INTRODUCTION

There are serious discrepancies in the standards of living of people in different countries, This is primarily because countries are at varying stages of economic growth and development. What is economic development? Economic development is something more than economic growth, While economic growth focuses on national output alone, economic development pays attention to the broader concept of economic welfare. Economic growth is a necessary condition for raising the level of economic welfare; but it may not prove a sufficient condition. Something more besides increased output of goods and services may be required to promote economic welfare, The other difference between economic growth and economic development is that economic development entails certain changes in the structure of the economy in the course of economic growth. The level of technology, the share of agriculture, the rates of population growth, and the composition of consumption goods all may change as a nation traverses the path of development. Thus economic development necessarily implies economic growth, but the converse may not be true.

GROWTH AND DEVELOPMENT

Traditionally, economic development has been considered as synonymous with economic growth. Economic growth has been defined as “an increase in real terms of the output of goods and services that is sustained over a long period of time, measured in terms of value added.”Three points, as follows, need be noted in this definition:

• Economic growth is essentially a dynamic concept and refers to a continuous increase in output. The word ‘dynamic’ here denotes a process taking place over time. This is contrasted. with ‘static’ which does not so much mean ‘unchanging’ as ‘at a point in time’. Forces that generate growth generate a positive rate of change from a lower to a higher level of output may be welcome but that is not growth.
• The term ‘output’ is ambiguous, in that it can mean either total output or output per capita. An increase in total output is ‘extensive growth’ (when population and production increase at about the same pace). When one thinks of growth in the context of an increase in standards of living or of the welfare of a population, one naturally thinks of output per head of population. However, an increase in total output over time may also be an extremely significant phenomenon, where, for example, economies of scale are important.
• We ought strictly to distinguish between output and output capacity. Most theories of growth, in so far as they with increases in labour forces or the accumulation of capital, implicitly deal with changes in output capacity. whereas actual changes in output over time are also influenced by the ability of an economy to utilise accumulated capacity.

Modern View

Modern economists, however, question this identity between ‘economic growth’ and ‘economic development’; “development is not the same thing as economic growth”. Suppose, by analogy, we were interested in the difference between ‘growth’ and ‘development’ in human beings. Growth involves change in overall aggregates such as height or weight, while development includes changes in functional capacity, of ability to adapt to changing circumstances. Growth is an engine, not an end in itself. The end being development. Singapore, with an impressive per capita GDP of over 30,000, may be an impressive role model for other developing countries as it has very successfully achieved ‘growth’. But Singapore did not till 1997 qualify to count among the ‘developed’ nations.

The traditional concept of viewing economic development as synonymous with economic growth was based on what came to be known as the ‘trickle-clown strategy’, which implies that the effects of rising incomes and output would ultimately trickle down to the poor so that they would benefit poor as well as the rich. The modern economists reject this view and stress the need for strategies designed to meet the needs of the poor directly. Hence, economic development has come to be redefined in terms of the reduction or elimination of poverty, inequality, and unemployment within the context of a growing economy. “Redistribution with growth” has become an accepted paradigm. Prof. Dudley Seers poses the basic question about the meaning of development very clearly when he states:

The questions to ask about a country’s development are therefore: what has been happening to poverty? What has been happening to unemployment? What has been happening to inequality? If all three of these have declined from high levels then beyond doubt this has been a period of development for the country. If one or two of these central problems have been growing worse, especially if all three have, it would he strange to call the result “development” even if per capita income doubled.

Economic development, in its essence, must represent the whole gamut of change by which an entire social system, tuned to the diverse basic needs and desires of individuals and social systems within that system, move away from a condition of life widely perceived as unsatisfactory towards a situation of life regarded as materially and spiritually “better”.

Concept of Economic Development

In view of the above considerations, economic development is now being defined “as the process of increasing the degree of utilisation and improving the productivity of the available resources of a country which leads to an increase in the economic welfare of the community by stimulating the growth of national income”.

It follows from this definition that the progress of development has to be assessed by reference to two separate indicators, namely, (i) the indices of ‘production’ or GDP, and (ii) the indices of ‘economic welfare of the community, The former covers what may be called the ‘growth’ aspects of development.

So defined, the concept of economic development emphasises the achievement of the following three objectives:

• To increase the availability and widen the distribution of basic life sustaining goods such as food, shelter and protection. This, however, would be possible with a fast increase in real per capita income.
• To raise standards of living including, in addition to higher incomes, the provisions of more goods, better education and greater attention to cultural and humanistic values, all of which will serve not only to enhance material well-being but also to generate individual and national self-esteem.
• To expand then of economic and social choice to individuals and nations by freeing them from servitude and dependence not only in relation to other people and nation-states, but also to the forces of ignorance and human misery. Economic development is to be assessed ultimately by the enhancement of the ‘positive freedom’.

In view of the above three objectives, the quality of life is regarded as an important index of development. It is contended that such quality is not adequately reflected in the index of per capita income growth. Several factors are involved in the measurement of such ‘quality’; some of these factors are non-monetary, while others can be measured in money terms. There is a need to set up a synthetic index of these different factors to measure economic development and quality of life.

Economic Development and Structural Change

Econometricians have attempted to measure structural changes in economies as development proceeds; much of the pioneering work was done by Prof. Simon Kuzets on the basis of historical data, and the analysis has been extended and refined under current data, notably under the leadership of Hollis Chenery. Such studies seek to reveal how key economic parameters change as countries develop. We may note the following as important changes:.

• Constituents of GDP Change: More generally, in terms of percentage shares, saving rates increase as income grows, government revenues (and expenditure) increase, food consumption drops and non-food consumption increases, out of services and, of course, also industry increases, while agriculture falls.
• Employment Changes: Employment changes reflect this shift in output and changes in productivity. Labour in the primary sector of the economy does not fall as rapidly as its, share in output; the reverse is true for employment in industry where increase in labour productivity is more easily secured.
• Shift in the Composition of Exports: As development proceeds, exports will account for a larger proportion of income and there will have been a marked shift in the composition of exports, so that the value of export of manufactures rises relative to that of primary products. Imports will also have risen and earnings and payments will be roughly balanced.
• Rate of Increase in Population: As incomes increase, the rate of increase in population may be expected to fall, as the birth rate declines along with a fall in the death rate. The population would still be increasing, but gradually the rate of growth will tend to peter out.
• Distribution of income: Income would at first become more unequally distributed and then this trend would be reversed.

INDICATORS OF ECONOMIC WELFARE

We have defined economic development as tlie sum total of economic growth (a quantitative aspect) and economic welfare (a qualitative aspect). We have presented above a few important indicators of economic growth. Now, let us shift our attention to the indicators of economic welfare.

GNP as an Indicator of Economic Welfare

GNP estimates are more commonly employed as an indicator of economic welfare. An increased output of goods and services, it is believed, implies an increased availability of goods and services for consumption, enabling a wider choice and a better standard of living; these are the hallmarks of economic development.

However, this simple positive relationship between increase in GDP and increase in economic welfare is subject to certain qualifications. Among these, the following are noteworthy:

Changes in the Size of GDP and Economic Welfare

1. If the GDP increases but the population of the country increases in a greater proportion, the total economic welfare will decline. As a result of increased population, the per capita income will decline, which means lesser purchasing power than before, lower standard of living, and consequently, lower economic welfare.
2. While analysing tlie relationship between the size of GDP and economic welfare, the behaviour of the price movements tnust be thoroughly studied. GDP calculated at current prices is always deceptive and increase in its size, will not promote economic welfare. Estimates of real GDP (i.e., GDP calculated at fixed base prices) can provide a better measure.
3. GDP consists of those goods and services which are transacted in the market and fetch money value. We know that a part of the total produce is kept by the producers for self-consumption. Now. suppose that this retained produce (which is not part of GDP) is offered for sale in the market, it will definitely fetch money value and as a result GDP will also increase. In fact, the total output is same, but since it has now come to the monetary sector, it becomes a part of the GDP and hence increases its value. Such an increase in GDP will not increase the economic welfare.
4. If the increase in the size of GDP is the result of prolonged working hours, increased employment of children in production, unhealthy and polluted atmosphere inside the factory premises, such increase in GDP will not promote or be symptomatic of economic welfare.

