Limitations of Income Levels as an Indicator of Development Assignment Help

Assignment Help: >> Natural Resources and Development - Limitations of Income Levels as an Indicator of Development

It is believed  by  social  scientists that  income  is  not  a complete indicator of development. In  fact, income measurements like the GDP  or GNP  of a country only indicate the total wealth or output in  an economy. These measurements do not tell us'how  this output or wealth  is distributed among the population. Similarly, per capita income  tells  us  about  the average  income per  person in a country and  does  not indicate the distribution of the income across the population. Therefore, GNP  or the per  capita  income measurements  do  not inform  us  about expenditure  and consumption  level of each person  in  the country. The quality of life lived by people thus is not reflected accurately by  the income indicator, more so when cross country comparisons  are based on the levels of income. At best we can draw inferences based on averages and general view of income levels. It has been  observed that a growing per capita GNP could be consistent with  stagnant per capita personal income if the policies pursued for growth  lead to the development of pockets of advanced sectors of modem  technology.  This is  evident  in  a large number of developing countries where income inequalities have grown with the development of the modem sectors.

A  number  of  attempts have however  been  made  to make  income  a representative indicator of the well being by  including other measures like the per capita personal  income  which  is  considered  a  preferable aggregate  income  indicator. This measurement also cannot be  accurate as  long as the  spread of the per capita  is  not included in  the data set.

The basic needs concept of poverty attempts  to address some of the limitations of the income  indicator  by  distinguishing  between  private income, publicly provided services and  different  forms of non-monetary income. The basic needs approach  is based  on  access  to  such  necessities  as  food, shelter, schooling,  health  services, potable water and  sanitation facilities, employment opportunities, and opportunities for community participation.  Basic needs indicators add a wide range of dimensions to  income measures. The advantage of  the basic needs approach  over the  income approach is that they measure goods and services directly in  terms of human welfare.

For example, a  rise  in  housing or essential transport costs would  be  counted  as a decline  in  well  being  using basic needs  indicators, while  per  capita GNP would record  this  as  an  increase (see  McKinley  for detailed discussion  on  this).  It  is suggested  by  scholars that indicators  like  access  to  productive assets  (i.e.,  land, capital); access to social  and  physical  infrastructure; access  to  housing  and  other consumer durables;  and  access  to  common  property  (i.e.,  certain aspects of  the natural  environment)  could  give  a  broader picture  of  the  economic status of  a country.

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