Development Economics.pptx

Introduction to Economic
Development
Prof. Nithin Kumar S
Assistant Professor
Department of Economics
JSS Banashankari Arts, Commerce and
Shantikumar Gubbi Science College
Vidyagiri, Dharwad - 580004

Introduction
• Development economics is a branch of economics that
focuses on improving fiscal, economic, and social
conditions in developing countries.
• Development economics considers factors such as
health, education, working conditions, domestic and
international policies, and market conditions with a
focus on improving conditions in the world's poorest
countries.
Mr. Nithin Kumar S 2

• Development economics studies the
transformation of emerging nations into
more prosperous nations.
• Strategies for transforming a developing
economy tend to be unique because the
social and political backgrounds of
countries can vary dramatically.

Definitions of Development
Economics
• Prof. Schumpeter – “ Development is a
discontinuous and spontaneous change in
the stationary state which forever alters
and displaces the equilibrium state
previously existing.”

• Okun and Richardson – “Economic
Development is a sustained, secular
improvement in material well-being,
which may consider to be reflected in an
increasing flow of goods and services.”

• Prof. Meir and Baldwin – “A process
where by an economies real national
income increases over a long period of
time.”

• Prof. C. P Kindleberger – “Economic
Development implies both more output
and changes in the technical and
institutional arrangements by which it is
produced.”

• Prof. Oomen – “Economic Development
refers to the raising o the people from
inhuman elements like poverty,
unemployment, ill-health etc. and making
theme more human.”

• UN Experts – “Development Concerns
not only man’s material needs but also the
improvement of the social conditions of
his life. Development, therefore, not only
economic growth but plus change- social,
cultural and institutional as well as
economic.”

Meaning of Economic Growth
• Economic growth is an increase in real national
income. As more goods and services are produced, the
real income of a nation (usually measured in terms of
gross national product or gross domestic product)
increases and people are able to consume more.
• Growth of national income is described as an annual
rate of percentage change in real GNP or GDP per
annum

Features of Economic
Development
1. Economic Development is a dynamic process
2. Economic Development is a long run Phenomenon
3. Economic Development is measured by real per capita income
4. Economic development involves qualitative as well as quantitative
improvements
5. Economic Development is based on principle of distributive justice
6. Economic development is based on human approach

1. Economic development is a
dynamic process
• It implies that the development variables
should continue changing to suit the
requirements of economic development.
• It is a process involving the interplay of
several development variables.

2. Economic development is a
long term phenomenon
• It signifies that economic development is
not a miracle which can be performed in a
short span of time.
• But it is a long period affair spreading over
several years and decades.

3. Economic development is measured
by real per capita income
• Higher the per capita real income, higher will be the economic
development.
• It implies that higher per capita real income is possible only
when price level and population growth are kept under
control.
• If at all, there is increase in these two variables, the increase
should be insignificant.
• Hence, price stability and constant population help economic
development.

4. Economic development involves
qualitative as well as quantitative
improvements
• Economic development calls for qualitative as well as quantitative
improvements in the development process.
• In other words, economic development implies growth plus change. Growth
is the symbol of increase in development variables such as output, real
national income, capital investment etc.
• This feature suggest the multi-dimensional character of economic
development.
• Political stability, efficient and effective administration, international peace
and cooperation are the multi ingredients of economic development.

5. Economic development is based on the
principle of distributive justice
• Fair and equitable distribution of wealth
makes economic development more
meaningful.
• In case of strong inequalities, people will not
be prepared to cooperate in the
implementation of development
programmes.

6. Economic development is based
on Human Approach
• According to Dr Oomen, "Economic
development refers to the raising of the
people from inhuman elements like
poverty, unemployment, ill-health etc. and
making them more human".