Changes in the Composition of GDP and Economic Welfare

Composition of GDP refers to the kinds of goods and services produced in an economy. Changes in the composition of GDP may sometimes increase economic welfare and may at other times decrease it. Let us consider the following cases:

1. If the total production has increased on account of more production of capital goods, it will not increase economic welfare. No doubt the money value of the total output has increased, but the volume of consumer goods, on which depends the real economic welfare, has not increased. It is only when the proportion of consumer goods increases in the total output the GDP can promote economic welfare.
2. If the GDP has increased on account of larger production of war-goods, the resultant increase will not increase economic welfare. This may no doubt lead to increased fighting capacity of the country but it will do no good to economic welfare.

Changes in the Distribution of GDP and Economic Welfare

If the GDP increases and yet is not fairly distributed or it is concentrated in a fewer hands, it will not promote economic welfare. It is so because as the rich people get richer the additional money income does not provide them the same marginal utility as the preceding unit of money income. In other words, the law of diminishing marginal utility also applies to the additional money income so that the economic welfare instead of increasing will diminish.

When the distribution of GDP changes in favour of the poor, they start getting more commodities and services than before; as a result tlie economic welfare increases. Any transfer of income from the rich to the poor, generally, promotes economic welfare. In fact, there is a unique relationship between one’s economic welfare and that part of this income which is spends on consumption and consequently smaller is his economic welfare compared to this total income. The poor people who spend a major proportion of their total income on consumption, as a matter of fact, will get larger utility from the transferred income as compared to the rich people.

Per Capita Income as an Index of Economic Welfare

Ordinarily speaking, per capita income is considered as an indicator of the standard of living in a country: any improvement in it is taken as a proxy for improvement in the standard of living.

True, but there are certain limitations beyond which we cannot rely on this single average.

One, per capita income is a simple average which is derived by dividing the income of all the nationals of a country. It shows only the size of slice from the national cake that should by going to each individual. It cannot tell us anything about the actual distribution. In other words, per capita income estimates are silent about the distribution of income. To that extent, per capita income estimates may not be very useful, especially if there is a highly skewed income distribution favouring the rich in an economy.

Two, per capita income estimates are also silent about the composition of output -the nature of goods and services produced in the economy.

Three, standard of living is also affected by the type of expenditure incurred by the government authorities. If the government meets the collective wants of education, public health, public transportation, safe drinking water, etc., the people may enjoy a higher standard of living, even with modest per capita income.

Four, for the purpose of international comparison, per capita income estimates are framed in a common monetary denominator, usually the American Dollar. This common denominator cannot take account of purchasing power differences in different countries.

The Physical Quality of Life Index (PQLI) is a composite social indicator developed in the 1970s as an alternative to traditional economic metrics such as Gross Domestic Product (GDP) and per capita income. The PQLI was introduced by Morris David Morris in 1979 under the aegis of the Overseas Development Council to measure the well-being and quality of life of a population more accurately than purely economic indicators. It was designed to shift the focus from economic growth to human well-being, particularly in the context of developing countries where high GDP does not necessarily translate into better living conditions.

Concept and Components of PQLI

The Physical Quality of Life Index is constructed based on three key social indicators that are widely considered fundamental to human well-being. These three indicators include life expectancy at age one, infant mortality rate (IMR), and basic literacy rate. Unlike GDP or per capita income, which focus on economic productivity and financial wealth, PQLI emphasizes human development and basic needs fulfillment.

The first component, life expectancy at age one, measures the average number of years a person is expected to live after surviving infancy. It is a critical indicator of healthcare quality, nutrition, sanitation, and living standards in a given country. A higher life expectancy reflects better healthcare infrastructure, disease control measures, and improved socio-economic conditions.

The second component, infant mortality rate (IMR), represents the number of infants who die before reaching one year of age per 1,000 live births. This indicator is crucial as it reflects the effectiveness of maternal and child healthcare services, immunization programs, and overall health conditions in a society. A lower IMR signifies better medical facilities, improved hygiene, and enhanced maternal care, whereas a higher IMR indicates deficiencies in these critical areas.

The third component, basic literacy rate, measures the percentage of people who can read and write at a basic level. Literacy is a fundamental determinant of social and economic progress, enabling individuals to access employment opportunities, healthcare information, and participate in civic life. Higher literacy rates correlate with greater social mobility, gender equality, and overall human development.

Methodology of PQLI Calculation

The Physical Quality of Life Index is computed by first normalizing each of the three indicators on a scale from 0 to 100, where 0 represents the worst observed value and 100 represents the best observed value globally. The scores for life expectancy, infant mortality, and literacy rate are then averaged to obtain the final PQLI score for a country or region. This methodology allows for comparability across different countries and time periods, offering a more nuanced assessment of human well-being than economic indicators alone.

The formula for calculating PQLI follows these steps:

1. Assign a value between 0 and 100 to each of the three indicators based on global minimum and maximum values.
2. Compute the simple arithmetic mean of the three standardized scores.
3. The resulting number represents the PQLI score, which ranges from 0 (worst quality of life) to 100 (best quality of life).

Significance and Application of PQLI

The Physical Quality of Life Index was developed to provide a more human-centric measure of development, particularly for developing countries where GDP and per capita income often fail to capture social disparities. By focusing on health and education, PQLI aligns with the broader concept of human development, which later influenced the development of the Human Development Index (HDI) by the United Nations Development Programme (UNDP).

PQLI is significant in the following areas:

• Development Planning: Governments and policymakers use PQLI to assess the effectiveness of social welfare programs, healthcare systems, and education policies.
• Comparative Analysis: It allows for comparisons between nations and regions, helping to identify gaps in social development.
• Evaluation of Economic Growth: Unlike GDP, which only measures economic output, PQLI evaluates whether economic growth translates into better living standards for the population.
• Poverty and Inequality Assessment: By focusing on non-monetary indicators, PQLI helps in understanding income inequality and social disparities, particularly in regions where high economic growth does not necessarily lead to improved quality of life.

PQLI vs. Other Development Indicators

While PQLI was a pioneering effort in measuring human well-being, it has been compared and contrasted with other development indicators, such as Human Development Index (HDI), Multidimensional Poverty Index (MPI), and Gross National Happiness (GNH).

PQLI vs. HDI: The Human Development Index (HDI), introduced in 1990, builds upon the PQLI concept but incorporates per capita income and education levels in addition to life expectancy and literacy. HDI provides a broader perspective by including economic aspects, whereas PQLI remains strictly focused on physical well-being.

PQLI vs. GDP: Traditional economic measures such as Gross Domestic Product (GDP) and Gross National Product (GNP) fail to capture social progress and human well-being. A country with high GDP might still have low literacy, high infant mortality, and poor healthcare, leading to a low PQLI score. Thus, PQLI serves as a corrective measure to GDP-centric assessments.

PQLI vs. MPI: The Multidimensional Poverty Index (MPI), developed by the Oxford Poverty and Human Development Initiative (OPHI), goes beyond PQLI by including multiple dimensions of poverty, such as nutrition, access to drinking water, electricity, and sanitation. MPI provides a more detailed picture of deprivation but is more complex and data-intensive than PQLI.

