ECS3707 Assignment 3 Semester 2 2024 | Due 17 September 2024
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Course
Development Economics (ECS3707)
Institution
University Of South Africa (Unisa)
Book
Economic Development
ECS3707 Assignment 3 Semester 2 2024 | Due 17 September 2024. All questions answered.
Question 1
1. Critically assess the merits of using economic metrics such as Gross Domestic Product (GDP)
per capita versus broader multidimensional measures like the Human Development Index (HDI)
or Mul...
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Question 1
1. Critically assess the merits of using economic metrics such as Gross Domestic Product (GDP)
per capita versus broader multidimensional measures like the Human Development Index (HDI)
or Multidimensional Poverty Index (MPI) for understanding development progress.
1.1. Compare and contrast the key components and methodologies of GDP per capita, HDI, and
MPI. What aspects of development does each aim to capture?
Economic development has traditionally been measured using economic metrics such as Gross
Domestic Product (GDP) per capita, but in recent decades, broader, multidimensional measures like
the Human Development Index (HDI) and Multidimensional Poverty Index (MPI) have gained
prominence. These newer indices attempt to capture a wider array of factors influencing human
well-being, as GDP per capita alone has been increasingly criticized for its limitations in reflecting
overall quality of life, distribution of wealth, or social welfare. This essay critically assesses the
merits of using GDP per capita in comparison to HDI and MPI for understanding development
progress by first comparing and contrasting their components and methodologies, and then
examining the aspects of development that each aims to capture.
GDP Per Capita
GDP per capita is the most widely used economic metric for measuring development. It is calculated
by dividing a country’s total Gross Domestic Product—the monetary value of all goods and services
produced within its borders—by its population. This gives an average income per person and is often
interpreted as an indicator of the standard of living in a country.
Key Components and Methodology
GDP per capita is an aggregate measure that reflects the size of an economy relative to its population.
Its calculation involves:
Total GDP: The sum of all economic activities within a country, including consumption,
investment, government spending, and net exports.
Population: The total number of people in the country.
The merit of GDP per capita lies in its simplicity and comprehensiveness in capturing economic
activity. It provides a clear indication of a country's economic size and growth potential, helping to
track whether a nation’s economy is expanding or contracting over time. However, its limitations are
equally notable. GDP per capita does not account for income distribution, regional disparities, or
non-economic aspects of development such as education, health, or quality of life. It also fails to
capture environmental degradation or the sustainability of growth, thus offering only a narrow view
of development focused primarily on wealth creation.
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