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Indicators of Development - The Obsolescence of GDP and the Greater Precision of the HDI

The importance of appropriate indicators of development derives from the utility they have inside a plan of welfare policy of a country. In general, the appropriateness of an economic indicator is related to its capability of reflecting reality into a number: in other words, the less the index alters the aspect of reality it is measuring, the more appropriate it is to reflect it. Converting a quality of something into a statistic is necessarily an arbitrary action because quality is not intrinsically measurable. The arbitrariness is given by the assumptions underlying the choice the operator makes to establish what he wants to measure and, above all, how he wants to do it. In the hypothesis the operator reputes that quality may be better reflected into a composite index, i.e. an indicator constructed by combining a plurality of variables, the problem of the arbitrariness of the choice of the variables is immediately followed by the problem of the choice of the composition of the index.
This kind of problems has affected the Human Development Index (HDI) whose capability of describing such a complex reality as human development has often been questioned. The HDI is a composite index: it is the result of the measurement of longevity, education attainment and «command of resources to enjoy a decent standard of living» (UNDP, 1990, p. 1) considered relevant to the description of a country’s development. In spite of these difficulties, which are not merely theoretical but have concrete importance for the creation of a composite index that might be able to reflect the development of a country, the HDI has been generally welcome by the scientific community because, beyond all its possible imperfections, it is undoubtedly the most successful attempt made to surpass the most widely used indicator of a country’s progress, the Gross Domestic Product (GDP). Even the 1971 Nobel Prize-winner Simon Kuznets, considered the father of GDP, declared in his first report to the Congress that «[e]conomic welfare cannot be adequately measured unless the personal distribution of income is known» and that «[t]he welfare of a nation can, therefore, scarcely be inferred from a measurement of national income» (1934 cited in Cobb, Halstead and Rowe, 1995, p. 67); nevertheless, governments have maintained their attention focused on this index as the measure of development. As a consequence, for decades public policies have been oriented by GDP in the pursuit of economic growth, overlooking the relevance of other parameters of economic and social welfare.
The aim of this work is to analyse the reasons of the importance of changing the main indicator of a country’s progress. The study explains firstly why it is necessary to abandon the use of GDP as indicator of a country’s welfare and consequently as the lighthouse of public policies, and secondly why the HDI constitutes a better alternative, despite its shortcomings. This change implies a revolution of the point of view which leads to the choice of the indicator as the best depiction of progress: to this purpose it is useful to start by comparing the different paradigms which justify the use of one index rather than the other.

Mostra/Nascondi contenuto.
3 Introduction Intrinsic problems of the choice of appropriate indicators The importance of appropriate indicators of development derives from the utility they have inside a plan of welfare policy of a country. Such utility may be both backward-looking in the process of policy analysis, allowing the comparison of results over time and between different nations or regions, and also forward-looking in the decision-making process. In general, the appropriateness of an economic indicator is related to its capability of reflecting reality into a number: in other words, the less the index alters the aspect of reality it is measuring, the more appropriate it is to reflect it. There is a significant difference between the attempt of calculating a quantitative aspect of reality and the attempt of converting the quality of something into numbers. Indeed, in the first instance the problem is basically reduced to collecting data, while in the second one there are more difficulties: choosing how to measure that specific quality – i.e. the choice of the variable or variables judged relevant to the description of that qualitative aspect of reality –, the composition of the indicator in case it is multidimensional and, of course, the collection of related data. Converting a quality of something into a statistic is necessarily an arbitrary action because quality is not intrinsically measurable. The arbitrariness is given by the assumptions underlying the choice the operator makes to establish what he wants to measure and, above all, how he wants to do it. When the operator is deciding which measurable dimension or dimensions can give the most appropriate information about a certain quality, he or she is choosing at the same time to ignore all the others. In the hypothesis the operator reputes that quality may be better reflected into a composite index, i.e. an indicator constructed by combining a plurality of variables, the problem of the arbitrariness of the choice of the variables is immediately followed by the problem of the choice of the composition of the index. Indeed, he or she faces the question “Do all dimensions I chose have the same importance into this quality?”, which brings to a second one, “Should all variables I chose have the same weight into the indicator?”.

Laurea liv.I

Facoltà: Scienze Politiche

Autore: Andrea Sandrini Contatta »

Composta da 68 pagine.

 

Questa tesi ha raggiunto 208 click dal 16/09/2011.

Disponibile in PDF, la consultazione è esclusivamente in formato digitale.