Unit I Economics E-Notes

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E-NOTES
CLASS & SECTION : BA LL.B/BBA LL.B IV Semester

SUBJECT NAME : Economics III
SUBJECT CODE : BBA LLB 210
UNIT – I
What is Economic Growth?

Economic growth can be defined as an increase in the value of goods and services
produced in an economy over a period of time. This value calculation is done in terms of
% increase in GDP or Gross Domestic Product.
Economic growth is calculated in real terms where the effects of variation in the value of
goods and services due to inflation distortion are also accounted for.
Factors influencing Economic Growth

 Human resources – this is a major factor that is responsible for boosting the
economic growth of a country. The rate of increase in the skills and capabilities of
a workforce ultimately increases the economic growth of a country.
 Infrastructure development- Improvements and increased investment in physical
capital such as roadways, machinery, and factories will increase the efficiency of
economic output by reducing the cost.
 Planned utilization of natural resources – Proper use of available natural resources
like mineral deposits helps boost the productivity of the economy.
 Population growth – An increase in the growth of the population will result in the
availability of more human resources which in turn will increase the output in
terms of quantity. This is also an important factor that influences economic
growth.
 Advancement in technology – Improvement in technology will affect the
economic growth of a country positively. The application of advanced technology
will result in increased productivity of labor and economic growth will advance at
a lower cost.
What is Economic Development?
The term economic development can be explained as the process by which the economic
well-being and quality of life of a nation, community, or particular region are improved
according to predefined goals and objectives.
Economic development is a combination of market productivity and the welfare values of
the nation.
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Factors Affecting Economic development

Infrastructural improvement – Development in the infrastructure improves the quality
of life of people. Therefore, an increase in the rate of infrastructural development will
result in the economic development of a nation.
Education – Improvement in literacy and technical knowledge will result in a better
understanding of the usage of different equipment. This will increase labor productivity
and in turn, will result in the economic development of a nation.
Increase in the capital – Increase in capital formation will result in more productive
output in an economy and this will affect the economic development positively.
Difference between Economic Growth & Development

The major differences between economic growth and development are stated below:
Economic growth Economic development
Increase in market output results in Economic development can be measured in terms of
economic growth welfare values and market output
It is a quantitative concept It is a qualitative concept
Economic growth is uni-dimensional Economic development is multidimensional
This is one of the major concern of This is a major concern of developing countries
developed countries
Economic growth is independent of the Economic development can only happen if economic
development growth takes place.
Indicators of Economic growth Indicators of economic development
Real GDP Human Development Index
Real per capita income Physical Quality of Life Index
Net Economic Welfare (NEW)
Obstacles to Economic Development