Differences between Economic
Growth and Development
1. Economic Growth refers to mere increase
in output of goods and services. But
Economic Development means increase
in output of goods and services due to
technological and institutional Changes

2. As economic Growth implies increase in
production of goods and services, it is a
quantitative concept. On the other hand ,
economic development implies Increase
in Production of goods and services due
to technological and institutional
changes, it is a qualitative concept

3. Economic Development is unidirectional.
But Economic Development is
multifaceted
4. Economic development is a phenomenon
where economic Growth is a process

5. Economic Growth is mainly related to
developed economies, whereas economic
development is the main objective of
developing countries
6. Economic Growth may not ensure the
wellbeing of the people. But economic
development ensures the welfare of all
categories of people

Importance of Indicators or Measures of
Economic Development
• Indicators and measures of Development are essential
for the following reasons
1. To provide a base for the formulation of
developmental Programmes
2. To find out the direction and the phase of change of
the economy
3. To find out the result of a given set of programmes
adopted under planning

4. To analyze and examine the problems of
economic growth in underdeveloped countries
5. To assess the growth of the country at different
period of time and have to a comparative picture
of economic growth
6. To have a comparative analysis of economic
growth of different countries and different
regions within the country

Measurement or Indicators of
Economic Development
• We have defined economic development as
the process in which several forces and
factors operate to bring about an economic
change for the better.
• There are four types of indicators to measure
economic development. They are

1. Gross-National Product (GNP):
2. Per Capital Real Income
3. Welfare Index
4. Social Indicators

Gross-National Product (GNP)
• Gross-National Product (GNP) and per
capita real income are widely recognized
as the measures of economic development.
• GNP refers to total output of final goods of
a country produced in a given period of
time-normally one year.
• It is also called Real-National Income.

• If the value of total output and services are
expressed in money terms it is known as
National Income.
• When GNP increases rates of development
also increases and vice versa.

• A larger real national income is a prerequisite
for an increase in real per capital income.
• When GNP increase, per capital-real income
also increases and thereby results.
• Meier and Baldwin favor this method as a
basis for measuring economic development.

• According to them, GNP is the most
suitable index of economic development.
• For this purpose, Net National Product
(GNP- Capital Depreciation Charges =
NNP) is preferred to GNP, since it gives a
better picture about the progress of an
economy.

Per Capital Real Income
• Per capital Real Income is another indicator
of economic development.
• Economic development increases when real
per capital (i.e., GNP per capita) income
increases, at a faster rate than increase in the
rate of population.

• When per capita income increase at a
faster rate than rate of population it
improves the living standard of the
common masses and thereby increases
rate or economic development.

Welfare Index
• Main objective of economic development
is to promote welfare of the people.
• Therefore, an increase in economic welfare
will be more appropriate index of
economic development than other
indicators.

• Welfare is regarded as a
process whereby there is an
increase in the consumption of
goods and services of
individuals.

• Welfare Index not only deals with what is
produced but also how it is produced, and
how it is distributed.
• Therefore, welfare criteria implied
efficient allocation of resources,
composition of output, distributive justice,
increase in the supply of public goods etc.,

Social Indicators
• In recent years attempts have been made to measure
economic development in terms of social indicators.
• Social indicators imply health, nutrition food, literacy,
education, housing facilities, skills, employment, social
security, recreation, and consumption of basic
necessities.
• Thus social indicators refer to quality aspect of the
development process.

Indicators of Economic
Development
1. Increase in Production
2. Growth of Capital formation and investment
3. Industrialisation
4. Mobilisation of Resources
5. Eradication of Poverty
6. Expansion of Employment opportunities
7. Population Control
8. Technological and Scientific Advancement

9. Increase in Export
10.Inculcating Development oriented
Attitude
11.Political stability
12.Building Up of Social infrastructure
13.Capacity building

Physical Quality Life Index
• Economic progress is said to have been
achieved in any country when the Gross
National Product increases.
• Gross National Product is the value of all
goods and services produced in a country
during a year.

• But in the modern era where economic
activities and way of life are commercialized,
the concept of national product cannot give
proper information about the economic
progress of the country and the welfare of the
people.

• Certain works and services cannot
be taken into account in the
estimation of gross national
product.
• Items such as food grains,
vegetables, milk produced in rural
areas cannot be included in the
calculation of national income.

• Also, when family members work on farms or
in factories, their earnings are not included in
the estimate of national income.
• Due to these reasons the Gross National
Product does not properly reflect economic
progress.

• Therefore, some economists are of the view
that economic progress in developing
countries like India should be measured in
terms of improvement in people's living
standards rather than gross national product.
• Economic progress can be estimated on the
basis of whether people's pains and sufferings
have increased or decreased.

• That means economic progress can be said to have
been achieved if the level of poverty and
unemployment is reduced.
• So recently some American economists have
considered gross national product unreliable as a
measure of economic progress in poor countries.
• Instead, he introduced the concept of 'Physical
Quality of Life Index'.

