Wednesday, August 20, 2014

Indicators of Development

I recently read this article proposing the Palma be used instead of the Gini as a measure of inequality of the distribution of income. The Palma is defined as the share of income received by the top 10% of recipients divided by the share received by the bottom 40% of recipients. For the definition of the Gini coefficient see my recent post. I don't know enough about the benefits and costs of the options to have a serious opinion.

I think there is merit in measuring inequality of income distribution. Obviously it matters to people. Most of us don't like living in societies that we regard as unfair, and societies in which the rich get richer, the middle class has little chance to get ahead, and the poor stay poor and suffer seem unfari to most of us. Moreover, there is evidence that great inequality is not conducive to rapid economic growth.

Development aid is focused on poverty alleviation. (Remember the slogan, "don't tax middle class Americans to send money abroad to make rich people in poor countries richer still".) But I remember when the focus was narrowed on "the worst aspects of poverty". Thus there is a school of thought that believes development aid should focus on improving child survival and reducing maternal mortality, reducing world hunger, and providing basic schooling for children and literacy for adults. Increasing the productivity of subsistence farms and reducing unemployment can be defended as achieving all these things simultaneously, especially if the improved income can be directed to women who are known to utilize it better to protect their families.

A Millennial Development Goals Map

I tend to believe that the developers of the Millennium Development Goals were right in their approach of having a number of goals relating to the worst aspects of poverty, with indicators and benchmarks defined for each goal.

Of course, to achieve global development objectives it makes sense to consider instrumental objectives. Increasing the total production of goods and services and assuring the equitable distribution of those goods and services will help to improve health, reduce hunger and educate people. Thus it is useful to measure GDP and some indicator of equity of distribution of income. However, we should not confuse instrumental variables with end objectives.

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