1. High rates of population growth - Depending on the circumstances, population growth
can have a positive or negative effect. One of the most significant challenges facing any
nation's economy is the random increase in population. One of the most significant
obstacles that could impede economic growth and development is the increase in the
population. Since, economic resources are frequently insufficient and do not cover the
existing population, the large population is regarded as putting a significant strain on the
resources and services provided. For instance, investment projects that, in turn, promote
economic growth may not result in an adequate number of employees.
2. Low level of the human factor - When there are more people than there are obstacles
to economic growth, people leave the country to find work elsewhere, and immigration
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from other countries grows. One of the most crucial aspects of any economic plan is the
ability to build human factors, which necessitates improving all kinds of educational
outcomes. One of the most crucial economic components and factors is the human factor,
which in turn increases project production, boosts economic growth, and shifts the
economic cycle. As a result, the state must work to prioritize all human resources,
including university students, institutes, colleges, and other institutions.as well as every
item that is required for their training.
3. Lack of economic resources and infrastructure - The primary driver of economic
growth is an increase in the number of investments, which in turn results in an increase in
the number of employees, their employment, and the amount of work that is done to
move the economic wheel as a whole. Economic development processes are slowed
down and the number of unemployed people rises as a result of weak economic projects.
One of the most important ways to achieve economic development and provide a variety
of job opportunities for unemployed people is to encourage investment and take care of
its infrastructure. Investment can also use the resources available for production to make
profits that help support the economy.
4. Poor transportation infrastructure - Transportation is regarded as one of the most
important factors in economic growth, which in turn helps to activate, develop, and
improve all aspects of life. By increasing the cost of freight per unit, poor transportation
systems hurt the competitiveness of industries and the economy. Additionally, it raises
ordering and overhead costs, damages to total inventories, and costs incurred in transit.
Moving people and goods costs less when there is good transportation infrastructure.
Productivity in the economy rises as a result.
5. Inability to come up with creative solutions - In some societies that rely on traditional
means of conducting business, this issue manifests itself in a significant and glaring
manner. The total reliance that many societies and nations have on oil provides perhaps
the most prominent illustration of this. The cost of oil can be reduced by looking for and
using alternative methods more diligently. Due to the severe harm it causes to humans on
all levels, developed nations have become alienated from and reduced their use of oil,
although some nations continue to use it. The improvement and growth of nations'
economies are greatly aided by novel solutions.
THE HAPPY PLANET INDEX 2.0
The Happy Planet Index provides a new compass to set society on the path to real
progress by measuring what truly matters to us — living a long and happy life — and
what matters to the planet — our rate of resource consumption.
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In an age of uncertainty, society globally needs a new compass to set it on a path of real
progress. The Happy Planet Index (HPI) provides that compass by measuring what truly
matters to us – our well-being in terms of long, happy and meaningful lives – and what
matters to the planet – our rate of resource consumption.
The HPI brings them together in a unique form which captures the ecological efficiency
with which we are achieving good lives. This report presents results from the second
global HPI. It shows that we are still far from achieving sustainable well-being, and puts
forward a vision of what we need to do to get there.
Not since World War II has society globally been faced with so many threats. In the last
few years we have driven straight into the wall of the biggest global economic downturn
since the Great Depression of 1929, whilst mainstream culture has, at last, been rudely
awoken to the ever-growing threats of climate change and the exhaustion of our natural
resources. People fear for the future. Meanwhile, the problems that plagued us before,
risk becoming even more acute: more than half the world‘s population lives on less than
$2.50 a day; inequality continues to rise even in richer countries.
And yet, with crisis comes opportunity. The dogmas of the last 30 years have been
discredited. The unwavering pursuit of economic growth – embodied in the
overwhelming focus on Gross Domestic Product (GDP) – has left over a billion people in
dire poverty, and has not notably improved the well-being of those who were already
rich, nor even provided us with economic stability.
Instead it has brought us straight to the cliff edge of rapidly diminishing natural resources
and unpredictable climate change. No wonder that people are desperately seeking an
alternative vision to guide our societies. In 2008, Americans voted for ‗change‘ and
‗hope‘ above else.
The HPI was launched in July 2006 as a radical departure from our current obsession
with GDP. Working from first principles, the report identified health and a positive
experience of life as universal human goals, and the natural resources that our human
systems depend upon as fundamental inputs. A successful society is one that can support
good lives that don‘t cost the Earth. The HPI measures progress towards this target – the
ecological efficiency with which happy and healthy lives are supported.
Its message resonated with hundreds of thousands of people around the world – within
two days of its launch, the report was downloaded and read in 185 countries worldwide.
Three years on, it is time to turn interest into action.
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HPI 2.0 has been calculated with new improved data sets for 143 countries, covering 99
per cent of the world‘s population. Scores range from 0 to 100 – with high scores only
achievable by meeting all three targets embodied in the index – high life expectancy, high
life satisfaction, and a low ecological footprint.
The results turn our idea of progress on its head. Whilst the HPI confirms that the
countries where people enjoy the happiest and healthiest lives are mostly richer
developed countries, it shows the unsustainable ecological price we pay. It also reveals
some notable exceptions – less wealthy countries, with significantly smaller ecological
footprints per head, having high levels of life expectancy and life satisfaction. In other
words, it shows that a good life is possible without costing the Earth.
The highest HPI score is that of Costa Rica (76.1 out of 100). As well as reporting the
highest life satisfaction in the world, Costa Ricans also have the second-highest average
life expectancy of the New World (second only to Canada). All this with a footprint of
2.3 global hectares. Whilst this success is indeed impressive, Costa Rica narrowly fails to
achieve the goal of ‗one-planet living‘: consuming its fair share of natural resources
(indicated by a footprint of 2.1 global hectares or less).
 Of the following ten countries, all but one is in Latin America. The highest
ranking Group of 20 (G20) country in terms of HPI is Brazil, in 9th place out of
143. Together, Latin American and Caribbean nations have the highest mean HPI
score for any region (59 out of 100).
 The bottom ten HPI scores were all suffered by sub-Saharan African
countries, with Zimbabwe bottom of the table with an HPI score of 16.6 out of
100.
 Rich developed nations fall somewhere in the middle. The highest-placed
Western nation is the Netherlands – 43rd out of 143. The UK still ranks midway
down the table – 74th, behind Germany, Italy and France. It is just pipped by
Georgia and Slovakia, but beats Japan and Ireland. The USA comes a long way
back in 114th place.
 It is interesting to note that many of the countries that do well are composed of
small islands (including the Dominican Republic, Jamaica, Cuba and the
Philippines).
 No country successfully achieves the three goals of high life satisfaction, high life
expectancy and one-planet living.
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In summary, the countries that are meant to represent successful development are some of
the worst-performing in terms of sustainable well-being. But perhaps, even if we are not
there now, might we be moving in the right direction? HPI 2.0 tests this by looking at
changes in HPI over time for countries where more data is available. The results are not
promising:
 Whilst most of the countries studied have increased their HPI scores marginally
between 1990 and 2005, the three largest countries in the world (China, India and
the USA) have all seen their HPI scores drop in that time.
 Positive trajectories are seen in some countries; for example, in Germany (an
increase of 23 per cent between 1990 and 2005), Russia (up 30 per cent) and
Brazil (up 13 per cent).
 Looking further back, focusing on OECD (Organisation of Economic Co-
Operation and Development) nations, the picture is less positive. Most OECD
nations saw a staggering drop in their HPI scores from the 1960s to the late 1970s.
Whilst they have made some gains since then, scores were still higher in 1961
than in 2005. Life satisfaction and life expectancy combined have increased 15
per cent over the 45-year period from 1961 to 2005, but ecological footprints per
head have increased by a worrying 72 per cent.
Clearly, business as usual will not help us achieve good lives that do not cost the Earth.
However, looking at the components of the HPI provides some clues:
 Different countries do well on different components. The highest average levels