Criticism and Limitations of PQLI

Despite its importance, PQLI has faced criticism and limitations, particularly regarding its methodology, scope, and applicability.

One major limitation is its exclusion of income and economic factors. While PQLI emphasizes health and education, it does not consider income levels, employment rates, or economic inequality, which are crucial to overall well-being. The later introduction of HDI and MPI addressed this shortcoming by incorporating income-based measures.

Another critique is the equal weighting of the three indicators, which assumes that life expectancy, infant mortality, and literacy contribute equally to well-being. However, in different contexts, one factor may be more influential than others. For example, in developing countries, improving basic literacy might have a greater impact on long-term development compared to minor increases in life expectancy.

The data limitations associated with PQLI also pose challenges. In many developing nations, reliable statistics on infant mortality, literacy rates, and life expectancy may not be available, leading to estimation errors and inconsistencies. The simplified methodology of PQLI does not account for regional variations, gender disparities, or social inequalities within countries, which limits its ability to provide a detailed and disaggregated analysis.

Relevance of PQLI in Contemporary Development Studies

Although PQLI is no longer widely used as a standalone development measure, its impact on subsequent human development indices is undeniable. The Human Development Index (HDI), Sustainable Development Goals (SDGs), and Global Multidimensional Poverty Index all draw upon the fundamental insights introduced by Morris’s PQLI.

In the 21st century, policymakers, economists, and social scientists continue to recognize the importance of non-monetary indicators of well-being. With growing emphasis on sustainable development, human rights, and social equity, PQLI remains a valuable framework for understanding how economic progress translates into tangible improvements in human life.

Conclusion

The Physical Quality of Life Index (PQLI) was a pioneering effort to shift the focus of development measurement from economic growth to human well-being. By incorporating life expectancy, infant mortality, and literacy, it provided a more realistic picture of development than traditional economic indicators like GDP. Despite its limitations, PQLI influenced subsequent human development measures and remains a historically significant tool in the study of social progress. In the era of sustainable development and inclusive growth, PQLI’s core principles continue to inform global development policies aimed at enhancing the quality of life for all.

The Human Development Index (HDI) is a composite statistical measure developed by the United Nations Development Programme (UNDP) to assess and compare levels of human development across different countries. Introduced in 1990, the HDI was conceptualized by Pakistani economist Mahbub ul Haq in collaboration with Indian economist Amartya Sen, as an alternative to purely economic indicators like Gross Domestic Product (GDP) and per capita income. The HDI is rooted in the idea that economic growth alone does not guarantee an improvement in people’s quality of life and that a broader, multidimensional approach is necessary to understand development, well-being, and social progress.

Concept and Theoretical Framework of HDI

The Human Development Index is based on the capability approach, which emphasizes the expansion of human choices and freedoms rather than just economic prosperity. This approach argues that development should be measured by people’s ability to lead a fulfilling life, access opportunities, and achieve their potential, rather than simply their income levels.

The HDI is designed to evaluate three fundamental dimensions of human development:

1. Health (Life Expectancy at Birth) – This dimension reflects the ability to lead a long and healthy life. Life expectancy is a strong indicator of nutrition, medical care, sanitation, and overall quality of living conditions in a country.

2. Education (Mean Years of Schooling and Expected Years of Schooling) – This component measures access to knowledge and educational attainment. Mean years of schooling represent the average number of years of education completed by individuals aged 25 and above, while expected years of schooling estimate the number of years a child is likely to spend in formal education.

3. Standard of Living (Gross National Income per Capita, GNI per Capita) – This economic indicator reflects the command over resources needed for a decent standard of living. GNI per capita is adjusted for Purchasing Power Parity (PPP) to allow for meaningful cross-country comparisons.

Each of these dimensions is normalized on a scale of 0 to 1 using minimum and maximum values observed globally. The final HDI score is calculated as the geometric mean of these three indices, ensuring that no single dimension disproportionately influences the overall measure.

Methodology of HDI Calculation

The calculation of the Human Development Index involves the following key steps:

1. Normalization of Indicators – Each component (life expectancy, education, and income) is transformed into an index ranging from 0 to 1 using the formula:

   $$Index=\frac{(actualvalue-minimumvalue)}{(maximumvalue-minimumvalue)}$$

   The minimum and maximum values are set based on historical and projected trends to allow for comparability across time and nations.

2. Geometric Mean Aggregation – Unlike simple arithmetic means, the geometric mean ensures that a low score in one dimension significantly affects the overall HDI. The formula used is:

   $$HDI=(HealthIndex\times EducationIndex\times IncomeIndex{)}^{\frac{1}{3}}$$

   This approach reduces the risk of compensatory effects, meaning that a high income alone cannot offset poor performance in health or education.

Global Trends and Classification of HDI

Countries are categorized into four broad HDI groups based on their scores:

• Very High Human Development (HDI ≥ 0.800) – Countries with advanced economies, high life expectancy, universal education access, and high living standards, such as Norway, Switzerland, and Australia.
• High Human Development (0.700 ≤ HDI < 0.800) – Nations with strong economic performance but some disparities in education and healthcare, including China, Mexico, and Russia.
• Medium Human Development (0.550 ≤ HDI < 0.700) – Countries that have made progress but still face challenges in social infrastructure, such as India, Indonesia, and South Africa.
• Low Human Development (HDI < 0.550) – Countries struggling with poverty, conflict, and inadequate healthcare, such as Chad, Niger, and the Central African Republic.

HDI vs. Other Development Indicators

The Human Development Index is often compared with other development measures, such as GDP, the Physical Quality of Life Index (PQLI), the Multidimensional Poverty Index (MPI), and the Genuine Progress Indicator (GPI).

While GDP per capita remains a widely used measure of economic performance, it fails to capture inequality, environmental sustainability, and social well-being. By contrast, HDI incorporates non-economic dimensions, offering a more holistic perspective on development.

The Physical Quality of Life Index (PQLI), which predates HDI, also measures life expectancy, infant mortality, and literacy, but lacks an income component. The Multidimensional Poverty Index (MPI), introduced by UNDP in 2010, goes beyond HDI by including health, education, and standard of living indicators at a household level, providing a deeper understanding of poverty and deprivation.

Criticism and Limitations of HDI

Despite its global acceptance, the Human Development Index has faced several criticisms.

One major limitation is that HDI does not account for inequality. Two countries with the same HDI score could have vastly different income distributions, with one country having extreme wealth disparity while another enjoys relative equality. To address this, UNDP introduced the Inequality-Adjusted HDI (IHDI) in 2010, which discounts HDI scores based on inequality levels.

Another critique is the omission of environmental sustainability. HDI does not consider carbon emissions, deforestation, or resource depletion, factors that significantly impact long-term human well-being. The Sustainable Development Goals (SDGs) framework attempts to complement HDI by integrating environmental concerns.

The education component has also been debated, as mean years of schooling and expected years of schooling do not necessarily reflect the quality of education. Many countries with high HDI scores still struggle with poor educational outcomes, lack of critical thinking skills, and outdated curricula.

Additionally, HDI focuses on national averages, which can mask regional disparities, gender inequalities, and urban-rural divides. For example, India has a medium HDI score, but states like Kerala have human development indicators comparable to developed nations, while others like Bihar and Uttar Pradesh lag significantly.

Relevance of HDI in Contemporary Development Policy

Despite its limitations, HDI remains one of the most widely used indicators of human progress, shaping global development policies, government strategies, and international aid programs. The United Nations Development Reports published annually rank countries based on HDI, influencing policy decisions and development priorities.