• This concept suggests that for economic
progress to be achieved and people's
economic well-being to improve, their
physical quality of life must improve.
• ‘Physical Quality' refers to the basic
amenities necessary for life rather than real
income in the form of monetary income or
goods.

• For example, educational opportunities,
health facilities, medical services,
employment opportunities etc.
• When these facilities are available, people's
lives improve and the quality and efficiency of
labor increases.

Components
• The Physical Quality of Life Index consists
of three components
I. Literacy
II. Life Expectancy
III. Infant Mortality Rate

Literacy
• The higher the literacy rate, the better the
physical quality of life.
• This is because it reflects the increase in
educational facilities and the increase in the
number of literates.
• Literacy rates are high in developed
countries.

Life Expectancy
• The number of years a person is expected to live is
called life expectancy.
• The lower the mortality rate, the higher the
expectation if death occurs late.
• Higher life expectancy means better health facilities,
disease-free nursing and sanitation.
• Life expectancy is higher in developed countries and
lower in developing countries.

Infant Mortality Rate
• Infant Mortality Rate is another indicator of physical quality
of life.
• If a born child dies before reaching one year of age, it is called
infant mortality.
• If good health facilities exist, nutritious food is available to
mother and child, and disease prevention drugs are readily
available, infant mortality rates are low.

• Infant mortality rates are high if there is a
lack of health facilities and nutritious food.
• Infant mortality rates are high in
developing countries.
• Because those countries lack health
facilities and nutritious food.

• Accordingly, 'Physical Quality of Life
Index' is the standard proposed instead
of Gross National Product to determine
economic progress in LDCs.

Limitation
1. Narrow Measuring Rod
2. Not a Proper Measure of Economic
Welfare
3. Excessive Importance

Narrow Measuring Rod
• The index of physical quality of life has been
criticized as not a comprehensive standard.
• It does not measure economic progress.
• Also it fails to explain structural changes in
economic and social organizations.
• In short, the physical quality of life index is a
narrow measure of living needs.

Not a Proper Measure of
Economic Welfare
• It has been criticized that the physical
quality of life index is not a proper
measure of economic welfare.
• It does not measure the overall well-being
of a population or an economy.

Excessive Importance
• It has been criticized that literacy, life
expectancy and infant mortality factors
have been given excessive importance
while preparing this index.

Human Development Index
• The attempt to find another yardstick to
replace Gross National Product in the
measurement of economic development
has given birth to a new concept called
'Human Development Index'.
• This Concept came to existence In 1990

• The 1990 Human Development Report of the
United Nations defined human development
as "the process of expanding people's
options“
• Even the most disadvantaged people should
live long and healthy lives, be well educated
and enjoy a good standard of living including
various aspects of political freedom, human
rights and self-respect

• All these are essential choices, without
which opportunities for the expansion of
human life would be restricted.
• Accordingly, human development is the
process of widening people's options and
raising the level of well-being achieved.

• Human development is another important
indicator of overall economic development.
• The Human Development Index consists of
seven components. They are:
i. Equity
ii. Sustainability
iii. Productivity
iv. Empowerment
v. Life expectancy
vi. Academic achievement
vii. Standard of living

Equity
• Development should broaden
people's choices and people
should have equal access to
opportunities.
• For this to be achieved the
following factors must be
essential.

i. Redistribution of productive assets
through measures like land reforms
ii. Transfer of resources from the rich to the
poor through the instrument of policy
iii. Achieving equality in political freedom
through the improvement of voting rights

Sustainability
• The fruits of present development should be
enjoyed while conserving and growing sufficient
resources to meet the needs of future generations.
• This is sustainable development, if sustainable
development is not achieved, future generations
will not be able to enjoy the fruits of development.

Productivity
• Productivity is an essential element of human
development
• If productivity is to increase, investment in human
resources must increase
• That means facilities like health, education,
training, sanitation etc. should be expanded.
• Only then can man reveal his maximum potential.

Empowerment
• Human development is achieved when people are fully
empowered
• Empowerment means when people are in a position to
exercise choices as they wish.
• It refers to political democracy where people influence
decisions about their lives.
• For empowerment to be achieved people must have financial
freedom and not have financial controls and regulations on
them.