of life expectancy are those of Japan (82.3 years) and Hong Kong (81.9). The
highest life satisfaction levels are those of Costa Rica (8.5 on a scale of 0 – 10),
with Ireland, Norway and Denmark just behind. The countries which tread
heaviest in terms of ecological footprint are Luxembourg, the United Arab
Emirates and the USA – Luxembourg‘s per capita footprint is equivalent to
consuming natural resources as if we had almost five planets to rely on.
 It is possible to live long, happy lives with a much smaller ecological footprint
than found in the highest-consuming nations.For example, people in the
Netherlands live on average over a year longer than people in the USA, and have
similar levels of life satisfaction – and yet their per capita ecological footprint is
less than half the size (4.4 global hectares compared with 9.4 global hectares).
This means that the Netherlands is over twice as ecologically efficient at
achieving good lives.
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 More dramatic is the difference between Costa Rica and the USA.Costa Ricans
also live slightly longer than Americans, and report much higher levels of life
satisfaction, and yet have a footprint which is less than a quarter the size.
 Countries with the same ecological footprint support lives with differing levels of
well-being and health. For example, Vietnam and Cameroon have identical
ecological footprints (1.3 global hectares). However, whilst most people in
Cameroon cannot expect to live more than 50 years, and reported life satisfaction
is unsurprisingly low (3.9), the Vietnamese have a life expectancy higher than that
found in many European countries (73.7 years) and a correspondingly higher level
of life satisfaction (6.5).
Steps towards a happier planet can be found in many places. We focus on a few
examples, several inspired by the first HPI report. One particularly promising model, is
the Living better, using less strategy emerging in Caerphilly, a local authority in South
Wales. The strategy focuses on the three components of the HPI – health, a positive
experience of life, and ecological footprint – and sets out some interventions aimed to
improve performance on all three.
Of course, each thread of work towards a happier planet needs to be woven together to
create a full tapestry. The economy, communities, lifestyles and aspirations of a happy
planet will be very different to those that lock us into our current ecological inefficiency.
The analyses in this report suggest that the current dominant economic framework is,
without exception, unable to simultaneously achieve the three goals of high life
satisfaction, high life expectancy and one-planet living. This applies across the
development spectrum as traditionally viewed, although it appears that middle-income
countries, such as those of Latin America and South East Asia tend to be the closest to
achieving sustainable well-being. In other words, our current framework achieves its
optimum at middle-income levels, but even that optimum does not represent good lives
that do not cost the Earth.
We do not, in this report, claim to provide answers to all the questions of what a happy
planet would look like. However, at the end of the report, we make some suggestions of
the strategies required to achieve sustainable well-being. The solutions suggested all
constitute win-win strategies – increased well-being and reduced ecological footprint. In
this way, the HPI presents a positive image of futures which countries will actively
choose to create for themselves, rather than a necessary burden that must be sustained
and endured.
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At www.happyplanetindex.org, we launch a new Charter for a Happy Planet. Those who

sign it believe that:
 A new narrative of progress is required for the twenty-first century.

 It is possible to have a good life without costing the Earth.
 Over-consumption in rich countries represents one of the key barriers to
sustainable well-being worldwide and that governments should strive to identify
economic models that do not rely on constantly growing consumption to achieve
stability and prosperity.
They call for:
 Governments to measure people‘s well-being and environmental impact in a

consistent and regular way, and to develop a framework of national accounts that
considers the interaction between the two so as to guide us towards sustainable
well-being.
 Developed nations to set an HPI target of 89 by 2050 – this means reducing per
capita footprint to 1.7 global hectares, increasing mean life satisfaction to eight
(on a scale of 0 to 10) and continuing to increase mean life expectancy to reach 87
years.
 Developed nations and the international community to support developing nations
in achieving the same target by 2070.
Times of crisis are times of opportunity. Now is the time for societies around the world to
speak out for a happier planet, to identify a new vision of progress, and to demand new
tools to help us work towards it. The HPI is one of these tools, but we also hope that it
will inspire people to act.
Gross National Happiness Index

Context – Bhutan, a small, landlocked mountainous least developed country (LDC) in
South Asia is next in line to graduate from the LDC category in 2023. It is best known for
its philosophy of promoting Gross National Happiness over Gross Domestic Product
(GDP).
Concept –
Gross National Happiness (GNH), sometimes called Gross Domestic Happiness
(GDH), is a philosophy that guides the government of Bhutan.
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The phrase ‗gross national happiness’ was first coined by the 4th King of Bhutan, King
Jigme Singye Wangchuck, in 1972 when he declared, ―Gross National Happiness is
more important than Gross Domestic Product.‖
The concept implies that sustainable development should take a holistic approach
towards notions of progress and give equal importance to non-economic aspects of
wellbeing.
It includes an index which is used to measure the collective happiness and well-being of a
population.
The GNH Index includes both traditional areas of socio-economic concern such as living
standards, health and education and less traditional aspects of culture and psychological
wellbeing.
It is a holistic reflection of the general wellbeing of the Bhutanese population rather than
a subjective psychological ranking of ‗happiness‘ alone.
The GNH Index includes nine domains

 Psychological wellbeing
 Health
 Education
 Time use
 Cultural diversity and resilience
 Good governance
 Community vitality
 Ecological diversity and resilience
 Living standards
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Bhutan and the UN Resolution on Happiness and Development
In 2011, the UN unanimously adopted a General Assembly resolution, introduced by

