Monday, June 11, 2018

Economics Lecture 3 – Class Notes 2



National Statistical Organization

Problems faced in the estimation of National Income

I. Conceptual problems – what should be included or excluded in NI? (e.g. which activities of foreign firms or the govt should be considered productive?)

II. Practical or Statistical problems – small shopkeepers, casual workers etc don’t keep a proper record of their income/expenditure; non-market activities (self-consumption) are tough to estimate

Per Capita Income = National Income/Population

     For FY 2011-12, it was Rs 60,000 (nominal)

Economic Growth and Development

     If the production of goods and services increases, we call it Economic Growth

     That process of Economic Growth which leads to improvement in the general welfare of people is called Economic Development. It means progressive changes in the socio-economic structure of the country

Economic Growth Economic Development

Increase in production Increase in production and welfare

Quantitative concept Qualitative concept

Uni-dimensional Multidimensional

Just a means to an end An end in itself – this is what countries aim at

Major concern of developed countries Major concern of developing countries

Growth can happen without development Development cannot happen without growth

Indicators
   Real GDP
   Real per capita income Indicators
   Human Development Index
   Physical Quality of Life Index
   Net Economic Welfare (NEW)


Net Economic Welfare (NEW) – The major problem of GNP as a measure of welfare is that it measures the commercial transactions taking place in the economy while the welfare of the individuals depends on many other non-transactional aspects. This concept of NEW was popularized by Paul Samuelson.

NEW = GNP + Housewives’ Services + Value of Leisure – Expenditure on defence – Cost of Environmental degradation

Practically, it is tough to estimate this. Therefore, it was not widely adopted

Per Capita Income (PCI) – It is not a satisfactory indicator of economic development because it increases if the overall national income increases, without regard to the composition of the national income.


For example, even if the govt produces a lot of weapons during war, PCI will go up. It does not take into account the welfare dimension (poverty, literacy, political liberty, environment etc).

Physical Quality of Life Index (PQLI) – Introduced by M D Morris in 1979, it is the average of three statistics: basic literacy rate (at the age of 15 years), infant mortality, and life expectancy at age one, all equally weighted on a 0 to 100 scale. It was widely used till 1990, when HDI was introduced.

Human Development Index (HDI) – It was created by economist Mahbub ul Haq (Pakistan), followed by  economist  Amartya  Sen  in  1990,  and  is  published  by  the  United  Nations  Development Programme.

Three basic things separate the HDI from the rest: First, HDI is supplemented by other indices that give, separately, specific characteristics of development and, together, a broader picture of the development  processes  taking  place.


 Second,  it  was  developed  and  is  backed  by  the  United Nations Development Programme (UNDP), the major United Nations development agency and a major international forum of development.


Third and most important, human development is not only a new measure of development performance; it involves an altogether new approach to development efforts.

The  three  dimensions  of  HDI  are  long  and  healthy  life  (indicator  –  life  expectancy  at  birth), knowledge (indicator – mean and expected years of schooling) and decent standard of living (GNI per capita).

The geometric mean of the three indicators is the HDI.

2010 Human Development Report was important because it was the 20th year of HDI measurement and certain changes were introduced in the parameters of HDI


GNI per Capita = GNP/Population; Per Capita Income = NNP/Population
Life Expectancy index for a country = (Actual value – minimum value)/(Maximum Value –
Minimum Value)
o So, for India, it is (65.4 – 20)/(83.4 – 20) = 45.4/63.4 = 0.716
o Similarly, other indices are also calculated

India’s HDI is 0.547, placing it at a low rank of 134 out of 187 countries.

o India has the world's largest number of multidimensionally poor, more than half of the population, at 612 million

o Overall ranks – 1. Norway 2. Australia 3. New Zealand 4. US……187. Republic of Congo

o India was below China but above Pakistan

o India features in the ‘Medium Human Development’ group



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