Indicators of Economic Development

Because development is multi-dimensional, economists use several indicators, ranging from a single income figure to composite indices that combine several welfare measures together.

1. Per Capita Income (PCI)

Per capita income is the simplest and oldest indicator of development. It is obtained by dividing a country's national income by its total population.

• A rising per capita income suggests that, on average, people have more purchasing power.
• Limitations: it is only an average — it says nothing about how income is distributed, and it ignores non-income aspects of welfare such as health, education, and the environment. Two countries with the same per capita income can be at very different levels of development if one has far more unequal distribution than the other.

2. Human Development Index (HDI)

Recognising the limits of income-based measures, the United Nations Development Programme (UNDP) introduced the Human Development Index, a composite index combining three dimensions of human development:

1. A long and healthy life — measured by life expectancy at birth.
2. Knowledge — measured by mean years of schooling and expected years of schooling. …