IB DP Economics: Measuring development – Revision Notes

These notes follow the IB Diploma Programme Economics guide (first assessment 2022, published February 2020), the course examined from the 2022 session onwards. They cover sub-topic 4.8, measuring development, which is SL and HL with no HL-only content. For full explanations start with the study guide, then test yourself with the practice set. The IB DP Economics hub, the printable checklist and the free diagnostics show what to revise next. All countries and figures below are invented.

Key definitions

Term	Meaning
Economic growth	Increase in real output, measured by real GDP or GNI
Economic development	Wider improvement in living standards: health, education, equity, choice, sustainability and income
Purchasing power parity (PPP)	Exchange rate that makes a standard basket cost the same in two countries
Single indicator	A measure of one aspect of development
Composite indicator	One index built from several measures

Single indicators at a glance

Category	Examples	Typical limit
Income	GDP or GNI per person at PPP	Average only; says nothing on distribution
Health	Life expectancy; infant or maternal mortality; doctors per 1,000 people	Averages hide group gaps
Education	Literacy; mean and expected years of schooling	Years attended are not learning gained
Inequality	Gini coefficient; income share of top 10% or bottom 40%; gender gaps	Shows spread, not the level of living
Energy	Energy use per person; access to electricity; renewable share	More energy use is not always better
Environmental	Carbon dioxide per person; ecological footprint; forest area; air quality	Often reported with delay and gaps

Composite indicators at a glance

Index	What goes in	Reading it
HDI	Life expectancy; mean and expected schooling; GNI per person at PPP	0 to 1; higher is better
IHDI	The HDI, adjusted for inequality within each dimension	Never above HDI; the gap is the loss to inequality
GII	Reproductive health; empowerment; labour market participation	0 to 1; higher means more gender inequality
Happy Planet Index	Life expectancy; reported well-being; inequality of outcomes; ecological footprint	Rewards long, satisfied lives with a light footprint

Method: building an HDI (illustrative limits)

Use limits: income from 200 to 80,000, expected schooling from 0 to 20, mean schooling from 0 to 15, life expectancy from 25 to 85.

1. Dimension index = (actual - minimum) / (maximum - minimum).
2. Education index = average of the expected-schooling and mean-schooling indices.
3. Income index = (ln income - ln minimum) / (ln maximum - ln minimum).
4. HDI = cube root of (health x education x income).

Worked reminder. Ormund: life expectancy 78, expected schooling 15, mean schooling 11, GNI per person 30,000 units at PPP.

• Health = (78 - 25) / 60 = 0.883.
• Schooling indices: 15 / 20 = 0.750 and 11 / 15 = 0.733; education = 0.742.
• Income = (ln 30,000 - ln 200) / (ln 80,000 - ln 200) = 5.011 / 5.991 = 0.836.
• HDI = (0.883 x 0.742 x 0.836)^(1/3) = 0.818.

Pellara: life expectancy 64, expected schooling 10, mean schooling 5, income 3,000. Indices 0.650, 0.417 and 0.452 give an HDI of 0.497.

Ormund’s income is ten times Pellara’s, yet its HDI is only about 1.6 times higher, not ten times, because each dimension is capped at 1 and the income index uses logarithms.

Method: adjusting for inequality (simplified)

1. Find the percentage loss to inequality in each dimension.
2. Multiply each dimension index by (1 - loss).
3. Take the cube root of the product of the three adjusted indices.
4. Overall loss = (HDI - IHDI) / HDI.

Worked reminder. Ormund’s losses are 5% in health, 10% in education and 15% in income.

• Adjusted indices: 0.883 x 0.95 = 0.839; 0.742 x 0.90 = 0.668; 0.836 x 0.85 = 0.711.
• IHDI = (0.839 x 0.668 x 0.711)^(1/3) = 0.736.
• Loss = (0.818 - 0.736) / 0.818 = about 10%.

The real IHDI uses its own inequality formula for each dimension. In an answer, say that unequal distribution lowers the score, and name which dimension loses most.

Reading the GII

The GII is a score from 0 to 1. Compare two countries with similar HDI values: if one has a much higher GII, its average achievement hides a wider gap between women and men in health, representation, schooling or jobs. A falling GII over time shows narrowing gaps. Remember it covers three dimensions only, so a low GII does not prove equality in every part of life.

