Edexcel A-Level Economics · Revision notes

4.3.1 Measures of development

Economic growth measures how much an economy produces. Economic development is broader: it is about whether people live longer, healthier, better-educated lives with more choices. Because development has several dimensions, no single figure captures it. This topic covers the most widely used composite measure, the Human Development Index, and the other indicators used alongside it.

The Human Development Index

The Human Development Index (HDI) is published each year by the United Nations Development Programme (UNDP). It combines three dimensions of development into a single number between 0 and 1.

How the HDI is put together

The HDI is a composite index: it brings the three dimensions together into one figure. Each country is given a score for health, education and living standards, and these are combined into a single HDI value between 0 and 1. The closer the figure is to 1, the higher the level of human development.

Key idea: All three dimensions count, so a country cannot achieve a high HDI through high income alone. It also needs its people to live long, healthy lives and to have good access to education.

Countries are grouped into four bands: very high (0.800 and above), high (0.700 to 0.799), medium (0.550 to 0.699) and low (below 0.550).

Advantages of the HDI

• It is broader than GDP per capita. It includes health and education as well as income, so it measures how people actually live, not just how much is produced. Two countries with similar GNI per capita can have very different life expectancy and schooling, and the HDI picks this up. Higher income only improves well-being if it is turned into better health and education, so the HDI is a better guide to development than income alone.
• It allows comparison between countries and over time. Every country is measured on the same three dimensions using the same method each year. Governments and international organisations can therefore see which countries are falling behind, track whether a country is improving, and judge whether development policies are working.
• It shows that growth and development can differ. Some countries have a much higher HDI rank than their income alone would suggest, because they have invested heavily in health care and education. Others, often those that rely on exports of oil or minerals, rank lower than their income suggests, because the income has not been spread across the population. This shows that how income is used matters as much as how much there is.
• It is simple and widely recognised. A single figure between 0 and 1 is easy to understand and to report. This makes it useful for highlighting progress, drawing attention to countries that need support, and helping governments and aid agencies decide where to focus spending.

Limitations of the HDI

• It ignores inequality. The HDI uses national averages, so it can hide large differences between rich and poor, men and women, urban and rural areas, or regions. A country where a small elite is very rich can have a high income index even if most people are poor. This is why the Inequality-adjusted HDI was developed.
• It leaves out important dimensions. Political freedom, human rights, environmental damage, crime and job security all affect well-being but are not included. A country could raise its HDI by growing quickly while damaging the environment or restricting freedoms, so a rising HDI does not always mean people are better off overall.
• Data quality varies. In some low-income countries, figures for income and life expectancy are estimates, and a large informal economy means much economic activity is not recorded. This makes comparisons less reliable, especially between countries at very different stages of development.
• Life expectancy and schooling miss quality. Years in school say nothing about how much children actually learn, and class sizes and teacher training vary widely between countries. A longer life is not necessarily a healthy one if people live many years with illness or disability. Two countries with the same figures can therefore have very different standards of health and education.
• It changes slowly. Life expectancy and years of schooling take many years to change, so the HDI is poor at picking up short-term changes, such as a sudden fall in living standards during a recession or after a natural disaster.
• PPP adjustment is imperfect. The PPP rate is based on a basket of goods that may not match what people in each country actually buy, and prices in cities can differ greatly from those in rural areas. Adjusted incomes may therefore overstate or understate real living standards.

Other indicators of development

Because the HDI has gaps, it is often used alongside other measures:

• The Inequality-adjusted HDI, which reduces a country's HDI to reflect how unequally health, education and income are distributed.
• The Multidimensional Poverty Index, which measures the share of people who lack basic necessities across health, education and living standards at the same time.
• Health indicators, such as infant and child mortality rates, and access to clean water and sanitation.
• Education indicators, such as adult literacy rates.
• Economic structure, such as the share of the workforce in agriculture, which tends to fall as countries develop.
• Access to technology and infrastructure, such as electricity, internet access and mobile phone ownership.
• Measures of gender equality, such as the gap between male and female schooling and incomes.

Using several indicators together gives a fuller picture than any single measure.

Key terms

Common mistakes

• Treating development and growth as the same thing. Growth is a rise in output; development is a broader improvement in well-being.
• Listing the dimensions without the measures. Each dimension has specific indicators.
• Using GDP instead of GNI. The HDI uses gross national income per capita, adjusted for PPP.
• Ignoring the limitations. The HDI leaves out inequality, freedom and the environment, and its data are imperfect.
• Thinking income alone decides the HDI. Health and education count as well, so two countries with similar incomes can have very different HDI scores.

How this has been examined

In the Edexcel papers indexed on this site, this topic has appeared in three formats:

• 8-mark "Examine" data response — asked once (2025)
• 4-mark "Explain" data response — asked once (2017)
• 1-mark multiple choice — asked once (2017)

Where this goes next

The national income measures that feed into the HDI are covered in 2.1.1 Economic growth. The barriers that hold back development are examined in 4.3.2 Factors influencing growth and development, and the strategies used to overcome them in 4.3.3 Strategies influencing growth and development. Inequality, which the HDI leaves out, is covered in 4.2.2 Inequality.