Bhutan with support from 68 member states, calling for a ―holistic approach to
development‖ aimed at promoting sustainable happiness and wellbeing.
The Gross National Happiness Index is a single number index developed from the 33
indicators categorised under nine domains.
The Centre for Bhutan Studies constructed the GNH Index using robust multidimensional
methodology known as Alkire-Foster method.
The concept of GNH has often been explained by its four pillars;
 Good Governance,
 Sustainable Socio-Economic Development,
 Cultural Preservation, And
 Environmental Conservation.
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The four pillars have been further classified into nine domains in order to create
widespread understanding of GNH and to reflect the holistic range of GNH values.
World Happiness Report 2021
The World Happiness Report 2021 has been released by the UN Sustainable
Development Solutions Network.
Finland was once again crowned as the world‘s happiest country, for the fourth
consecutive year.
 The Nordic nation is followed by Iceland, Denmark, Switzerland, The
Netherlands, Sweden, Germany and Norway.
 India has been ranked 139 out of 149 countries in the list of UN World Happiness
Report 2021.
 In 2019, India was ranked 140th.
 The World Happiness Report is a landmark survey of the state of global happiness
that ranks 149 countries by how happy their citizens perceive themselves to be.
 The annual report ranks nations based on gross domestic product per person,
healthy life expectancy and the opinions of residents.
 Pakistan is on 105th, Bangladesh on 101st and China on 84th, according to the
report.
 People in war-torn Afghanistan are the most unhappy with their lives, followed by
Zimbabwe (148), Rwanda (147), Botswana (146) and Lesotho (145).
 Physical Quality Of Life Index
 Physical Quality of Life Index (PQLI)
 Physical Quality of Life Index (P.Q.L.I) was developed by famous economist
Morris David in 1979 for 23 developed and developing countries. Morris David
used the following three indicators to prepare a composite index known as
Physical Quality of Life Index:
 Life Expectant Rate (L.E.I)
 Infant Mortality Rate (I.M.I)
 Basic Literacy Rate (B.L.I)
 Life Expectant Rate (L.E.I)
 Life expectancy means average number of year a person is expected to live. As
per census of 2011, it is 66.8 years in India.
 Infant Mortality Rate (I.M.I)
 It refers to the number of infants dying within one year of their birth out of every
1000 births. As per census report of 2011, it is 47 per 1000. Higher infant
mortality is harmful for economic development.
 Basic Literacy Rate (B.L.I)
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 Any person above the age of 7 year who can read and write in any one language
with an ability to understand it is considered as literate. As per census 2011, it is
74.04% in India.
 For each of the above indicator, the performance of individual country is rated on
a scale of 1 to 100 where 1 represents the worst performance and 100 represent
the best performance. P.Q.L.I is then constructed by averaging these three
indicators giving equal weight to each of them.
 Morris David has given following formula to obtain P.Q.L.I
 P.Q.L.I = L.E.I.+ I.M.I.+ B.L.I. / 3
 Advantage of P.Q.L.I
 P.Q.L.I helps to government to understand the overall welfare in the economy and
how well its welfare policies are being implemented. This helps the government
to take corrective action.
 The method followed to measure P.Q.L.I is standard for all the countries.
Therefore, it can be used to make comparison between countries and this helps the
relatively underdeveloped countries to take corrective measure.
 The three indicator i.e. life expectancy rate, infant mortality rate and literacy rate
very well represent the welfare of the people of the country. A country wherein all
the three indicators are good can be said to be a developed economy.
 The P.Q.L.I considers the distribution of welfare in the country. A country cannot
have a high average of literacy rate, life expectancy and low infant mortality rate
unless a large part of the population is covered by the benefits of economic
development.
 Limitations of P.Q.L.I.
 P.Q.L.I ignores many factors which influence the quality of life such as
employment, housing, justice, social security as well as human rights.
 P.Q.L.I is a simple average of literacy rate, infant mortality rate and life
expectancy rate i.e. all the factors have been giving equal weightage. However, it
is difficult to understand the rationale behind giving equal importance to all
factors.
 P.Q.L.I. does not explain the structural change in the economy of a country.
Moreover, it does not at all consider economic or monetary concept. Hence, it is a
poor measure of economic development as well as economic growth.
 Inspite of these drawbacks, P.Q.L.I. is considered as an improvement over
traditional measure of economic welfare. However, recently developed Human
Development Index (HDI) is a better and more refined version of PQLI.
What Is Income Inequality?
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 Income inequality refers to how unevenly income is distributed throughout a

population. The less equal the distribution, the greater the income inequality.
Income inequality is often accompanied by wealth inequality, which is the uneven
distribution of wealth.
 Populations can be divided up in different ways to show different levels and
forms of income inequality, such as income inequality by gender or race.
Different measures, such as the Gini Index, can be used to analyze the level of
income inequality in a population.
 Understanding Income Inequality
 Income inequality, or the imbalance of income earned by a group people, exists in
countries throughout the world. In the U.S., these differences in income have
become pronounced over the past fifty years. Income inequality is not the same as
wealth inequality; the former involves salaries/wages while the latter involves net
worth.
 Causes of Income Inequality
 Some of the factors that affect income inequality include:
 Globalization: The increase in trade among nations resulted in the move of
manufacturing and other jobs by corporations in the U.S. to countries where labor
costs were cheaper. For working-class and middle-class Americans, this meant
that secure, even generational, jobs and income disappeared.
 Advances in Technology: While a boon in many ways, certain workplace
technological advancements, such as automation, have led to the loss of jobs for
blue-collar workers and lower wages for less educated workers.
 Gender and Race Bias: Income disparities have always been clearly visible for
women and people of color. It's widely acknowledged that, for example, male
employees typically earn more than female employees in the same job positions.
Likewise, white males earn more than non-white males.
 Education: Workers with less than a high-school education experience less growth
in wages than those with college educations and post graduate degrees. The
announcements of multi-million dollar salaries and bonuses (even in troubling
economic times) going to C-Suite executives drive this income disparity home.
 Economic Conditions: When economic conditions weaken, financial turmoil,
unemployment, slowing business investment, and more can affect incomes.
 Taxation: Although high-income earners pay a larger percentage of their income
in taxes than lower-income earners, federal taxation has not put the brakes on
increasing income inequality. That may be due to certain tax policies, e.g., those
related to corporate taxation, the capital gains tax rates, and income tax cuts, that
benefit those with higher income more than those with lower income.
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 Consequences of Income Inequality