Method: PPP conversion

1. PPP rate = price of basket at home / price of the same basket abroad.
2. Income at PPP = income at home / PPP rate.

Pellara’s basket costs 1,500 and the same basket costs 500 in a reference economy, so the PPP rate is 3. An income of 45,000 is worth 45,000 / 3 = 15,000 units at PPP.

Must-know distinctions

• Growth versus development: growth means more output; development covers people’s health, schooling and fairness as well.
• Single versus composite: single indicators are clear but narrow; composites are broad but depend on weights and method.
• HDI versus IHDI: the IHDI adjusts for inequality, so it is lower unless distribution is perfectly equal.
• HDI versus GII: the HDI measures average achievement; the GII measures gender disadvantage, and a higher GII is worse.
• HDI versus Happy Planet Index: the HDI ignores the environment; the Happy Planet Index relates well-being to ecological footprint.
• Arithmetic versus geometric mean: geometric penalises a weak dimension more heavily.

Strengths and limitations: evaluation prompts

• Does the measure show averages, or how outcomes are shared?
• Are the data reliable, current and comparable between countries?
• Is the weighting a value judgement, and would a different weighting change the ranking?
• Is anything important left out, such as freedom, environment or unpaid work?
• Is the data objective (life expectancy) or subjective (reported satisfaction)?
• Are two scores close enough that a ranking difference means little?

Growth and development: summary

Growth helps development when	Growth fails to help when
Tax revenue funds health, schools and infrastructure	Gains go to a small group, so inequality rises
Household incomes rise and are spent on needs	Governments spend little on public services
Healthier, educated workers raise productivity	Growth causes pollution or resource depletion
Institutions are strong and revenue is used well	Corruption or weak institutions waste revenue

Conclusion to aim for: the link is positive but conditional. Use a named case with two or three indicators.

Quick self-test

1. Define purchasing power parity.
2. A basket costs 1,500 in Pellara and 500 in a reference economy. GNI per person is 45,000 in Pellara. Find GNI per person at PPP.
3. Name the three dimensions of the HDI.
4. Life expectancy is 55 and the illustrative limits are 25 and 85. Find the health index.
5. Explain why the HDI uses a geometric mean.
6. Dimension indices are 0.9, 0.8 and 0.5. Find the HDI to 3 decimal places.
7. What does a higher GII value show?
8. A country’s IHDI is lower than its HDI. What does that show?
9. Name one energy indicator and one environmental indicator.
10. Real GNI per person rises from 8,000 to 8,400. Find the percentage growth, then give two reasons why this may not raise development.
11. Which composite index includes ecological footprint?

Answers

1. The exchange rate that makes a standard basket of goods cost the same in two countries.
2. PPP rate = 1,500 / 500 = 3; 45,000 / 3 = 15,000 units.
3. Health (life expectancy), education (schooling) and standard of living (GNI per person at PPP).
4. (55 - 25) / (85 - 25) = 30 / 60 = 0.500.
5. It lowers the index when one dimension is weak, so strength in one dimension cannot fully offset weakness in another.
6. (0.9 x 0.8 x 0.5)^(1/3) = (0.36)^(1/3) = 0.711.
7. Greater inequality between women and men, so a worse position.
8. Health, education or income is spread unequally; the larger the gap, the greater the loss due to inequality.
9. For example, access to electricity (energy) and carbon dioxide emitted per person (environmental).
10. (8,400 - 8,000) / 8,000 = 5%. Reasons: gains may go to a few households; public spending on health and schooling may not rise; growth may cause pollution.
11. The Happy Planet Index.

Where marks are usually lost

• Treating development and growth as the same thing.
• Describing the HDI as an income measure, or leaving out one of its three dimensions.
• Saying a higher GII is better.
• Writing “PPP” without explaining that it adjusts for price differences.
• Stating strengths and limitations as a general list rather than applying them to a named index and a given country.
• Ignoring the data given in the question and relying on memorised statements.
• Stopping an evaluation after one side, with no supported judgement at the end.
• Mixing up IHDI and GII: one adjusts HDI for inequality in general, the other measures gender disadvantage.

Official syllabus

IB Diploma Programme Economics guide, first assessment 2022, published by the International Baccalaureate Organization (February 2020). This page covers sub-topic 4.8.