Life Expectancy
• If the life expectancy of people is high then human
development will be an achievement.
• Higher life expectancy reveals factors such as
availability of better health facilities, increase in
human well-being, resilience of people, higher labor
efficiency, etc.
• If life expectancy is low, it means that human
development will not be achieved.

Educational Attainment
• Educational attainment is measured by adult literacy
and student enrollment in schools and colleges.
• Adult literacy should be a 100 percent achievement.
• Similarly, enrollment of students in primary,
secondary and higher education should be 100
percent achievement. Then it means educational
achievement.

Standard of Living
• Standard of Living is measured by real per capita
income and purchasing power.
• The higher the real per capita income, the higher
the purchasing power of goods and services.
• Then the standard of living will be better.
• If the real per capita income is low then the
standard of living will be low.

• The standard of living index consists of
four main components which are
described below.
1. Real Per Capita Income
2. Level of Consumption
3. Minimum Necessities
4. Minimum Comforts

Real Per Capita Income
• Real Per Capita Income is the most important
indicator of standard of living.
• Real per capita income means the amount of
goods and services available to each
individual.
• Living standards are better when real per
capita income is higher.

Level of Consumption
• The higher the level of consumption of goods
and services, the better the standard of living.
• A person must have more income to purchase
goods and services.
• Similarly, production of goods and services
should be in sufficient quantity and available
for purchase.

Minimum Necessities
• Only when the minimum necessities of life are
available to a person, his standard of living is good.
• The most important minimum requirements are food,
clothing and shelter as well as health and education
facilities at minimum level.
• When all these are available more often, the standard
of living improves.

Minimum Comforts
• Comforts like entertainment are essential
for a person to be happy and to develop his
personality.
• When these amenities are available in
sufficient quantity, the standard of living
improves

Human Happiness Index
• Increase in production, expansion of employment opportunities,
increase in per capita income, availability of facilities etc. cannot
be perfect in measuring overall human development or well-being.
• For example, even though the per capita income is very high, there
may be a situation where people do not have access to many of the
facilities they need.
• No matter the output, income and facilities, and no matter the
level of human well-being, life is likely to be meaningless if he is
not satisfied

• In this background, 'World Happiness Index'
is being prepared through international
surveys from various countries around the
world.
• This index, which has been being prepared
since 2013, considers the factors that people
in different countries give importance to in
their lives according to their rank.

King Jigme
Singye
Wangchuck

• The Sustainable Development Solutions
Network of the United Nations is publishing
this report.
• In order for a human being to live happily or
comfortably, it is asserted that certain basic
elements are necessary.
• Things that contribute to comfort or
happiness are listed as follows.

I. Healthy life expectancy,
II. Social freedom,
III.Financial security,
IV.Social support,
V. Perception of corruption, and
VI.Generosity

Healthy Life Expectancy
• Healthy life expectancy is defined as the
expectation of living a healthy life without
the fear of any fatal disease or illness.
• A healthy life expectancy is essential for a
human being to live a happy and peaceful
life.

Social Freedom
• Social freedom means the freedom of every
individual to take decisions about his life.
• Man should have enough freedom to make choices
and decisions in life.
• There should be no occasion for him to postpone
choices and decisions or compromise his
principles for fear of social consequences.

Financial Security
• To achieve financial security, there should be an
increase in per capita GDP.
• If the Gross National Product grows at a rate higher
than the population growth in any country, poverty
alleviation and financial security can be achieved.
• Financial security not only gives a person happiness
and peace of mind, but also strengthens the belief that
future life will be stable.

Social Support
• Every person should get support from other people.
• Then one gets peace and security in life.
• Likewise every person should be supportive of
others.
• In such a case all the inhabitants of the entire
country will be able to live happily.
• Accordingly, social support is reciprocal.

Perception of Corruption
• People desire a corruption free system as bribery
or corruption creates injustice in the society,
makes people victims and leads to inequality.
• When people know about corruption and the evils
of a corrupt system, the feeling of living in a
corruption-free system gives them comfort or
peace.

Generosity
• Generosity is a basic human connection between
individuals & It involves empathy.
• Empathy is the power to attribute to oneself the
feelings, intentions or emotions of another person,
sometimes to the extent of imitating the
movements, physical movements of that person
and feeling them as one's own.