 Some degree of income inequality is to be expected because of basic differences
in talent, effort, and simple chance. However, according to the International
Monetary Fund (IMF), too much income inequality could "erode social cohesion,
lead to political polarization, and ultimately lower economic growth."3
 Political upheaval and the disappearance of social, educational, and economic
opportunities to improve standards of living and financial futures can also be
consequences of income disparity.
 Analysis of Income Inequality
 Income inequality and income disparity can be analyzed through a variety of
segmentations. Income distributions by demographic segmentation form the basis
for studying income inequality and income disparity.
 The different types of income segmentations studied when analyzing income
inequality may include:
 Gender
 Ethnicity
 Geographic location
 Occupation
 Historical income
 How to Measure Income Inequality
 One way to measure income inequality is to compare the income of a large group
of high earners (for example, the top 10%) to the national median or average.
Another approach compares the income of a lower-earning group (say, the bottom
10%) to the median or average.
 Other researchers have begun looking at tax records of those with the highest
incomes to draw conclusions about these most affluent slices of society.
 A frequently used tool for measuring income inequality is the Gini Index. It was
developed by Italian statistician Corrado Gini in the early 1900s to help quantify
and more easily compare income inequality levels across countries of the world.
The index can range from 0 to 100, with a higher level indicating greater income
inequality among a country‘s population and a lower level indicating less.
 The latest available data from the World Bank shows South Africa reporting one
of the highest income inequality dispersions with a Gini Index level of 63.0. The
United States has a Gini Index level of 39.7. The Slovak Republic has the World
Bank‘s lowest Gini Index reading at 23.2.4
 How to Reduce Income Inequality
 Dispersions of income inequality are an ongoing area of analysis for both local
and global governing institutions. The IMF and World Bank have a goal to help
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improve the income of the lowest 10% of earners in all countries through their
missions relating to financial stability, long-term economic development, and
poverty reduction.
 Globally, new innovations in financial technologies and production are helping to
improve the banking services for the world‘s lowest-income earners, as a
worldwide initiative for financial inclusion is underway.
 In addition, income inequality will be addressed more successfully when political,
economic, and social leaders can agree on basic approaches to its improvement:
 Governments should step in when the free market is ineffective in increasing
income.
 Governmental policies that promote income inequality must be acknowledged.
 Fiscal actions can improve income disparities.
 Universal health care could provide some increase in income equality.
 Improving the stability of other social programs such as Social Security and
Medicaid could also relieve cost concerns for an enormous number of individuals.
 Better access to educational opportunities could improve socio-economic
mobility.
 Green GDP
 Green GDP and Green National Account are concepts that try to measure the
economic performance of a country while taking into account the environmental
costs and benefits.
 Green GDP: Green GDP is an indicator that subtracts the cost of natural resource
depletion and environmental degradation from the conventional GDP of a
country. It is also known as environmentally adjusted domestic product. Green
GDP can show how sustainable a country's economic growth is and how it affects
the wellbeing of its people.
 Green National Account: Green National Account is a framework that integrates
environmental considerations into national accounting frameworks. It aims to
measure and account for the environmental costs and benefits associated with
economic activities. Green accounting methods attempt to capture the value of
natural resources, the costs of pollution and environmental degradation, and the
benefits of ecosystem services.
What are some Examples of Environmental Costs and Benefits?
 Environmental costs refer to the negative impacts of economic activities on the
environment, such as pollution, resource depletion, habitat destruction, climate
change, and waste generation.
 Environmental benefits, on the other hand, are the positive outcomes of economic
activities for the environment, including ecosystem services (such as food
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provision, water purification, and climate regulation), biodiversity conservation,

renewable energy adoption, sustainable agriculture practices, and conservation
and restoration efforts.
 What is the Significance of Green GDP?
 Environmental Valuation: Green GDP incorporates the valuation of natural
resources and ecosystem services, which are typically externalities in traditional
GDP calculations. By quantifying the economic value of these environmental
factors, it provides a more accurate measure of the true costs and benefits of
economic activities.
 Sustainability: Green GDP aligns with the concept of Sustainable Development
Goals by explicitly considering environmental factors in economic assessments. It
allows policymakers to better understand the trade-offs between economic growth
and environmental sustainability, facilitating the formulation of more informed
policies and strategies.
 Policy Relevance: By providing a comprehensive picture of economic
performance, including the environmental dimension, green GDP helps
policymakers prioritize and allocate resources effectively. It enables the
identification of sectors and activities that have significant environmental impacts,
guiding targeted interventions and regulations for achieving sustainable
development goals.
 Resource Management: Green GDP highlights the depletion of natural resources
and encourages their sustainable management. By recognizing the economic value
of resources, it promotes their conservation and efficient use, leading to improved
resource allocation and reduced environmental degradation.
What are the Challenges in Implementing Green GDP?

