ALISHIYA TANNA 6S2 02/02/14
Discuss the relative merits of GDP per capita and the HDI as alternative measures of the standard of living in different countries.
GDP is a measure of the economic activity carried out in an economy over a period of time which can be measured by adding up the total value of goods and services produced by a country in a year. GDP per capita is the average level of GDP per person.
The HDI is a composite indicator of the level of a country's development, reflecting resources, knowledge and longevity; varying between 0 and 1.
An advantage of GDP per capita as a measure of the standard of living in different countries is that the data is relatively easy to collect for most countries and GDP is easily calculable. It is also consistently measured across all countries and this means that it is available for almost every country in the world which makes it easier to compare living standards between countries.
The use of GDP per capita as a measure of living standards is also well established and it has been used longer than HDI which means that there would be more historical data to compare current GDP figures with.
Moreover, countries with a higher GDP per capita (i.e. England and USA) tend to have sufficient resources and therefore have access to better education and health facilities and so countries with a higher GDP ranking would generally rank highly in terms of HDI (with the correlation between GDP and HDI raking being 0.95 in 2006). One could therefore argue that any extra components taken into account by the HDI do not make a large difference when comparing living standards between countries.
GDP per capita is also more responsive to short-term changes (such as productivity, consumption and investments)...