Measuring Economic Development (DP IB Global Politics: SL): Revision Note

Why measure economic development?

• Economic development refers to improvements in the material standard of living within a state

• Measuring economic development allows comparisons to be made between states and over time

  • This helps governments and IGOs identify where support is needed

• The two most widely used economic measures are

  • Gross Domestic Product (GDP)

  • Gross National Income (GNI)

• Both measures focus on income and output

  • However, neither captures the full picture of how well people in a state are actually living

• This is why economic indicators are often used alongside social, political and environmental measures

Gross domestic product (GDP) and GDP per capita

• GDP is the total value of all goods and services produced in a state

  • Commonly used to measure economic development

  • A simple and easy way to measure a state’s wealth

  • Measured over a period (annually or quarterly) and is expressed in US$

• GDP per capita is a state's total GDP divided by the number of people living in the state

  • GDP per capita is more informative than GDP alone because it takes into account the number of people (population) sharing that wealth

World GDP per capita in 2022

• This GDP per capita map provides a general overview of the economic wealth of people in different states

• Using GDP and GDP per capita to measure economic development has limitations

  • It only measures economic activity and does not consider the sustainability of this activity

  • GDP per capita does not indicate how the wealth is divided or distributed in society

Gross national income (GNI)

• GNI is Gross Domestic Product plus all income earned abroad by residents (and companies)

• GNI per capita is the total income divided by the number of residents in a state

• GNI can be higher or lower than GDP depending on the balance of income flows

  • Companies and individuals have high profits from foreign sources and bring this money “home”

  • Individuals may be earning large salaries or investment income from abroad

  • Workers may cross borders to work and therefore the income they bring back to their home country contributes to GNI

World Bank income groups, 2024

• The World Bank's income classification divides countries into four categories based on their gross national income (GNI) per capita

• Using GNI per capita to measure economic development also has limitations

  • GNI per capita gives an average, so it can hide large inequalities

    • A country may appear developed even if most people are poor and only a small group is very wealthy

  • GNI only shows economic output and income, not factors like healthcare, education or living conditions, so it does not fully reflect people’s standard of living