What Are the Different Measures of Economic Development?

Mary McMahon

Measures of economic development can take social factors, hallmarks of economic growth, and market characteristics into consideration. These allow analysts to determine not just whether an economy is growing, but whether it is becoming more stable and improving quality of life for area residents. Many of these measures can be objectively assessed, which allows for comparisons between nations and economies. Detailed analysis of this nature can help nations identify areas where their economies need work, as well as achievements.

Skilled laborers, such as CNC operators, often struggle to find or keep jobs in a faltering economy.
Skilled laborers, such as CNC operators, often struggle to find or keep jobs in a faltering economy.

Social factors are linked with quality of life, which is one of the important measures of economic development. Analysts can look at life expectancy, literacy rates, and infant mortality, for example. The first two examples should rise over time, while the third should drop. Other factors can include urbanization, the distribution of wealth, and responses on surveys that measure happiness and satisfaction. Overall physical and mental health can be another social factor under consideration.

The growth of the construction industry is an economic development indicator.
The growth of the construction industry is an economic development indicator.

Gross national product per capita is another of the measures of economic development. This provides an overview of the value of the goods and services a nation produces in a given year. Along with other indicators of growth like increasing consumption, greater rates of financial activity, and capital investments in infrastructure, this can indicate a nation's economy is growing. Analysts may also evaluate the credit ratings assigned to the government, which can be a sign of confidence from credit agencies. Another consideration can be treaties, agreements, and other interactions with trade partners.

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Distribution of resources to areas like the military often occurs in the final stage of economic growth.
Distribution of resources to areas like the military often occurs in the final stage of economic growth.

Other measures of economic development can include market characteristics. The structure of the workforce is one consideration. If workers are primarily employed in low skill tasks that do not require specialized training, this is not indicative of development. By contrast, more skilled laborers, particularly people with advanced professional degrees, show that an economy is improving. The level of innovation and technology is also a useful indicator, as developing economies tend to be characterized by leaps and bounds in technology.

Literacy rates are one common measure that's used when assessing economic development.
Literacy rates are one common measure that's used when assessing economic development.

Analysts developing measures of economic development may also consider regional differences. A nation's capital could have strong indicators of growth such as improved infrastructure, a growing professional class, and generally good health among residents. Conversely, rural areas might be neglected, with few of the gains made in urban communities. The stark differences between these regions could hinder economic development in the long term. For example, a government might need to invest heavily in infrastructure improvements to bring rural standards of living up to a more comparable level, and this could potentially destabilize the economy.

A nation's capital could have strong indicators of growth such as improved infrastructure.
A nation's capital could have strong indicators of growth such as improved infrastructure.
Some locations might be considered as being in the first stage of economic growth and development, with limited use of technology.
Some locations might be considered as being in the first stage of economic growth and development, with limited use of technology.

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Discussion Comments

SarahGen

@ysmina-- It's true that economic development isn't always the result of economic growth. But any nation that wants long-term economic growth will have to invest in areas that result in economic development. Otherwise the economic growth and wealth will be short-lived.

Most people think of economic growth resulting in development. But it goes the other way around too. Economic development also encourages economic growth. Healthy citizens are more productive for example and educated citizens innovate. Developing a country's rule of law and banking system encourages investment.

So economic growth is an indicator of economic development and development is also an indicator of economic growth.

ysmina

As far as I know, economic development has more to do with government policies than economic growth. An economy may grow but this growth may not benefit society much if the wealth isn't invested and distributed correctly. So is it right to consider economic growth as a measure of economic development then?

fify

Happiness and satisfaction of people has long considered to be a measure of economic development. But I saw a study sometime back which showed the opposite. The study found that economic development doesn't necessarily lead to happiness and satisfaction. They even quoted depression rates in some developed countries as evidence of this.

If this is the case, that's very interesting. I don't think that economic development has no impact on happiness. I'm sure it does. But perhaps, after a certain level of development, this effect reduces. What does everyone here think about this?

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