• Generosity is large-heartedness,
generosity and lack of smallness.
• When there is generosity a person has
sympathy or compassion for others and is
not narrow minded.
• When such a condition prevails in all
individuals, there is peace in the society.

World Happiness Index - 2023
• The World Happiness Index will be the
eleventh to be released in 2023.
• It involves studying the level of happiness of
people in 156 countries around the world.
• India will be ranked 126th in the 2023 index.
In 2021 it was ranked 139th, and in 2020 it
was ranked 144th.

• According to the 2023 index, Finland will be
the country with the highest happiness index.
• Denmark is next.
• According to the World Happiness Index
2023, the countries in the first 10 positions .
• The details are mentioned in the following
list

Rank Nation Happiness Index
1 Finland 7.804
2 Denmark 7.586
3 Iceland 7.530
4 Israel 7.473
5 Netherlands 7.403
6 Sweden 7.395
7 Norway 7.315
8 Switzerland 7.240
9 Luxembourg 7.228
10 New Zealand 7.123
126 India 4.036

Inequality
• Income inequality is a critical factor in determining
the level of progress and well-being of the citizens of a
country.
• Inspire of the growth and development achieved by
developing countries, the vast majority of population
remains poor.
• Thus inequalities have increased in spite of economic
progress.

• There are aspects of inequality
1. Vertical inequality
2.Horizontal inequality

• Vertical inequality is the traditional measure of
inequality which is discussed in the development
policy.
• Horizontal inequality is concerned with how the
different groups in society are treated, based on
race, religion, language, class, gender etc.
• Both the measures help to evaluate the well-being
of the people.

• It has been experienced that as an economy grows from a
traditional to a modern economy, growth is accompanied by
widening disparities in the personal income distribution.
• The disparities may occur due to various factors like
industrious nature of people and skills.
• Even opportunities may not be available for all which may
lead to inequalities.
• Lack of appropriate taxation system, and differences in
individual ability may result in inequalities.

• Later with more developmental efforts, the
inequalities will reduce.
• Horizontal inequality shows how economic
differences, social limitations and political power
together create inequalities among different groups in
a society.
• The groups may belong to different race, religion,
gender, class or language. Horizontal inequalities can
lead to conflicts within a society which adversely affect
the development process.

• As far as economic growth is concerned,
increased inequality creates dissatisfaction,
ill feeling and frustration among the poor
which may even lead to a civil war.
• Extreme inequality leads to economic
inefficiency.
• Inequality may lead to inefficient allocation
of resources.

Poverty
• The term poverty refers to the state or
condition in which people or communities
lack the financial resources and essentials
for a minimum standard of living.
• As such, their basic human needs cannot
be met.

• Each nation may have its own criteria for
determining the poverty line and counting
how many of its people live in poverty.
• Poverty is a socioeconomic condition that is
the result of multiple factors-not just income.
• These factors include race, sexual identity,
sexual orientation, and little to no access to
education, among others.

• Poverty is a state or condition in which a
person or community lacks the financial
resources and essentials for a minimum
standard of living.
• Poverty means that the income level from
employment is so low that basic human
needs can't be met.

• According to World Bank, Poverty is pronounced
deprivation in well-being, and comprises many
dimensions.
• It includes low incomes and the inability to acquire the
basic goods and services necessary for survival with
dignity. Poverty also encompasses low levels of health
and education, poor access to clean water and
sanitation, inadequate physical security.
• lack of voice, and insufficient capacity and opportunity
to better one's life.

• In India, 21.9% of the population lives below
the national poverty line in 2011.
• In 2018, almost 8% of the world's workers
and their families lived on less than US$1.90
per person per day (international poverty
line).

Causes of Poverty in India
1. Population Explosion
2. Low Agricultural Productivity
3. Inefficient Resource utilization
4. Low Rate of Economic Development
5. Price Rise
6. Unemployment
7. Lack of Capital and Entrepreneurship
8. Social Factors
9. Colonial Exploitation
10. Climatic Factors

Population Explosion
• India's population has steadily increased through the
years.
• During the past 45 years, it has risen at a rate of 2.2%
per year, which means, on average, about 17 million
people are added to the country's population each
year.
• This also increases the demand for consumption goods
tremendously.

Low Agricultural Productivity
• A major reason for poverty in the low productivity in
the agriculture sector.
• The reason for low productivity is manifold.
• Chiefly, it is because of fragmented and subdivided
land holdings, lack of capital, illiteracy about new
technologies in farming, the use of traditional
methods of cultivation, wastage during storage, etc.

