Economy Basic Concepts Part – 4 Human Development Index

The growth rate of HDI (1980 – 2012)

  1. India – 1.3%
  2. China – 1.7%
  3. Europe – 0.5 %
  4. World – 0.7

Types of Human Development Indicators

  1. Very high Human Development
  2. High Human Development
  3. Medium Human Development
  4. Low Human Development

As per UNDP developed countries have the very high human development index, till now we have 47 developed countries.

Gender Inequality Index (GII)

It measures gender inequality in respect of the following three dimensions

  1. Maternal Health
  2. Empowerment
  3. Labour Market

At present Norway tops, the list and India stand at the 135th position

IAS Toppers (6)

Limitations of the Human Development Index

  1. The HDI notably fails to take account of qualitative factors, such as cultural identity and political freedoms (human security, gender opportunities and human rights for example)
  2. Many argue that the HDI should become more human-centred and expanded to include more dimensions, ranging from gender equity to environmental biodiversity.
  3. The GNP per capita figure – and consequently the HDI figure – takes no account of the income distribution.If income is unevenly distributed, then GNP per capita will be an inaccurate measure of the monetary well-being of the people. Inequitable development is not human development.
  4. PPP values change very quickly and are likely to be inaccurate or misleading

Difference between Human development and Human resource development (asked in mains)

Human Development

  • UNDP has defined human development as the process of winding people’s choices as well as raising the level of well-being achieved.

Human Resource Development

  • Also called the human capital formation, it refers to the process of enhancing the productive potential of human beings.
  • It is being achieved by providing education, healthcare, training skill development etc.

Factor affecting economic development

  1. Economic Factor – It includes the following components
  2. Capital Factor
  3. Economic Systems – Capitalist economy, socialist economy, mixed economy and communist economy.
  4. Economic policy – Economic system creates room for economic policy
  5. Structures of the economy – Types of activity and contribution of sectors in the economy, for example, India have the following trend
Sectors 1950 Now
Agriculture 60% 13%
Industry 13% 27%
Services 27% 60%


  1. Level of technology
  2. Level of specialisation
  3. Global factor
  4. Natural Resources
  5. Non-economic factor
  6. Socio-cultural factor (cast, culture, values of society)
  7. Political system
  8. Psychological factors
  9. Religious factor
  10. Demographic factor
  11. Capital formation (Investment)

The process of increase in the physical stock of capital like machinery tools equipment plant etc.

It is the most important determinant of economic growth; it increases productivity and future productive capacity of the economy.

The Harrod-Domar Model 

  1. The Harrod-Domar model is a growth model used in development economics that states an economy’s growth rate is dependent on the level of saving and the capital-output ratio.
  2. The Harrod-Domar model was developed independently by Sir Roy Harrod in 1939 and Evsey Domar in 1946.
  3. It is a growth model which states the rate of economic growth in an economy is dependent on the level of saving and the capital-output ratio.
  4. If there is a high level of saving in a country, it provides funds for firms to borrow and invest.
  5. Investment can increase the capital stock of an economy and generate economic growth through the increase in the production of goods and services.
  6. The capital-output ratio measures the productivity of the investment that takes place.
  7. . If the capital-output ratio decreases the economy will be more productive, so higher amounts of output is generated from fewer inputs. This again leads to higher economic growth.

Rate of growth (Y) = Savings (s)/ capital-output ratio (k)

The implications of Harrod – Domar Model

  1. This model is mainly used in development economics. It suggests that if developing countries want to achieve economic growth.
  2. Governments need to encourage saving and support technological advancements to decrease the economy’s capital-output ratio.
  3. The Harrod-Domar model provides a framework for economic development and has been an important influence on government policies, such as India’s Five Year Plan (1951- 1956).

Stages of Economic Development

  1. Savings – It is composed household which accounts for 70%, Private which accounts for around 20% and lastly public sector which account for 10%.
  2. Finance – Mobilisation of savings of people for the investment of firms through a financial institution.
  3. Investment – In India, it is largely contributed by the private sector.

In closed economy Investment = Savings where savings are a high deposit and low income. It is because of

  1. Lack of social security
  2. Cultural factor
  3. Interest rates are high
  4. Diverse investment option
  5. Government measures such as the tax rebate

In open economy investment = savings + Net foreign capital inflow (FDI borrowing)

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