Question

What are the advantages and disadvantages of using income (GDP) as a way of comparing the economic development of different countries? To what extent does the Human Development Index address the disadvantages?

Answer 1

Advantages of using income (GDP) as a way of comparing economic development of different countries.

1. GDP data is readily and easily available for almost every country. This aspect alone facilitates comparison across countries.
2. Analysis based on GDP or income is simple and easily comprehensible.

Disadvantages of using GDP as a way of comparing economic development across different countries.

1. GDP alone can't accurately capture economic development which is multi-dimensional concept of which income is only one dimension.
2. GDP doesn't capture the distribution of income across different classes. Inequality in income distribution should come into picture while looking at economic development of a country.
3. GDP can not depict the state of the other social indicators like education and health which are crucial in determining economic development of a country.

Human Development Index addresses two of the above three disadvantages of using GDP for economic development comparison across countries.

Human development index introduces a multidimensional approach to economic development.

Along with income, it also uses two most important social indicators- health and education- to compare economic development across counties.

Thus, Human Development Index proposes more broad-based criteria than income (GDP) to compare economic development across countries.