Inefficient Resource
utilization
• There is underemployment and disguised
unemployment in the country, particularly
in the farming sector.
• This has resulted in low agricultural
output and also led to a dip in the standard
of living.

Low Rate of Economic
Development
• Economic development has been low in
India especially in the first 40 years of
independence before the LPG reforms in
1991.

Price Rise
• Price rise has been steady in the country
and this has added to the burden the poor
carry.
• Although a few people have benefited from
this, the lower income groups have
suffered because of it, and are not even
able to satisfy their basic minimum wants.

Unemployment
• Unemployment is another factor causing poverty
in India.
• The ever-increasing population has led to a
higher number of job-seekers.
• However, there is not enough expansion in
opportunities to match this demand for jobs.

Lack of Capital and
Entrepreneurship
• The shortage of capital and
entrepreneurship results in low level of
investment and job creation in the
economy.

Social Factors
• Apart from economic factors, there are
also social factors hindering the
eradication of poverty in India.
• Some of the hindrances in this regard are
the laws of inheritance, caste system,
certain traditions, etc.

Colonial Exploitation
• The British colonization and rule over India for
about two centuries de-industrialised India by
ruining its traditional handicrafts and textile
industries.
• Colonial Policies transformed India to a mere raw-
material producer for European industries.

Climatic Factors
• Most of India's poor belong to the states of Bihar,
UP, MP, Chhattisgarh, Odisha, Jharkhand, etc.
• Natural calamities such as frequent floods,
disasters, earthquake and cyclone cause heavy
damage to agriculture in these states.

Gini Coefficient
Corrado Gini
(1884-1965)

Introduction
• The Gini coefficient, or Gini index, is the most commonly used
measure of inequality.
• It was developed by Italian statistician Corrado Gini (1884-
1965) and is named after him.
• It measures inequality on a scale from 0(Zero) to 1, where
higher values indicate higher inequality.
• This can sometimes be shown as a percentage from 0 (Zero) to
100%, this is then called the 'Gini Index'.

• A value of 0 (Zero) indicates perfect
equality where everyone has the same
income.
• A value of 1 indicates perfect inequality -
where one person receives all the income,
and everyone else receives nothing.

How is the Gini coefficient
measured?
• A value of 0 (Zero) indicates perfect equality. (All have the
same wealth income) and 1 implies perfect inequality. (i.e.,
one person owns all the wealth in the country)
• In practice, the value falls between 0 and 1 for most countries.
In countries with high inequality, the value is close to 1.
• A value less than 0.4 is generally considered acceptable

Methods of calculation of Gini
Coefficient
• There are several ways to calculate the Gini
coefficient.
• The two most popular methods are
Based on pre-tax (market) income
Based on disposable income

• The second approach takes into account taxes and social
spending
• The difference in both means is an indicator of the
effectiveness of an economy's fiscal policy in reducing the
rich-poor divide through social spending and taxation.
• Mathematically, the Gini index is defined based on the
Lorenz curve.
• Lorenz curve is a graphical representation of
wealth/income distribution

Gini Coefficient India
• As per the World Bank, India's Gini Index is 35.2 (0.35) as of
March 2020.
• Currently, though, it is estimated to be close to 0.50, which is
the highest value to date.
• Lesotho currently holds the distinction of the country having
the highest Gini Coefficient at 0.632.
• The World Bank report indicates that India's high population
and uneven distribution of wealth is responsible for its low
performance in the index

Gini Coefficient Significance
• Gini coefficient is useful because it
projects negative values for income and
wealth which standard measures of
inequality are unable to provide.
• But it does have its fair share of
limitations.

Other Reasons
 An increase in the Index implies that the government's
policies benefit the rich more than the poor and are not
inclusive enough.
 So, a higher ratio may encourage the government to spend
more on social welfare schemes and also increase the tax
burden on the rich.
 It is important that the government tries to maintain a good
ratio so that the rich-poor divide can be kept in check.