 Data Availability and Reliability: Calculating green GDP is hard due to unreliable
data on environmental costs, benefits, and natural resource value. Estimation
involves assumptions and subjective judgments, affecting reliability and
comparability.
 Value Assignments: Valuing environmental goods and services in monetary terms
is a contentious issue. Critics argue that certain aspects of the environment, such
as biodiversity or cultural heritage, have intrinsic value that cannot be adequately
captured by economic valuation methods. The process of assigning economic
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values to the environment can be seen as oversimplifying and commodifying

nature.
 Complexity and Indicators: Green GDP is a tough indicator to calculate because it
includes social, economic, and environmental factors. There's no agreed-upon
method for combining these factors, and choosing the right indicators is
challenging.
 Policy Implementation and Trade-offs: Green GDP is useful, but it can be hard to
turn it into policies. To make policies work, we need cooperation, political
support, and to overcome obstacles. Also, balancing economic growth and
environmental protection is tricky and varies by situation, so it's tough to make
universal policies based only on green GDP.
What should be the Way Forward for Implementing Green GDP?
The way forward for implementing green GDP is not clear-cut, but some possible steps
are:
 Developing and adopting a common framework and methodology for measuring
and valuing environmental costs and benefits, based on the best available
scientific and economic knowledge. Conduct pilot projects and case studies to test
and refine Green GDP methodologies.
 Improving the availability and quality of data on environmental indicators, such
as emissions, resource use, ecosystem services, etc., and ensuring their
consistency and comparability across countries.
 Promoting the awareness and understanding of green GDP among policy
makers, businesses, and the public, and highlighting its advantages over
conventional GDP as a measure of economic performance and social well-being.
 Encouraging the participation and collaboration of various stakeholders, such as
governments, international organizations, civil society, academia, and the private
sector, in the design and implementation of green GDP policies and initiatives.
 Addressing the trade-offs and conflicts that may arise from pursuing green GDP
goals, such as balancing economic growth and environmental protection, ensuring
equity and justice among different groups and regions.
 Which Countries Use Green GDP?
 China: China planned to publish Green GDP statistics in 2004 but stopped after
facing political and methodological challenges following a preliminary report that
showed reduced GDP growth due to environmental costs.
 USA: The USA has developed a comprehensive system of environmental-
economic accounts that provide various indicators of the interactions between the
economy and the environment, environmental expenditures, and environmental
taxes. However, the USA does not produce a single measure of green GDP.
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 Europe: The US has environmental-economic accounts but no green GDP

measure. The EU requires member states to compile accounts covering emissions,
taxes, materials, and protection expenditure, which can be used to derive green
GDP or adjusted domestic product.
 Sweden: Sweden is one of the top performing countries in the Global Green
Economy Index, which measures the green economy performance of 130
countries based on four dimensions: leadership and climate change, efficiency
sectors, markets and investment, and environment and natural capital. Sweden has
also developed a dashboard of indicators to monitor its progress towards green
growth.
 India: Green GDP is not officially measured or reported in India, but some
attempts have been made to estimate it by various researchers and institutions.
According to a paper published by the Reserve Bank of India in October 2022,
researchers estimated the green GDP of India to be somewhere around Rs 167
trillion for 2019. This implies a reduction of about 10% from the conventional
GDP of Rs 185.8 trillion for the same year.
 What is Global Green Economy Index?
 The Global Green Economy Index (GGEI) is published by Dual Citizen, a
consultancy firm that specializes in data-driven solutions for sustainability.
 The GGEI is a measure of the green economy performance of 160 countries and
how experts.
 According to the latest report from 2022, India ranks 60 out of 160 countries.
 The GGEI covers four dimensions:
 Climate Change & Social Equity
 Sector Decarbonization
 Markets & Investment
 Environmental Health.
 The GGEI aims to provide a comprehensive and transparent measure of country
sustainability performance and to inform policy making and investment decisions.
Index of Sustainable Economic Welfare (ISEW)
The Index of Sustainable Economic Welfare (ISEW) is an economic indicator designed

to provide a more comprehensive measure of economic well-being than traditional
measures like Gross Domestic Product (GDP). It takes into account not only economic
production but also factors such as environmental degradation, income distribution, and
changes in leisure time.
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Here are some key points about the Index of Sustainable Economic Welfare:
1. Purpose: The ISEW was developed in response to criticisms of GDP as a measure of

economic progress. While GDP measures the total value of goods and services produced
within a country's borders, it does not account for factors such as resource depletion,
pollution, and social inequality.
2. Components: The ISEW incorporates a broader set of factors than GDP. It includes
positive contributions such as household work, volunteer activities, and investments in
education and infrastructure. It also deducts negative factors such as environmental
degradation, crime, and income inequality.
3. Calculation: Calculating the ISEW involves adjusting GDP by adding positive
contributions and subtracting negative ones. For example, it might add the value of
household labor and subtract the costs of pollution and resource depletion.
4. Criticism: While the ISEW provides a more holistic view of economic well-being, it has
been criticized for its complexity and subjectivity. Determining the value of factors like
environmental degradation and leisure time can be difficult and may vary depending on
the specific methodology used.
5. Policy Implications: Advocates of the ISEW argue that it provides policymakers with a
more accurate picture of economic progress and can help guide decision-making towards
more sustainable and equitable outcomes.
Overall, the Index of Sustainable Economic Welfare is one of several alternative
measures to GDP that seek to provide a more comprehensive assessment of economic
well-being. While it has its limitations, it has contributed to a broader understanding of
the relationship between economic growth, environmental sustainability, and social
welfare.
Benefits Include:
The Index of Sustainable Economic Welfare (ISEW) offers several benefits compared to
traditional economic indicators like Gross Domestic Product (GDP). Some of these
benefits include:
1. Holistic Measurement: The ISEW provides a more comprehensive measure of

