Per capital income and HDI

1. Per capita income (GDP/GNP per capita)

2. Human development index (HDI)
3. Linkage between GDP/economic growth and HDI

Per capital income, or income per capita:
Total GNP (gross national product) divided by the
total population.
Development II
Dr. E.R. Ojha / 8 December 2013
What is GNP, then?
It is the sum of all incomes, generated through factors
of production, in a particular geographical region over
a given time period.
GNP = GDP + all incomes that come to people of that
region from their investments in foreign places
(countries, e.g.) all incomes that go to foreigners as
a result of their investments in that region.
Development II
Dr. E.R. Ojha / 8 December 2013
GDP (gross domestic product) is the total monetary
value, calculated at market prices, of all final goods
and services produced by both residents and
nonresidents in an economy/region over a certain time
period, typically one year.

Economic growth is the process by which the
productive capacity of the economy is increased over
time to bring about rising levels of national income
(GNP).
Development II
Dr. E.R. Ojha / 8 December 2013
Per capita income (GNP per capita) is often found
used as an indicator/index/measuring tool to measure/
assess a countrys/regions economic wellbeing, and
also the overall level of economic activity of that
particular area.

Per capita income is thus used to compare the
economic levels/conditions of people living in different
areas. For example:
Development II
Dr. E.R. Ojha / 8 December 2013
- Rural vs. urban
- Developed countries vs. developing
countries
- Rich vs. poor in a particular
country/region/the entire world

Approximately 80 per cent of the worlds total income
is produced in the economically developed regions (of
the world) where only 20 per cent of the worlds
people live.
Development II
Dr. E.R. Ojha / 8 December 2013
That also means that only 20 per cent of the worlds
people are producing nearly 80 per cent of the total
world output.

That is, 80 per cent of the worlds population, who are
living in the Third World, are subsisting/living only on
20 per cent of the worlds income.

Development II
Dr. E.R. Ojha / 8 December 2013
On average, and overall, the per capita incomes of
developing countries are less than 1/20
th
of the per capita
incomes of developed/rich countries.

Development II
Dr. E.R. Ojha / 8 December 2013
However, sometimes the comparisons between
developed and developing countries in terms of per
capita incomes are exaggerated, when official foreign
exchange rates are used to convert the developing
countries national currency figures into US dollars.
For example: In 1997, Switzerland had its per capital
income (US$44,320) nearly 400 times higher than of
Ethiopia (US$110).
Development II
Dr. E.R. Ojha / 8 December 2013
The per capita income related conversion/comparison
does not take into account the relative domestic
purchasing power of the local (developing countrys)
currency.

To overcome the above problem/limitation, PPP
(purchasing power parity) is used instead of the
exchange rate as a conversion factor.
Development II
Dr. E.R. Ojha / 8 December 2013
What is PPP?
It is the number of units of a countrys currency (e.g.
NRs.) required to purchase the same quantity and quality
of goods and services in the local market as could be
purchased in the US for $1.

Development II
Dr. E.R. Ojha / 8 December 2013
Thus, if the domestic prices of a country are relatively
lower, PPP measures of GNP (or GNP expressed in terms
of PPP) will be higher than the GNP estimated by using
the foreign-exchange rates.

So, when PPPs are used the income gaps between rich and
poor nations tend to be lower.

Development II
Dr. E.R. Ojha / 8 December 2013
Human Development Index (HDI)
HDI ranks all countries into three groups:
HDI level Group
0.00-0.50 Low HDI country
0.51-0.79 Medium HDI country
0.80-1.00 High HDI country

For a given year, HDI measures relative, not absolute,
levels of HDI.
Development II
Dr. E.R. Ojha / 8 December 2013
HDI focuses on the ends/goals of development
(longevity, knowledge, material choice/income) rather
than the means (such as the per capita income/GDP
alone).

HDI is also used to compare various categories of
people and places within a particular country: Ex:
women vs. men; urban vs. rural; eastern vs. farwestern;
mountains vs. terai; as well as ethnic groups of people.
Development II
Dr. E.R. Ojha / 8 December 2013