Several countries have integrated HDI-based planning into their national policies. Norway and Switzerland, consistently ranking at the top, have emphasized universal healthcare, education, and social welfare programs. In contrast, nations with lower HDI scores are using it as a benchmark to improve healthcare access, educational opportunities, and economic inclusion.

Conclusion

The Human Development Index (HDI) has revolutionized the way development is measured and understood, shifting the focus from purely economic growth to human well-being. By incorporating health, education, and income, HDI offers a more comprehensive view of progress and social equity. While criticisms regarding inequality, environmental impact, and data limitations persist, the index continues to guide policy decisions, global rankings, and development strategies worldwide. In the evolving landscape of sustainable development, HDI remains a crucial tool for assessing and improving human lives across nations.

Introduction

The Gender Development Index (GDI) is a composite measure developed by the United Nations Development Programme (UNDP) to assess gender disparities in human development across countries. Introduced in the 1995 Human Development Report, the GDI highlights gaps between men and women in three fundamental dimensions of human development: health (life expectancy at birth), education (mean years of schooling and expected years of schooling), and command over economic resources (gross national income per capita). Unlike traditional gender equality measures, the GDI explicitly compares male and female achievements in these domains rather than focusing solely on women’s empowerment.

The GDI is part of the broader Human Development Index (HDI) framework and serves as a critical tool for policymakers, researchers, and international organizations in identifying gender-based disparities and designing interventions to address them. While the GDI is an essential indicator of gender inequalities, it has also faced criticisms and methodological refinements over time. This essay provides an in-depth examination of the GDI, including its calculation, significance, limitations, and implications for global gender development policies.

Methodology and Calculation of the GDI

The GDI is not an independent index but rather an adjusted version of the Human Development Index (HDI), where gender disparities are accounted for in each of the three fundamental dimensions of human development. The calculation follows a systematic methodology:

1. Health Dimension: The GDI assesses gender-based differences in life expectancy at birth. Since biological factors result in women generally living longer than men, a gender-specific adjustment factor is applied to ensure that longer female life expectancy does not automatically imply superior gender equality.

2. Education Dimension: The educational attainment component is measured using two sub-indicators: mean years of schooling (MYS) and expected years of schooling (EYS). The GDI separately computes the values for males and females and compares them to determine gender-based educational disparities.

3. Economic Dimension: The economic component is measured by Gross National Income (GNI) per capita (PPP-adjusted) for both men and women. Since economic disparities are often significant between genders due to unequal labor force participation, wage gaps, and occupational segregation, this indicator serves as a crucial reflection of economic gender inequalities.

To calculate the GDI, the HDI values for men and women are computed separately. The Gender Development Ratio (GDR) is then obtained by dividing the female HDI by the male HDI. The closer the ratio is to 1, the higher the level of gender equality in a country’s human development. Based on this ratio, countries are classified into five gender development groups, ranging from low equality (GDI ≤ 0.80) to high equality (GDI ≥ 0.98).

Significance and Interpretation of the GDI

The GDI plays a vital role in assessing gender disparities across countries and regions, allowing policymakers to develop targeted strategies for gender-equitable development. The index provides insights into systemic inequalities that hinder women’s access to education, healthcare, and economic opportunities. By disaggregating human development outcomes by gender, the GDI helps to:

• Identify gender gaps in various human development indicators.
• Monitor progress over time in achieving gender parity.
• Compare gender disparities across countries and regions.
• Inform policy decisions by highlighting priority areas requiring intervention.

The GDI is often used alongside the Gender Inequality Index (GII), which examines gender-based disadvantages in reproductive health, empowerment, and labor market participation. While the GDI focuses on the absolute achievements of men and women, the GII emphasizes relative inequalities, making both indices complementary in understanding gender disparities.

Global Trends and Regional Disparities

Analysis of the GDI across different regions reveals substantial variations in gender equality. High-income countries, particularly those in Northern Europe, North America, and Oceania, tend to exhibit higher GDI values due to greater gender parity in education, economic participation, and healthcare access. Nordic countries such as Norway, Sweden, and Denmark consistently rank among the highest in gender development.

In contrast, Sub-Saharan Africa, South Asia, and parts of the Middle East tend to have lower GDI values, reflecting significant barriers to women’s health, education, and economic empowerment. Factors contributing to these disparities include patriarchal social structures, lack of legal protections, gender-based violence, and economic exclusion.

A closer examination of country-level data highlights cases where rapid progress has been made. For example, Rwanda has achieved remarkable improvements in gender parity in education and political representation, despite economic challenges. Similarly, Bangladesh has made strides in female literacy and workforce participation, contributing to an overall improvement in its GDI ranking.

Criticisms and Limitations of the GDI

Despite its utility, the GDI has faced several criticisms, particularly regarding its methodology, data availability, and conceptual framework. Key limitations include:

• Failure to capture intra-household inequalities: The GDI focuses on national-level indicators, overlooking gender disparities within households where women may have significantly lower access to resources than male family members.
• Economic measurement limitations: The use of Gross National Income (GNI) per capita as an economic indicator does not adequately reflect unpaid labor and informal sector contributions, which disproportionately affect women.
• Lack of consideration for intersectionality: The GDI does not account for intersectional factors such as race, ethnicity, disability, and rural-urban divides, which further shape gender disparities.
• Arbitrary adjustments in life expectancy calculations: Critics argue that the adjustment factor applied to women’s life expectancy lacks a strong empirical basis and may artificially inflate gender equality scores.

To address these limitations, scholars have proposed alternative gender indices such as the Global Gender Gap Index (GGGI) by the World Economic Forum, which includes additional dimensions such as political representation and labor force participation rates.

Policy Implications and Future Directions

The GDI serves as a powerful tool for governments and international organizations to implement gender-responsive policies that promote equal access to health, education, and economic resources. Countries aiming to improve their GDI ranking must:

• Enhance gender-sensitive educational policies that ensure equal access to schooling and reduce dropout rates for girls.
• Promote women’s economic participation through equal pay legislation, parental leave policies, and measures to eliminate occupational segregation.
• Improve access to healthcare by addressing maternal mortality, reproductive health services, and gender-specific health issues.
• Strengthen legal frameworks to combat gender-based violence, discrimination, and restrictive societal norms.

Future refinements to the GDI could incorporate more comprehensive economic indicators, integrate intersectional analyses, and improve data collection methodologies to enhance accuracy and relevance.

Conclusion

The Gender Development Index (GDI) is a fundamental measure of gender disparities in human development, providing a crucial benchmark for assessing progress toward gender equality. While it has significantly contributed to policy discourse, its limitations highlight the need for continued refinement and complementary gender-focused metrics. As the global community advances toward the Sustainable Development Goals (SDGs), particularly Goal 5 on gender equality, the GDI will remain an essential tool for measuring progress, identifying challenges, and shaping equitable policies to ensure that both men and women have equal opportunities to thrive.

Introduction

The Gender Inequality Index (GII) is a composite measure developed by the United Nations Development Programme (UNDP) to assess gender-based disadvantages across three critical dimensions: reproductive health, empowerment, and labor market participation. Introduced in the 2010 Human Development Report, the GII was designed to complement existing gender indices, particularly the Gender Development Index (GDI), by focusing on the relative disadvantages that women face compared to men in key aspects of human development. Unlike traditional gender equality metrics that primarily assess women’s absolute achievements, the GII explicitly measures the cost of gender inequality in terms of human development losses.

The GII is particularly significant because it provides a multidimensional assessment of gender disparities, revealing structural inequalities that persist across societies. It helps policymakers, researchers, and international organizations in diagnosing gender imbalances, evaluating the effectiveness of interventions, and identifying areas that require urgent attention. This essay provides an in-depth exploration of the GII, including its methodology, significance, global trends, limitations, and policy implications.