Introduction
• For formulating poverty reduction programmes it is necessary to
define poverty and measure poverty.
• The extent of absolute poverty is the number of people who are
unable to command sufficient resources to satisfy basic needs.
• They are counted as the total number living below a specified
minimum level of real income or an international poverty line.
• Absolute poverty is measured in terms of the basic needs a person
has to meet in order to survive adequately in modern society

• Another approach to explain the concept of absolute poverty is
to estimate the minimum intake of calories required for
survival so the search for measuring poverty led to the concept
of poverty line
• The poverty line indicates the income level below which
poverty exists.
• For this data is needed with respect to the income or
consumption.
• The common statistical instruments are used for estimation of
poverty.

1. Surveys with regard to income, consumption
standards, nutritional contents.
2. Surveys are also conducted to gather
information with regard to employment,
housing conditions.
3. Census data also enables the estimation of
poverty

Human Poverty Index
• The Human Poverty Index was introduced by the
United Nations Development Programme (UNDP)
in the Human Development Report 1997.
• HPI is a composite index to measure poverty
which is based on three indicators.

I. Life Expectancy
II. Basic Education
III.Access to public and private resources

How is the HPI Calculated?
• The Human Poverty Index (HPI) is a multifaceted indicator
that provides a comprehensive view of poverty by considering
various dimensions of deprivation.
• To calculate the HPI, a systematic process is followed,
involving the aggregation of several key indicators and
assigning appropriate weightage to each dimension.
• Let's delve into the in-depth calculation process step by step:

Step 1: Selection of Indicators
• The first step in calculating the HPI is the
careful selection of indicators that best
capture the different aspects of poverty.
• These indicators should be relevant, reliable,
and widely applicable across different
populations.
• Commonly considered indicators include:

 Life Expectancy at Birth: This indicator reflects the
overall health and well-being of a population and is a
key measure of the quality of life.
 Adult Literacy Rate: The literacy rate provides
insights into the educational opportunities and
accessibility to knowledge.
 Percentage of Population below the Poverty
Line: This indicator focuses on income-based poverty
and represents the proportion of the population living
in extreme poverty.

Step 2: Data Collection
• Accurate and up-to-date data is essential
for calculating the HPI.
• Data is collected from various sources,
including national statistics agencies,
surveys, and international organizations.
• Care is taken to ensure consistency and
reliability in data collection to maintain
the accuracy of the index.

Step 3: Normalization of Indicators
• As the selected indicators may have
different scales and units of measurement,
a process called normalization is
performed.
• Normalization standardizes the indicators,
usually by transforming them into a scale
of 0 to 1 or 0 to 100.
• This ensures that all indicators carry equal
weightage during aggregation.

Step 4: Weightage Assignment
• Each normalized indicator is assigned a weight that
reflects its importance in assessing poverty.
• The assignment of weights is often done through
consultations with experts, policymakers, and
stakeholders.
• The objective is to strike a balance between various
dimensions and provide a comprehensive evaluation.

Step 5: Aggregation
• Once the indicators are normalized and assigned
appropriate weightage, they are aggregated using a
specific formula.
• This formula sums up the products of each indicator's
normalized value and its corresponding weight.
• The resulting sum represents the overall HP for the
population under consideration.

Step 6: Scaling
• The aggregated HPI is then scaled to fit within a
range of 0 to 100.
• This scaling allows for easier interpretation and
comparison across different regions and time
periods.
• A value of 0 indicates no poverty, while 100
represents the highest level of human poverty.

Step 7 : Interpretation
• The final HPI value provides insights into the
level of deprivation experienced by the
population.
• Higher HPI values indicate higher levels of
poverty and call for more urgent and targeted
interventions to alleviate the suffering of the
vulnerable.

• The Human Poverty Index (HPI) is a vital tool in measuring
and understanding poverty beyond income levels.
• By aggregating relevant indicators and considering multiple
dimensions, the HPI offers a more comprehensive and
nuanced assessment of deprivation.
• The systematic calculation process ensures that the HPI
provides valuable insights for policymakers and researchers in
their efforts to combat poverty and improve the well-being of
communities world- wide.

Elements used by HPI
• The Human Poverty Index uses a set of
key elements to assess poverty in a
multidimensional manner.
• These elements typically include:

 Healthcare: Access to basic healthcare services, life
expectancy, and infant mortality rates.
 Education: Levels of literacy, enrollment in primary
and secondary education, and educational attainment.
 Standard of Living: Income distribution, access to
clean drinking water, sanitation facilities, and
adequate housing.
 By considering these elements, the HPI
provides a more nuanced picture of poverty
that goes beyond income levels.