economic well-being by taking into account factors beyond just monetary transactions. It
considers environmental factors, social indicators, and distributional aspects, offering a
more holistic view of the economy's health.
2. Environmental Sustainability: Unlike GDP, which does not account for environmental
degradation, the ISEW incorporates the costs of environmental pollution and resource
depletion. By including these factors, it highlights the importance of sustainable
development and encourages policies that prioritize environmental preservation.
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3. Social Equity: The ISEW considers income distribution and social factors such as leisure
time and volunteer work. This allows for a more nuanced understanding of social well-
being and highlights the importance of addressing issues like income inequality and
poverty.
4. Long-Term Planning: By including factors like natural resource depletion and
environmental damage, the ISEW encourages long-term thinking and planning. It
emphasizes the need to consider the impact of economic activities on future generations
and promotes policies that prioritize sustainable development.
5. Policy Guidance: The ISEW can help policymakers make more informed decisions by
providing a broader and more accurate measure of economic progress. It can guide policy
interventions aimed at promoting sustainability, reducing inequality, and improving
overall well-being.
6. Public Awareness: By highlighting the limitations of traditional economic indicators like
GDP, the ISEW can raise public awareness about the importance of sustainability and
social equity. It encourages critical thinking about what constitutes genuine economic
progress and fosters discussions about alternative models of development.
Overall, the Index of Sustainable Economic Welfare offers a more nuanced and
comprehensive approach to measuring economic well-being, with significant
implications for policy, public awareness, and long-term sustainability.
Drawbacks And Limitations:

While the Index of Sustainable Economic Welfare (ISEW) offers several benefits, it also
has some drawbacks and limitations:
1. Subjectivity: Calculating the ISEW involves assigning values to various non-market

factors such as environmental degradation and social well-being. These valuations can be
subjective and may vary depending on the assumptions and methodologies used, leading
to potential biases in the results.
2. Data Availability and Quality: The availability and quality of data for non-market
factors included in the ISEW can be limited, particularly in developing countries or
regions with poor statistical infrastructure. This can affect the accuracy and reliability of
the index, especially when attempting to compare across different countries or regions.
3. Complexity: The ISEW is a complex indicator that requires careful consideration of
multiple factors and their interactions. This complexity can make it difficult to
understand and interpret, particularly for policymakers and the general public who may
be more familiar with traditional economic measures like GDP.
4. Trade-offs and Trade Interactions: The ISEW does not always capture the trade-offs
and interactions between different components accurately. For example, policies aimed at
increasing economic growth may lead to environmental degradation, which could be
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partially offset by investments in environmental conservation. Balancing these trade-offs

in a meaningful way within the framework of the ISEW can be challenging.
5. Dynamic Nature of Sustainability: Sustainability is a dynamic concept that evolves
over time in response to changes in technology, social norms, and environmental
conditions. The ISEW may struggle to capture these dynamic aspects effectively and may
need to be updated regularly to remain relevant and accurate.
6. Policy Implications: While the ISEW can provide valuable insights into the
sustainability and well-being of an economy, translating these insights into actionable
policies can be challenging. Policymakers may struggle to identify specific interventions
that can effectively improve the components of the ISEW without unintended
consequences.
Overall, while the ISEW offers a more comprehensive approach to measuring economic
well-being than traditional indicators like GDP, it also faces several challenges and
limitations that need to be addressed for it to be effectively used for policy-making and
decision-making.
Multidimensional Poverty Index (MPI)

 The Multidimensional Poverty Index (MPI) is a measure used to assess poverty
beyond just income levels. Developed by the United Nations Development
Programme (UNDP) and the Oxford Poverty and Human Development Initiative
(OPHI), the MPI considers various factors that contribute to poverty, including
health, education, and standard of living.
 Key features of the Multidimensional Poverty Index include:
 Dimensions: The MPI assesses poverty across three dimensions: health,
education, and standard of living. Within each dimension, specific indicators are
used to measure deprivation. For example, health might include indicators such as
nutrition, child mortality, and access to clean water and sanitation.
 Indicators: The MPI uses a set of indicators within each dimension to measure
deprivation. These indicators are chosen based on their relevance to poverty and
their ability to capture different aspects of well-being. For example, under
education, indicators might include school attendance and years of schooling
completed.
 Thresholds: The MPI sets thresholds for each indicator to determine whether an
individual or household is considered deprived in that dimension. These
thresholds are based on internationally accepted standards and may vary
depending on the context and available data.
 Identification of Poor: Individuals or households are considered multidimensional
poor if they are deprived in at least one-third of the weighted indicators across the
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three dimensions. This approach allows for a more nuanced understanding of

poverty, capturing the multiple dimensions in which people may be deprived.
 Aggregation: The MPI aggregates the indicators across dimensions to produce a
single poverty index. This index provides a summary measure of poverty that
reflects both the incidence (the proportion of the population who are poor) and the
intensity (the average number of deprivations experienced by the poor) of
poverty.
 Policy Implications: The MPI is used to identify who is poor and in what
dimensions they are deprived, allowing policymakers to target interventions more
effectively. By understanding the specific dimensions of poverty that people
experience, policymakers can design more targeted and comprehensive poverty
reduction strategies.
 Overall, the Multidimensional Poverty Index provides a more holistic and
nuanced approach to measuring poverty compared to traditional income-based
measures. By capturing multiple dimensions of poverty, it helps to identify the
most vulnerable populations and prioritize interventions that address their specific
needs.
 Benefits of Multidimensional Poverty Index