Methodology and Calculation of the GII

The GII measures gender inequality using three interrelated dimensions that capture different aspects of gender disparity:

1. Reproductive Health: This dimension assesses women’s health through two indicators: maternal mortality ratio (MMR) and adolescent birth rate (ABR). The maternal mortality ratio measures the number of maternal deaths per 100,000 live births, serving as an indicator of women’s access to quality maternal healthcare. The adolescent birth rate, defined as the number of births per 1,000 women aged 15–19, reflects early childbearing, which is often linked to limited educational and economic opportunities for young women.

2. Empowerment: The empowerment dimension captures gender disparities in decision-making power and access to higher education. It is measured using two indicators: the percentage of parliamentary seats held by women and the proportion of adult women and men with at least some secondary education. The representation of women in national parliaments serves as a proxy for their political influence, while educational attainment reflects access to knowledge and opportunities for socioeconomic mobility.

3. Labor Market Participation: The final dimension assesses gender disparities in economic participation using the labor force participation rate (LFPR), which measures the proportion of working-age women and men who are economically active. This indicator reflects women’s ability to access economic opportunities, secure financial independence, and contribute to national economic growth.

The GII is computed using a methodology that penalizes gender disparities in these dimensions. The index ranges from 0 to 1, where 0 indicates perfect gender equality and 1 represents extreme gender inequality. A higher GII value signifies greater gender-based disadvantages and human development losses due to inequality.

Significance and Interpretation of the GII

The GII provides critical insights into gender-based disadvantages that are not captured by traditional human development measures. Unlike the Gender Development Index (GDI), which assesses absolute achievements of men and women separately, the GII quantifies the relative disadvantages that women face compared to men. This approach enables a more nuanced understanding of structural gender inequalities and their consequences.

The GII is particularly valuable for policymakers and development agencies because it highlights areas where interventions are needed to improve gender equality in health, political representation, education, and economic participation. By tracking gender disparities across different regions and income groups, the index allows for comparative analysis and progress monitoring over time.

A key feature of the GII is its ability to quantify human development losses due to gender inequality. Countries with high GII values experience substantial reductions in overall human development, as women are unable to fully participate in social, economic, and political life. In contrast, nations with low GII values demonstrate greater gender parity and higher human development outcomes.

Global Trends and Regional Disparities

The GII varies significantly across different regions and income groups, reflecting the diverse sociocultural, economic, and political contexts that shape gender disparities. Generally, high-income countries tend to have lower GII values, indicating greater gender equality in health, empowerment, and economic participation. In contrast, low-income and developing regions exhibit higher GII values, signaling persistent gender disparities and development losses.

In Northern Europe, North America, and parts of East Asia, GII values are relatively low due to high female labor force participation, strong healthcare systems, and progressive gender policies. Countries such as Norway, Sweden, and Finland consistently rank among the best performers in gender equality, with high female representation in politics, extensive parental leave policies, and strong legal protections for women’s rights.

However, in regions such as Sub-Saharan Africa, South Asia, and the Middle East, GII values are considerably higher, indicating severe gender disparities in health, education, and economic participation. In South Asia, for instance, high maternal mortality rates, low female labor force participation, and significant political underrepresentation contribute to high GII values. Countries like India and Pakistan continue to grapple with gender-based barriers in education, employment, and healthcare access.

In Sub-Saharan Africa, high adolescent birth rates, poor maternal health outcomes, and low female labor force participation contribute to some of the highest GII values globally. Countries such as Chad, Niger, and the Central African Republic exhibit extreme gender inequalities, with limited access to reproductive health services, restrictive cultural norms, and economic exclusion preventing women from achieving full social and economic participation.

Criticisms and Limitations of the GII

Despite its significance, the GII has faced several methodological and conceptual criticisms. One major limitation is its failure to capture unpaid labor and care work, which disproportionately affects women. The index does not account for time spent on household responsibilities, childcare, and elder care, which are critical determinants of gender inequality.

Another limitation is the reliance on national-level indicators, which can obscure intra-country variations in gender inequality. In countries with large rural-urban divides, gender disparities can vary significantly between different socioeconomic groups, yet the GII provides only a single national measure, potentially masking these disparities.

The political representation indicator, which measures women’s share of parliamentary seats, has also been criticized for its limited scope. While parliamentary representation is important, it does not fully reflect women’s participation in local governance, executive leadership, or other forms of political influence.

Additionally, the maternal mortality ratio as a measure of reproductive health may be influenced by factors beyond gender inequality, such as the overall strength of a country’s healthcare system. Critics argue that the inclusion of additional reproductive health indicators, such as access to contraception and skilled birth attendance, could enhance the GII’s accuracy.

Policy Implications and Future Directions

To reduce gender inequality and improve GII rankings, countries must implement targeted policy interventions that address disparities in health, education, political participation, and economic opportunities. Strategies include expanding access to reproductive healthcare, promoting female education, ensuring equal pay and labor rights, and increasing women’s representation in decision-making positions.

Future refinements to the GII should consider incorporating unpaid labor contributions, intersectional analyses, and localized gender disparity assessments. Enhanced data collection and broader measures of economic and political participation could further strengthen the GII’s effectiveness as a gender inequality assessment tool.

Conclusion

The Gender Inequality Index (GII) is a crucial metric for assessing gender-based disadvantages and human development losses due to inequality. While it has significantly contributed to policy discourse, addressing its methodological limitations and expanding its scope will be essential for advancing global gender equality and sustainable development. As countries work toward gender-inclusive policies and the achievement of the Sustainable Development Goals (SDGs), particularly Goal 5 on gender equality, the GII will remain an indispensable tool in measuring progress and identifying areas for intervention.

Introduction

Underdevelopment is a multifaceted condition characterized by low levels of economic productivity, poor health outcomes, inadequate educational access, weak political institutions, and widespread poverty. It primarily affects countries in the Global South, including large parts of Sub-Saharan Africa, South Asia, Latin America, and parts of the Middle East, where economic and social progress remains stagnant or insufficient relative to developed nations. The term “underdeveloped” is often used interchangeably with “developing” or “low-income” nations, but underdevelopment is not merely a stage in economic evolution; it is a condition shaped by historical, economic, political, and social factors.

Understanding the causes of underdevelopment requires a comprehensive analysis of the structural, systemic, and external influences that have perpetuated economic and social stagnation. While traditional economic theories have emphasized factors such as lack of capital accumulation or technological backwardness, contemporary perspectives highlight the role of colonial legacies, global economic structures, political instability, environmental degradation, and sociocultural dynamics in sustaining underdevelopment. This essay provides a detailed and fact-based analysis of the key causes of underdevelopment, drawing upon historical evidence, empirical research, and case studies.

Historical Legacies and the Colonial Impact

One of the most significant and enduring causes of underdevelopment is the legacy of colonialism. During the colonial era, European powers such as Britain, France, Portugal, and Spain systematically exploited the natural and human resources of their colonies, resulting in distorted economic structures, extractive institutions, and persistent economic dependencies. Colonial rule fundamentally shaped the development trajectories of many nations by diverting wealth from local economies to colonial metropoles while stifling indigenous industrialization.

The economic model imposed during colonial rule prioritized monoculture economies, where entire regions became dependent on the export of a few raw materials such as cotton, coffee, rubber, gold, and oil. This led to economic vulnerability, price fluctuations, and lack of diversification, which persist today in many post-colonial states. Furthermore, colonialism disrupted pre-existing political and social systems, replacing them with authoritarian governance structures that favored the ruling elite over the broader population.