Human Poverty Index Data
• Data used to calculate the Human Poverty Index is typically
collected through surveys and censuses conducted by
government agencies, international organizations, and
research institutions.
• These data sources provide valuable insights into various
aspects of poverty and help in constructing a comprehensive
HPI.
• Here are five bullet points elaborating on the data sources
used to calculate the Human Poverty Index (HPI):

 Surveys: Surveys are an essential tool for collecting data on
various dimensions of poverty, such as income levels, access
to basic services, and living conditions. Household surveys,
conducted by government agencies and research institutions,
provide valuable information directly from the affected
population.
 Censuses: National censuses are conducted at regular
intervals to gather demographic and socioeconomic data on
the entire population of a country. Census data offer a
comprehensive view of poverty trends, population size, and
distribution, aiding in the construction of a robust HPI.

• Government Agencies: Government agencies play a crucial role in data
collection, management, and dissemination. They often conduct specific
surveys and studies to assess poverty and socioeconomic conditions, which
contribute to the HPI dataset.
• International Organizations: International organizations. such as the
United Nations and the World Bank, conduct global and regional surveys
and collect data from multiple countries. These organizations play a vital
role in harmonizing data collection methodologies and providing a broader
perspective on poverty issues.

• Research Institutions: Independent
research institutions and think tanks often
conduct in-depth studies on poverty-
related topics. Their research findings
contribute valuable data and insights to
the HPI, enriching the overall
understanding of poverty dynamics.

Indices of Human Poverty Index
• The Human Poverty Index generates
several sub-indices that focus on specific
dimensions of poverty. These indices are
derived from the main HPI and can
include

 Health Index: Focused on healthcare indicators such
as life expectancy and infant mortality rates.
 Education Index: Concentrating on educational
indicators like literacy rates and school enrollment.
 Living Standard Index: Assessing factors related to
income distribution and access to basic amenities.
 The sub-indices allow policymakers to
identify the areas of greatest concern and
prioritise their efforts accordingly.

Advantages of HPI
1. Comprehensive Assessment
2. Policy Targeting
3. Global Comparison
4. Multidimensional Perspective
5. Highlighting Inequality
6. Informing Sustainable Development
Goals

1. Comprehensive Assessment
• The HPI Offers a comprehensive
assessment of poverty, capturing various
dimensions that income based measure
often miss

2. Policy Targeting
• By Identifying Specific areas of
deprivation, the HPI helps policy makers
design targeted and effective poverty
alleviation programs

3. Global Comparison
• The HPI allows for cross-country
comparisons, providing insights into the
relative levels of poverty among different
nations

4. Multidimensional
Perspective
• By Considering various dimensions, the
HPI provides a more nuanced
understanding of poverty, going beyond
just income levels

5. Highlighting Inequality
• The HPI reveals disparities within a
population, shedding light on the
distribution of deprivation

6. Informing Sustainable
Development Goals (SDGs)
• The HPI is a valuable tool for monitoring
progress towards SDGs, as it provides
insights into the well-being and quality of
life of a population

Disadvantages of HPI
1. Data Limitations
2. Complexity
3. Subjectivity in weightage assignment
4. Limited focus on Economic Aspects
5. Limited Policy perceptions
6. Resource and technical requirements

1. Data Limitations
• The Accuracy and reliability of HPI heavily
rely on accurate and up-to-date data
collection. In some regions, data
collections may be challenging, leading to
potential inaccuracies and gaps

2. Complexity
• The multidimensional nature of the HPI
can make its calculation and interpretation
complex, requiring a deeper
understanding of the underlying
mathematical and statistical concepts

3. Subjectivity in Weightage
Assignment
• Assigning weights to different indicators involves
subjectivity, as experts and policymakers might
have varying opinions on the relative importance
of different dimensions of poverty

4. Limited Focus on Economic
Aspects
• The HPI might not fully capture all
economic aspects of poverty, potentially
overlooking factors related to income
disparities and economic growth

5. Limited Policy Perceptions
• While the HPI identifies areas of concern,
it does not provide detailed policy
prescriptions on how to address specific
challenges

6. Resource and Technical
Requirements
• Calculating and updating the HPI requires
significant resources and technical
expertise, which may pose challenges,
especially in resource-constrained setting

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