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4 Key Indicators of Economic Development


The following points highlight the four key indicators of economic development. The key indicators are: 1. Per Capita Income 2. Poverty 3. Social and Health Indicators 4. Operational Pattern.

Key Indicator # 1. Per Capita Income:

The most important indicator of economic underde­velopment is low per capita income. Usually, an LDC is defined as one in which per capita real income is low when compared with that of USA, Canada, Australia and Western Europe. Statistical studies show low-in- come countries are much poorer than advanced countries like the USA.

In fact, their measured per capita incomes are above 20% of those in high-in- come countries. However, Prof. Samuelson states that standard compari­sons are distorted by the use of official exchange rates to compare living standards.


A new technique, looking at ‘purchasing-power parity’, or what incomes will actually buy suggests that incomes in poorer countries are probably considerably exists.” What is more serious is that over the years the gap, instead of narrowing, is actually widening.

However, some economists have expressed the view (and rightly so) that one cannot treat a country as developed only because its per capita income is as high as that of the USA, or Switzerland. As Joan Robinson has com­mented, “For several of the Arab States, GNP per capita suddenly jumped to levels which exceed that of the richest western states. Yet, in these countries are found some of the poorest and least developed communities in the world”.

Similarly, Italy is a developed country by current standard. But some parts of the country that the level of development or the state of underdevelopment of a country may not necessarily be reflected in its per capita income or the average living standards.

Key Indicator # 2. Poverty:

The second important indicator of economic underdevelop­ment is poverty. Not only per capita income is low, there is inequality in the distribution of income. Many people in LDCs do not get the minimum level of income necessary for a minimum caloric intake are said to be living below the poverty line. In India it is 25% at present.


It is easier to describe poverty than to measure it. Typically, poverty is defined in an absolute sense: a family is poor if the income falls below a certain level. The World Bank uses per capita GNP of less than $480 as its criterion of poverty.

Poverty is also a relative concept. Family income in relation to other incomes in the country or region is important in determining whether or not a family feels poor.

Basic Human Needs:

Since per capita income figures of different countries are a rough indicator of poverty, some economists suggest indicators of how basic human needs are being met. Although there is hardly any agreement on the exact defini­tion of basic human needs, the general idea is to set minimal levels of caloric intake, health care, clothing and shelter.



An alternative to per capita income is a physical quality-of-life index to evaluate living standards. The most common approach uses life expectancy, infant mortality and literacy as indicators. In this context Boyes and Melvin comment that “Per capita GNP and quality-of-life indexes are not the only measures used to determine a country’s level of economic development, economists use several indicators to assess economic pro­gress.”

Key Indicator # 3. Social and Health Indicators:

There are also certain social and health indicators of economic backwardness. These show the effects of poverty in poor countries. Life expectancy at birth is low, but rate of infant mortality is high. The percentage of illiterate people in total population is high. Educational attainment by most people is modest, reflecting low levels of investment in human capital.

Key Indicator # 4. Operational Pattern:

Another important indicator of economic back­wardness is occupational pattern. It is widely believed that the countries in which most of national output or national income is derived from the primary sector (i.e., agriculture, forestry, animal husbandry, mining etc.) are underdeveloped.

In other words, the greater the contribution of agricul­ture, the more economically backward a country is supposed to be. Most people in LDCs live in rural areas and work on farms. In India, for example, 70% of the total population depends on agriculture directly or indirectly.

In advanced countries most people work on factories or are engaged in trade and professions. Similarly, the contribution of agriculture and allied activi­ties to net national product is quite high. In India, it is around 40% at present. In advanced countries the percentage is between 8 to 10.

As Misra and Puri have put it, “Most of the poor countries are essentially agricultural and even if some industries have been established in these countries, their impact is yet to be felt on the socio-economic life of the people.”

However, a related point may also be noted in this context. There is great diversity in income and living standard among developing countries. Some live under severe hardship and are on the verge of starving (e.g., Bangladesh or Ethiopia).

Others that were in this category two or three decades ago have achieved some progress and move into the rank of middle-income coun­tries, (e.g., Egypt, Philippines, and Mexico). The most successful ones are called the newly industrialising countries (e.g., Hong Kong, South Korea and Taiwan).

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