The case of the Democratic Republic of the Congo (DRC) illustrates the profound impact of colonialism. Under Belgian rule, the country’s vast mineral wealth was extracted with little reinvestment in infrastructure, education, or healthcare. Upon gaining independence in 1960, the DRC lacked the institutional capacity to manage its resources, leading to persistent political instability and economic stagnation. Similar patterns have been observed across Africa, South Asia, and Latin America, where colonial legacies continue to shape economic and political structures.

Economic Dependence and the Global Trade System

Underdevelopment is also perpetuated by the unequal global economic system, where developing nations remain structurally dependent on developed economies for trade, investment, and technology. The concept of dependency theory, developed by scholars such as Andre Gunder Frank and Samir Amin, argues that the global economy is structured in a way that benefits wealthy industrialized nations at the expense of developing countries.

Developing nations are often locked into unequal trade relationships, where they export low-value raw materials and import high-value manufactured goods. This creates a persistent trade imbalance, leading to debt accumulation and economic vulnerability. International financial institutions such as the International Monetary Fund (IMF) and World Bank have historically promoted structural adjustment programs (SAPs) that imposed austerity measures, privatization, and deregulation in exchange for financial assistance. These policies, while aimed at economic stabilization, often led to reduced social spending, deindustrialization, and increased poverty in many countries.

The case of Latin American economies in the 1980s and 1990s demonstrates the consequences of economic dependence. Countries such as Argentina, Brazil, and Mexico were forced to implement austerity-driven reforms to qualify for IMF loans, resulting in rising unemployment, weakened social safety nets, and prolonged economic stagnation.

Political Instability, Corruption, and Weak Institutions

Weak governance and political instability are among the most critical causes of underdevelopment. Many developing nations struggle with authoritarian rule, frequent coups, civil conflicts, and ineffective state institutions, which hinder economic progress and discourage investment. Corruption, in particular, has had a devastating impact on development by diverting public resources away from essential sectors such as healthcare, education, and infrastructure.

Empirical studies have shown that nations with strong institutions, transparent governance, and political stability tend to experience higher levels of economic growth and human development. Conversely, countries suffering from high levels of corruption and poor governance often experience slower economic progress, capital flight, and weak investor confidence.

In Nigeria, for example, despite being one of the world’s largest oil producers, mismanagement of oil revenues, corruption, and political instability have led to high poverty rates, infrastructure deficits, and widespread inequality. Similarly, in Afghanistan, decades of war and political instability have severely weakened state institutions, preventing long-term economic development despite significant international aid.

Low Human Capital and Educational Deficits

Another major cause of underdevelopment is the lack of investment in human capital, particularly in education and healthcare. Countries that fail to provide quality education and healthcare services tend to experience low labor productivity, high disease burdens, and weak innovation capacity.

Many underdeveloped nations suffer from low literacy rates, high dropout rates, and inadequate technical training programs, limiting their ability to compete in the global knowledge economy. In addition, gender disparities in education, particularly in regions like South Asia and Sub-Saharan Africa, further exacerbate economic inequalities by restricting women’s participation in the workforce.

According to UNESCO, more than 260 million children worldwide remain out of school, with the highest concentrations in Nigeria, Pakistan, and India. Countries with high education investment, such as South Korea and Singapore, have demonstrated rapid economic transformation, whereas those with poor educational infrastructure continue to struggle with low productivity and innovation deficits.

Health Crises, Disease Burdens, and Poor Infrastructure

Underdevelopment is further exacerbated by health crises and inadequate public health infrastructure. The prevalence of diseases such as malaria, tuberculosis, HIV/AIDS, and waterborne illnesses significantly reduces life expectancy and labor productivity, limiting economic growth. High child mortality rates and maternal health complications also contribute to population stagnation and economic instability.

Many developing nations lack basic healthcare facilities, trained medical personnel, and access to essential medicines, resulting in high mortality rates and disease prevalence. The COVID-19 pandemic highlighted these disparities, as developing nations struggled with vaccine distribution, healthcare funding, and pandemic response strategies.

In Sub-Saharan Africa, where over 90% of global malaria cases occur, the economic impact of the disease is estimated to reduce GDP growth by 1.3% annually, according to the World Health Organization (WHO). Similarly, the prevalence of malnutrition and waterborne diseases in South Asia has stunted economic progress by reducing labor force productivity and increasing healthcare costs.

Environmental Degradation and Climate Change

Finally, environmental degradation and climate change have emerged as significant obstacles to development. Many underdeveloped nations rely on agriculture and natural resource extraction, making them highly vulnerable to climate shocks, desertification, and deforestation. Extreme weather events such as droughts, floods, and hurricanes disproportionately affect low-income countries, displacing populations and damaging critical infrastructure.

In Bangladesh, for example, rising sea levels have led to increased coastal erosion, displacement, and food insecurity, exacerbating poverty and economic instability. In the Sahel region of Africa, desertification has led to agricultural losses, resource conflicts, and forced migration, further deepening underdevelopment.

Conclusion

Underdevelopment is the result of complex, interrelated historical, economic, political, and environmental factors. The legacies of colonial exploitation, economic dependence, weak institutions, low human capital, and environmental challenges continue to hinder sustainable growth in many developing nations. Addressing these issues requires comprehensive policy interventions, global cooperation, and long-term investment in education, healthcare, governance, and climate resilience to foster inclusive and sustainable development.

Introduction

This theory of circular or cumulative causation is associated with the name of a noted economist professor Gunnar Myrdal. This theory provides explanation to the international inequalities between the countries, and national inequalities among the regions of a country in a wide variety of development indicators like differences in levels of per capita incomes and wages, industrialization, trade and commerce, banking and insurance etc. As such this theory tries to provide justification of growing development gap in contrast to neoclassical equilibrium theory which assumes that free trade between the regions and the countries tends to narrow the gap.

The Theory

Myrdal contends that in underdeveloped countries certain economic and social forces produce a vicious circle of poverty, and if left unattended, operate downwards resulting into perpetuation of backwardness and poverty. On the other hand, developed countries through social and economic forces set forth a virtuous circle of prosperity that becomes cumulative in nature and sets a path for higher and higher levels of development. Under such conditions if the two countries or regions are allowed to trade freely, the developed countries or regions will attract all the resources like labor, capital and entrepreneurship from the backward regions causing further differences in the development levels.

To explain his view point he refers to two effects that are generated in this type of trade between the regions – the spread effects and the backwash effects. The spread effects are the favorable or positive effects of development in the expanding regions on the backward regions. These are also known as trickle down effects. These spread or trickle down effects mainly consist of transfer of knowledge, technology and increased demand for the products of backward regions. The backwash effects on the other hand, imply the harmful effects of development, emanating from the advanced regions, on the backward regions. These backwash effects come through labor migration, movements of capital, trade and entrepreneurship away from backward regions towards the expanding or advanced regions.

Myrdal is of the opinion that the backwash effects much stronger than the spread effects and as a result the development proceeds more rapidly in advanced region, and often at the cost of backward region. This produces disequilibrium condition which continues to persist. This conclusion is opposite to the neoclassical prediction that if the two regions are at different levels of development, than through trade relations between the two, the development differences will disappear, producing equilibrium across the regions in various development indicators. For example, an advanced region or a country where capital is abundant and labor deficient, the profit rate will be lower and the wage rate higher compared to the region where capital is scarcer and labor surplus. Neo classicals contend that if there is perfect mobility of capital and labor between the two regions, the capital and labor will tend to outflow from the surplus regions or inflow into the deficit regions. This capital and labor movement will generate forces of supply and demand that will equalize the wage rates and profit rates across the regions. But Myrdal does not agree with this explanation.

