Economic Development and Globalisation: Question 2

Worked solution

Part (a): A limitation of using real GNI per capita alone

Real GNI per capita is a monetary indicator: it measures average income only. On its own, it has two key limitations for comparing Bellwood and Astria. First, it captures nothing about non-monetary aspects of development, such as how long people are expected to live or how much schooling they receive. Second, as an average, it says nothing about how income is distributed within each country. A country’s GNI per capita could be relatively high even if a large share of its population lives with very little, because a small number of very high incomes can pull the average up. This is exactly why economists also use non-monetary and composite indicators, such as the (simplified) HDI calculated below, alongside monetary indicators.

Part (b): Bellwood’s three dimension indices

Using the given formula, $\text{dimension index} = \dfrac{\text{actual} - \text{minimum}}{\text{maximum} - \text{minimum}}$:

Life expectancy index: $\frac{65-20}{85-20} = \frac{45}{65} = 0.6923$

Education index: $\frac{12-0}{18-0} = \frac{12}{18} = 0.6667$

Income index: $\frac{6000-100}{75000-100} = \frac{5900}{74900} = 0.0788$

(All rounded to 4 decimal places to keep enough precision for part (c); to 3 decimal places these are $0.692$, $0.667$ and $0.079$.)

Part (c): Bellwood’s simplified HDI

The simplified HDI is the geometric mean of the three dimension indices, the cube root of their product, not their simple average:

$0.6923 \times 0.6667 \times 0.0788 = 0.03636$

$\text{HDI} = \sqrt[3]{0.03636} = 0.331 \text{ (3 d.p.)}$

Keeping full precision until this last step avoids compounding rounding errors, rounding each dimension index to only 3 d.p. before multiplying would have given a slightly different (and less accurate) final answer.

Part (d): Comparing Bellwood and Astria

Astria’s simplified HDI of $0.520$ is clearly higher than Bellwood’s $0.331$, consistent with Astria doing better on all three dimensions: longer life expectancy, more expected years of schooling, and higher real GNI per capita.

However, the comparison also shows something the income figures alone would not: Astria’s real GNI per capita ($15,000) is exactly $2.5$ times Bellwood’s ($6,000), yet Astria’s simplified HDI ($0.520$) is only around $1.6$ times Bellwood’s ($0.331$). Because the geometric mean combines all three dimensions together rather than relying on income alone, a very large proportional gap in one dimension (income) does not translate into an equally large gap in the overall composite score, the smaller, more moderate gaps in life expectancy and education pull the overall comparison closer together. This is precisely the value of a composite indicator like the HDI: it gives a broader, more balanced picture of relative human development than a monetary indicator such as GNI per capita could on its own.

Final answers

• (a) Real GNI per capita ignores non-monetary aspects of development (e.g. health, education) and ignores income distribution within a country
• (b) Bellwood: life expectancy index $=0.692$; education index $=0.667$; income index $=0.079$
• (c) Bellwood’s simplified HDI $=$ 0.331
• (d) Astria (0.520) scores clearly higher than Bellwood (0.331) on all three dimensions, but the geometric mean means the HDI gap is proportionately much smaller than the income-per-capita gap, showing HDI gives a more balanced picture of development than income alone