Economic Development Measurement with National Income

Discuss the national income method of measuring the economic development

How can you measure the economic development through national income. Elaborate its difficulties also.

National income is an important measures for the economic development. If national income increases over a long period of time, the economic condition of the people improves.

On the other hand, if national income falls over a long period of time, it will reduce the public standard of living.

Rate of increase in national income is an important factor in the determination of economic growth so while estimating the economic growth, the level of income and the rate of increase in national income both should be considered.

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Explanation

Suppose, there are two countries Pakistan and Bangladesh and the rate of growth in both the countries is different. Bangladesh is economically better than Pakistan in a particular period.

Further assume that the rate of change in economic growth is much faster in Pakistan than in Bangladesh.

In this situation, Pakistan will catch up and also out strip Bangladesh after a certain period and its level of development will be higher than Bangladesh. We can explain it by the following figure:-

Figure economic development

The above figure shows that due to faster economic growth rate has out stripped Bangladesh in 2004.

The rate of population growth should be also taken into consideration; if it is faster in Pakistan than Bangladesh, it will also effect the rate of economic development

DIFFICULTIES

  • Lack of Statistical Data. An accurate statistics about national income are not available. People of the less developing countries do not cooperate with the Statistical Department.
  • Difficulty in Assessment. It is very difficult to determine the value of various goods and services, like cows, sheep, vegetables etc.
  • Difficulty in Comparison. It is very difficult to make comparison of level of income between various countries.
  • Double Counting Problem. While calculating national income, there is a danger of double counting. For example, cotton price is taken then cloth price is also taken.
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