Let us consider the view point that Myrdal has in mind. According to him the wage rate and profit rate in above example will not equalize but rather will diverge if there are initial differences in development levels between the regions. The forces of supply and demand will operate in such a way as to intensify disequilibrium rather than producing equilibrium. Let us take the case of two regions A and B, and assume that the two regions are initially at the same level of development as is reflected in terms of same wage rates. We take wage rate as an indicator of development because wage is the determinant of per capita income. We further assume that wages are determined by the supply and demand condition for labor as shown in the figure below.

Let us assume that the wage rates in the two regions A and B are equal initially, that is WA = WB because they are at the same level of development. Let us further assume that due to some external shock in region A the development process picks up momentum compared to region B and stimulates the demand for labor in region A. This demand for labor will in turn increase the wage rate in region A relative to region B. This is shown by the shift in the demand curve of region A to the right from DL to DL1 and the wage rate will rise to WA1. Because of this higher wage level in region A, labor will start migrating from region B to region A, and accordingly labor supply will increase in region A and decrease in region B, which means labor supply curve in the region A will shift to the right and will shift to left in region B. This will tend to reduce the wage rate in region A and increase in region B so that new equilibrium is achieved when the new wage rate in region A, that is, WA2 is equal to the new wage rate in region B that is WB1. When WB1 = WA2 this is in accordance with neoclassical conception of equilibrium.According to the hypothesis of cumulative causation, however, changes in supply may be expected to react on demand in such a way as to counteract the tendency towards equilibrium. Migration from region B denudes the area of human capital and entrepreneurs and depresses the demand for goods and services and factors of production. While movements into region A, on the other hand will tend to stimulate enterprise and the demand for products, adding to the demand for factors of production. In short migration from region B will cause the demand curve for labor in region B to shift to the left, say to DL1 and migration into region A will cause the demand curve for labor to shift further to the right say DL2 causing the initial wage discrepancy, at least to persist if not widen. Thus as soon as the development differences appear, there is set in motion a chain of cumulative expansion in the favored region. This according to Myrdal has backwash effects on the other regions, causing development differences to persist or even widen.

According to Myrdal this pattern will be followed by the capital and trade. As in a free market economy capital, like labor, will also tend to move to the regions where the prospective return will be higher and this will be the region where demand is buoyant. Therefore, capital labor and entrepreneurship will tend to move together. Thus the benefits of the trade will also accrue to the host region.

The balanced growth theory is an economic theory pioneered by the economist Ragnar Nurkse (1907–1959). The theory hypothesises that the government of any underdeveloped country needs to make large investments in a number of industries simultaneously. This will enlarge the market size, increase productivity, and provide an incentive for the private sector to invest.

Nurkse was in favour of attaining balanced growth in both the industrial and agricultural sectors of the economy. He recognised that the expansion and inter-sectoral balance between agriculture and manufacturing is necessary so that each of these sectors provides a market for the products of the other and in turn, supplies the necessary raw materials for the development and growth of the other.

Nurkse and Paul Rosenstein-Rodan were the pioneers of balanced growth theory and much of how it is understood today dates back to their work.

Nurkse’s theory discusses how the poor size of the market in underdeveloped countries perpetuates its underdeveloped state. Nurkse has also clarified the various determinants of the market size and puts primary focus on productivity. According to him, if the productivity levels rise in a less developed country, its market size will expand and thus it can eventually become a developed economy. Apart from this, Nurkse has been nicknamed an export pessimist, as he feels that the finances to make investments in underdeveloped countries must arise from their own domestic territory. No importance should be given to promoting exports.

The size of a market assumes primary importance in the study of what induces investment in a country. Ragnar Nurkse referenced the work of Allyn A. Young to assert that inducement to invest is limited by the size of the market. The original idea behind this was put forward by Adam Smith, who stated that division of labour (as against inducement to invest) is limited by the extent of the market.

According to Nurkse, underdeveloped countries lack adequate purchasing power. Low purchasing power means that the real income of the people is low, although in monetary terms it may be high. If the money income were low, the problem could easily be overcome by expanding the money supply; however, since the meaning in this context is real income, expanding the supply of money will only generate inflationary pressure. Neither real output nor real investment will rise. A low purchasing power means that domestic demand for commodities is low. Apart from encompassing consumer goods and services, this includes the demand for capital as well.

The size of the market determines the incentive to invest irrespective of the nature of the economy. This is because entrepreneurs invariably take their production decisions by taking into consideration the demand for the concerned product. For example, if an automobile manufacturer is trying to decide which countries to set up plants in, he will naturally only invest in those countries where the demand is high. He would prefer to invest in a developed country, where though the population is lesser than in underdeveloped countries, the people are prosperous and there is a definite demand.

Private entrepreneurs sometimes resort to heavy advertising as a means of attracting buyers for their products. Although this may lead to a rise in demand for that entrepreneur’s good or service, it does not actually raise the aggregate demand in the economy. The demand merely shifts from one provider to another. Clearly, this is not a long-term solution.

Ragnar Nurkse concluded,

“The limited size of the domestic market in a low income country can thus constitute an obstacle to the application of capital by any individual firm or industry working for the market. In this sense the small domestic market is an obstacle to development generally.”

According to Nurkse, expanding the size of the market is crucial to increasing the inducement to invest. Only then can the VICIOUS CIRCLE OF POVERTY be broken. He mentioned the following pertinent points about how the size of the market is determined:

Nurkse emphasised that Keynesian theory shouldn’t be applied to underdeveloped countries because they don’t face a lack of effective demand in the way that developed countries do. Their problem is to do with a lack of real purchasing power due to low productivity levels. Thus, merely increasing the supply of money will not expand the market but will in fact cause inflationary pressure.

Nurkse argued against the notion that a large population implies a large market. Though underdeveloped countries have a large population, their levels of productivity are low. This results in low levels of per capita real income. Thus, consumption expenditure is low, and savings are either very low or completely absent. On the other hand, developed countries have smaller populations than underdeveloped countries but by virtue of high levels of productivity, their per capita real incomes are higher and thus they create a large market for goods and services.

Nurkse also refuted the claim that if a country’s geographical area is large, the size of its market also ought to be large. A country may be extremely small in area but still have a large effective demand. For example, Japan. In contrast, a country may cover a huge geographical area but its market may still be small. This may occur if a large part of the country is uninhabitable, or if the country suffers from low productivity levels and thus has a low National Income.

The notion that transport costs and trade barriers hinder the expansion of the market is age-old. Nurkse emphasised that tariff duties, exchange controls, import quotas and other non-tariff barriers to trade are major obstacles to promoting international cooperation in exporting and importing. More specifically, due to high transport costs between nations, producers do not have an incentive to export their commodities. As a result, the amount of capital accumulation remains small. To address this problem, the United Nations produced a report in 1951 with solutions for underdeveloped countries. They suggested that they can expand their markets by forming customs unions with neighbouring countries. Also, they can adopt the system of preferential taxation or even abolish customs duties altogether. The logic was that once customs duties are removed, transport costs will fall. Consequently, prices will fall and thus the demand will rise. However, Nurkse, as an export pessimist, did not agree with this view. Export pessimism is a trade theory which is governed by the idea of “inward looking growth” as opposed to “outward looking growth”.

Often, it is true that a company’s private endeavour to increase the demand for its products succeeds due to the extensive use of advertisement and other sales promotion technique. However, Nurkse argues that such activities cannot succeed at the macro level to increase a country’s aggregate demand level.^[7] He calls this the “macroeconomic paradox”.^[7]

Nurkse stressed productivity as the primary determinant of the size of the market. An increase in productivity (defined as the output per unit input) increases the flow of goods and services in the economy. As a response, consumption also rises. Hence, underdeveloped economies should aim to raise their productivity levels in all sectors of the economy, in particular agriculture and industry.

