Measuring Living Standards and Development

What is Standard of Living?

A person's standard of living is the level of material comfort that they are able to enjoy in terms of the goods and services which they can buy or use.

Understanding Gross Domestic Product (GDP)

The GDP measures the growth of economies over time.

• It can be used to make comparisons between levels of production, income, and spending between countries.

Limitations of GDP as a Measure

GDP is NOT a good measure for several reasons:

• It doesn't take into account the degree of inequality in a society. Although GDP per head in a country might rise over time, prosperity does not necessarily make much difference to the living standards of poorer people.
• GDP simply measures the value of goods produced; it doesn't take into account the harmful effects of growth, such as pollution and waste.
• GDP calculations are not very good at making comparisons between countries. This is because GDP in a particular country is usually calculated by using the currency of that country, but the value of this currency may change over time against the value of other currencies.
• Standard of living is not the same thing as quality of life, which depends on other factors, including being healthy, being free from stress and worry, or living in a pleasant climate (all factors that are not measured by GDP).

The Human Development Index (HDI)

The HDI is a broader method of measuring the quality of life. It was created by the United Nations Development Programme in 1990.

It is an alternative measure to GDP.

Components of the HDI

The HDI contains three elements:

1. Standard of living (GDP per head)
2. Life expectancy at birth
3. Expected years of schooling:
   • Average years of schooling
   • Expected years of schooling

HDI Scoring and Categories

The HDI score for any country is measured between 0 and 1. The nearer a country is to 1, the better HDI it has.

Countries are ranked into four categories: very high, high, medium, and low.

Defining Poverty

Individuals are considered poor if their income falls below the minimum level necessary to meet basic needs. This minimum level is called the poverty line.

The Global Poverty Line

The World Bank identifies the poverty line as having US $1.90 or less to live on per day.