 83.69 | 83,580 |
Explain why GDP is not always a reliable indicator of life expectancy.
As (b) illustrates GDP per capita is one determinate of life expectancy and this is also reflected in HDI which is positively correlated with HDI rankings. That said, it is just one factor and others might be differences in lifestyle, working hours, access to publicly funded health care, diet and levels of poverty - all of which differ between Developed nations.
(d) Using the table below explain why the two African nations have similar levels of HDI despite very different levels of national income.
| GDP per capita ($) | Life expectancy | Mean years of schooling | HDI | |
| Rwanda | 748 | 67.5 | 11.6 | 0.52 |
| Angola | 4,247 | 52.4 | 11.8 | 0.58 |
National income makes up one third of HDI rankings, with the other two thirds coming from health and education rankings. In recent years Rwanda has invested heavily in improved access to health services and life expectancy has grown as a result.
Profiles of each country can be found at: 
Rwanda and Angola
Activity 5: Education measurements of development
The diagram to the left illustrates the relationship between GDP per capita and the number of years that the average citizen spends in education.
(a) Explain the relationship between the two variables.
The two variables are positively correlated. This is because wealthier nations can afford better public services, including education.
Or, nations that invest in high quality education and training leads to a more productive workforce and national income grows.
The diagram to the right illustrates the relationship between mean years of schooling and life expectancy, in a range of nations.
(b) Explain the relationship between these two variables.
The two variables are again positively correlated. This is because wealthier nations can afford better public services, including both education and healthcare and so the two variables increase at the same rate when a nation's GDP rises.
Or, improvements in education are likely to lead to a healthier population through lower birth rates and improved diet and life styles.
Activity 6: Gender related development index (GDI)
The GDI measures the level of gender equality in a country, or put another way the level of HDI adjusted for the level of gender inequality in an economy. The index measures differences in achievements between male and females in health, education and income. It uses the following criteria:
Health indicators - maternal mortality rate and adolescent birth rate.
Empowerment indicators - % of the female population who finished secondary education as well as the % of parliamentary seats taken by women.
Labour market indicator - % of women in the labour force and female and male estimated earned income.
The countries with the highest ratings on the gender development index are shown in the table below:
Country | Gender index rank (2018) | HDI rank (2018) |
Netherlands | 1 | 4 |
Sweden | 2 | 7 |
Denmark | 3 | 15 |
Switzerland | 4 | 9 |
Norway | 5 | 1 |
Finland | 6 | 21 |
Germany | 7 | 5 |
Slovakia | 8 | 22 |
France | 9 | 20 |
Iceland | 10 | 13 |
1. Using graph paper plot the above information on a graph and then using a line of best fit explain the relationship between HDI rank and the gender related index.
2. Explain possible reasons why a country with a high degree of gender equality may also enjoy a high level of development?
There are two plausible reasons that might explain this. The first is simple, that a nation with greater gender equality is more efficient, more able to draw on the whole talent base from within its nation and score higher in the other development indexes.
A second reason is that as a general rule nations with higher rates of development - those with healthier, wealthier and more educated citizens are more likely to be open to the idea of en-powering women generally. For example a nation is unlikely to score highly in HDI without a high level of educational literacy amongst its female population.
Activity 7: Human poverty index (HPI)
The human poverty index (HPI) measures the level of deprivation in a country. It measures the % of citizens in a country without access to education or health services. Specifically it identifies the chance that any person born into that country will have a long life, be enrolled in school and is able to afford a basic standard of living.
The HPI for Developing nations is calculated by the following:
- the % of children dying before 40 years of age
- the adult illiteracy rate
- the % of children without access to regular water supplies
- the number of children under the age of five that are underweight.
By contrast the HPI for Fully developed nations is calculated by:
- the % at birth of children dying before 60 years of age
- the % of adults requiring practical proficiency aptitudes
- the % of individuals living below the poverty line, set at half the median wage and the number of adults unemployed for 12 months or more.
Activity
The following table relates to three wealthy, fully developed nations.
GNI per capita $ PPP | HDI | HPI | % of people dying before 60 years old | % lacking literacy skills | Long-term unemployment (%) | % below 50% of median income | |
Germany | 49,990 | 0.926 | 10.3 | 8.6 | 14.4 | 5.8 | 8.5 |
USA | 57,740 | 0.920 | 15.4 | 11.6 | 20 | 0.4 | 17 |
Sweden | 48,700 | 0.913 | 6.3 | 6.7 | 7.5 | 1.1 | 6.5 |
1. Suggest possible reasons why Sweden appears to have lower rates of poverty despite lower levels of HDI and GNI?
2. What measures can Developed nations take to reduce poverty levels in the economy?
Sweden is a nation with a very high rates of progressive tax but also highly developed welfare programmes, extensive (free) healthcare programmes and high out of work benefits packages, not available in either Germany or USA. These two policies combined, do not necessarily encourage a high GNI (which also reduces HDI levels) but are very effective in reducing poverty rates.
Activity 8: Composite indexes (SEDA index)
The following video highlights a slightly more sophisticated index.
(a) Which indicators does the index measure?
GDP, education, the environment, safety and security, access to public services and individual freedom. It measures real improvements in living standards between nations.
(b) How does the ranking work?
Rather than providing an individual rank it comments on those areas where a nation is dong well e.g. Morocco is ranked highly on the basis of gender equality.
Activity 9: TOK connections
Based on what you have learnt from this page, which particular method for measuring development is the most effective?
What knowledge issues might be encountered in constructing a composite indicator to measure development?
Activity 10: Simulation
End this lesson with this fun simulation on the worlds largest cities.
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