For example, in most underdeveloped economies, the technology used to carry out agricultural activities is backward. There is a low degree of mechanisation coupled with rain dependence. So while a large proportion of the population (70–80%) may be actively employed in the agriculture sector, the contribution to the Gross Domestic Product may be as low as 40%. This points to the need to increase output per unit input and output per head. This can be done if the government provides irrigation facilities, high-yielding variety seeds, pesticides, fertilisers, tractors etc. The positive outcome of this is that farmers earn more income and have a higher purchasing power (real income). Their demand for other products in the economy will rise and this will provide industrialists an incentive to invest in that country. Thus, the size of the market expands and improves the condition of the underdeveloped country.

Nurkse is of the opinion that Say’s law of markets operates in underdeveloped countries. Thus, if the money incomes of the people rise while the price level in the economy stays the same, the size of the market will still not expand till the real income and productivity levels rise. To quote Nurkse,

“In underdeveloped areas there is generally no ‘deflationary gap’ through excessive savings. Production creates its own demand, and the size of the market depends on the volume of production. In the last analysis, the market can be enlarged only through all-round increase in productivity. Capacity to buy means capacity to produce.”

Citing the limited size of the market as the main impediment in economic growth, Nurkse reasons that an increase in productivity can create a virtuous circle of growth. Thus, a large scale investment programme in a wide array of industries simultaneously is the answer. The increase in demand for one industry will lead to an increase in demand for another industry due to complementarity of demands. As Say’s law states, supply creates its own demand.

However, Nurkse clarified that the finance for this development must arise to as large an extent as possible from the underdeveloped country itself i.e. domestically. He stated that financing through increased trade or foreign investments was a strategy used in the past – the 19th century – and its success was limited to the case of the United States of America. In reality, the so-called “new countries” of the United States of America (which separated from the British empire) were high income countries to begin with. They were already endowed with efficient producers, effective markets and a high purchasing power. The point Nurkse was trying to make was that USA was rich in resource endowment as well as labour force. The labour force had merely migrated from Britain to USA, and thus their level of skills were advanced to begin with. This situation of outward led growth was therefore unique and not replicable by underdeveloped countries.

In fact, if such a strategy of financing development from outside the home country is undertaken, it creates a number of problems. For example, the foreign investors may carelessly misuse the resources of the underdeveloped country. This would in turn limit that economy’s ability to diversify, especially if natural resources were plundered. This may also create a distorted social structure. Apart from this, there is also a risk that the foreign investments may be used to finance private luxury consumption. People would try to imitate Western consumption habits and thus a balance of payments crisis may develop, along with economic inequality within the population.

Another reason exports cannot be promoted is because in all likelihood, an underdeveloped country may only be skilled enough to promote the export of primary goods, say agricultural goods. However, since such commodities face inelastic demand, the extent to which they will sell in the market is limited. Although when population is at a rise, additional demand for exports may be created, Nurkse implicitly assumed that developed countries are operating at the replacement rate of population growth. For Nurkse, then, exports as a means of economic development are completely ruled out.

Thus, for a large-scale development to be feasible, the requisite capital must be generated from within the country itself, and not through export surplus or foreign investment. Only then can productivity increase and lead to increasing returns to scale and eventually create virtuous circles of growth.

After World War II, a debate about whether a country should introduce financial planning to develop itself or rely on private entrepreneurs emerged. Nurkse believed that the subject of who should promote development does not concern economists. It is an administrative problem. The crucial idea was that a large amount of well dispersed investment should be made in the economy, so that the market size expands and leads to higher productivity levels, increasing returns to scale and eventually the development of the country in question. However, most economists who favoured the balanced growth hypothesis believed that only the state has the capacity to take on the kind of heavy investments the theory propagates. Further, the gestation period of such lumpy investments is usually long and private sector entrepreneurs do not normally undertake such high risks.

Ragnar Nurkse’s balanced growth theory too has been criticised on a number of grounds. His main critic was Albert O. Hirschman, the pioneer of the strategy of unbalanced growth. Hans W. Singer also criticised certain aspects of the theory.

Hirschman stressed the fact that underdeveloped economies are called underdeveloped because they face a lack of resources, maybe not natural resources, but resources such as skilled labour and technology. Thus, to hypothesise that an underdeveloped nation can undertake large scale investment in many industries of its economy simultaneously is unrealistic due to the paucity of resources. To quote Hirschman,

“If a country were ready to apply the doctrine of balanced growth, then it would not be underdeveloped in the first place.”

Hans Singer asserted that the balanced growth theory is more applicable to cure an economy facing a cyclical downswing. Cyclical downswing is a feature of an advanced stage of sustained growth rather than of the vicious cycle of poverty. Hirschman also stated that during conditions of slack activity in developed countries, the stock of resources, machines and entrepreneurs are merely unemployed, and are present as idle capacity. So in this situation, simultaneous investment in a large number of sectors is a well-suited policy. The various economic agents are temporarily unemployed and once the inducement to invest starts operating, the slump will be overcome. However, for an underdeveloped economy, where such resources are absent, this principle doesn’t fit.

Another contention was Nurkse’s approval of Say’s law, which theorises that there is no overproduction or glut in the economy. Supply (production of goods and services) creates a matching demand for the output and this results in the entire output being sold and consumed. However, Keynes stated that Say’s law is not operational in any country because people do not spend their entire income – a fraction of it is saved for future consumption. Thus, according to Nurkse’s critics, his assumption of Say’s law being operational in underdeveloped countries needs greater justification. Even if the section of savers is few, the tenet of putting emphasis on supply rather than demand has been widely criticised.

Nurkse states that if demand for the output of one sector rises, due to the complementary nature of demand, the demand for the output of other industries will also experience a rise. Paul Rosenstein-Rodan spoke of a similar concept called “indivisibility of demand” which hypothesises that if large investments are made in a large number of industries simultaneously, an underdeveloped economy can become developed due to the phenomenon of complementary demand. However, both Nurkse and Rosenstein-Rodan only took into consideration the situation of industries that produce complementary goods. There are substitute goods too, which are in competition with each other. Thus if the state pumps in large investments into the car industry, for example, it will naturally lead to a rise in the demand for petrol. But if the state makes large scale investments in the coffee sector of a country, the tea sector will suffer.

Hans Singer suggested that Nurkse’s theory makes dubious assumptions about the underdeveloped economy. For example, Nurkse assumes that the economy starts with nothing at hand.^[5] However, an economy usually starts at a position which reflects the previous investment decisions undertaken in the country, and at any given moment, an imbalance already exists. So the logical step would be to take on those investment programmes which complement the existing imbalance in the economy. Clearly, such an investment cannot be a balanced one. If an economy makes the mistake of setting out to make a balanced investment, a new imbalance is likely to appear which will require still another “balancing investment” to bring equilibrium, and so on and so forth.

Hirschman believed that Nurkse’s balanced growth theory wasn’t in fact a theory of growth.^[1] Growth implies the gradual transformation of an economy from one stage to the chronologically next stage. It entails the series of actions which leads the economy from a stage of infancy to that of maturity. However, the balanced growth theory involves the creation of a brand new, self-sufficient modern industrial economy being laid over a stagnant, self-sufficient traditional economy. Thus, there is no transformation. In reality, a dual economy will come into existence, where two separate economic sectors will begin to coexist in one country. They will differ on levels of development, technology and demand patterns. This may create inequality in the country.