 The Multidimensional Poverty Index (MPI) offers several benefits compared to
traditional income-based measures of poverty, such as the poverty line. Some of
these benefits include:
 Holistic Measurement: The MPI provides a more comprehensive understanding of
poverty by considering multiple dimensions beyond just income. By incorporating
indicators related to health, education, and living standards, it offers a broader
perspective on the well-being of individuals and households.
 Identification of Deprivation: Unlike income-based measures, which only
consider monetary poverty, the MPI identifies deprivation across various
dimensions. This allows policymakers to understand the specific areas where
individuals and households are lacking, such as access to education, healthcare, or
clean water.
 Nuanced Analysis: The MPI allows for a nuanced analysis of poverty by
examining the intensity and distribution of deprivations. It not only identifies who
is poor but also provides insights into the severity of their poverty and the specific
combinations of deprivations they face.
 Targeted Interventions: By identifying the dimensions in which individuals are
deprived, the MPI helps policymakers design targeted interventions to address the
root causes of poverty. For example, if a community is found to be deprived in
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education and health, policymakers can prioritize investments in schools and

healthcare facilities.
 Monitoring Progress: The MPI enables policymakers to monitor progress in
poverty reduction over time. By tracking changes in the incidence and intensity of
poverty across different dimensions, policymakers can evaluate the effectiveness
of poverty reduction programs and adjust strategies as needed.
 International Comparison: The MPI provides a standardized measure of poverty
that can be used for international comparison. This allows policymakers to
benchmark their country's poverty performance against other countries and learn
from best practices in poverty reduction strategies.
 Accountability and Transparency: By providing a transparent and
multidimensional measure of poverty, the MPI promotes accountability among
policymakers and stakeholders. It allows for greater transparency in resource
allocation and helps ensure that poverty reduction efforts are targeted effectively.
 Overall, the Multidimensional Poverty Index offers a more holistic, nuanced, and
actionable approach to measuring and addressing poverty, providing valuable
insights for policymakers, researchers, and development practitioners.
 Drawbacks of Multidimensional Poverty Index
 While the Multidimensional Poverty Index (MPI) offers many advantages, it also
has some limitations and drawbacks:
 Complexity: The MPI is a complex measure that involves aggregating data from
multiple dimensions and indicators. This complexity can make it challenging to
calculate and interpret, especially in contexts where data availability and quality
are limited.
 Subjectivity in Indicator Selection: The selection of indicators and thresholds for
the MPI may be subjective and context-dependent. Different countries or regions
may prioritize different dimensions of poverty or use different indicators, which
can affect comparability across regions and over time.
 Data Limitations: The MPI relies on data availability and quality, which can vary
significantly across countries and regions. In some cases, data may be missing or
unreliable, leading to inaccuracies in the measurement of poverty.
 Weights and Aggregation: The MPI assigns weights to different dimensions and
indicators to aggregate them into a single poverty index. The choice of weights
can influence the results and may reflect certain value judgments or priorities that
are not universally accepted.
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 Thresholds: The MPI uses thresholds to determine whether individuals or

households are deprived in a particular dimension. Setting appropriate thresholds
is challenging and may involve subjective judgments about what constitutes
deprivation.
 Limited Focus on Dynamics: The MPI provides a snapshot of poverty at a
particular point in time but does not capture changes in poverty dynamics over
time. It may not adequately account for factors such as intergenerational poverty,
vulnerability to shocks, or the impact of policies and interventions on poverty
outcomes.
 Does Not Capture Relative Poverty: While the MPI measures absolute poverty in
terms of deprivation in basic needs, it does not capture relative poverty, which
refers to being relatively worse off compared to others in society. Relative
poverty can also have important social and psychological implications.
 May Oversimplify Complexity: Poverty is a complex and multifaceted
phenomenon influenced by a wide range of economic, social, and environmental
factors. While the MPI attempts to capture this complexity, it may oversimplify
the underlying drivers of poverty and overlook certain dimensions or aspects of
poverty that are not included in the index.
 Overall, while the MPI provides a valuable alternative to income-based measures
of poverty, it is not without its limitations. Careful consideration of these
drawbacks is necessary when interpreting MPI results and using them to inform
policy and decision-making.
 Human Development Index (HDI)
 The Human Development Index (HDI) is a summary measure of average
achievement in key dimensions of human development: a long and healthy life,
being knowledgeable and having a decent standard of living. The HDI is the
geometric mean of normalized indices for each of the three dimensions.
 The health dimension is assessed by life expectancy at birth, the education
dimension is measured by mean of years of schooling for adults aged 25 years and
more and expected years of schooling for children of school entering age. The
standard of living dimension is measured by gross national income per capita. The
HDI uses the logarithm of income, to reflect the diminishing importance of
income with increasing GNI. The scores for the three HDI dimension indices are
then aggregated into a composite index using geometric mean. Refer to Technical
notes for more details.
 The HDI can be used to question national policy choices, asking how two
countries with the same level of GNI per capita can end up with different human
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development outcomes. These contrasts can stimulate debate about government

policy priorities.
 The HDI simplifies and captures only part of what human development entails. It
does not reflect on inequalities, poverty, human security, empowerment, etc. The
HDRO provides other composite indices as broader proxy on some of the key
issues of human development, inequality, gender disparity and poverty.
A fuller picture of a country's level of human development requires analysis of other

indicators and information presented in the HDR statistical annex.
HDI Dimensions and Indicators
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Chanderprabhu Jain College of Higher Studies

CLASS & SECTION : BA LL.B/BBA LL.B IV Semester

What is Economic Growth?

Factors influencing Economic Growth

Factors Affecting Economic development

Difference between Economic Growth & Development

Obstacles to Economic Development

THE HAPPY PLANET INDEX 2.0

 Different countries do well on different components. The highest average levels

At www.happyplanetindex.org, we launch a new Charter for a Happy Planet. Those who

 A new narrative of progress is required for the twenty-first century.

They call for:

 Governments to measure people‘s well-being and environmental impact in a

Gross National Happiness Index

The GNH Index includes nine domains

Bhutan and the UN Resolution on Happiness and Development

In 2011, the UN unanimously adopted a General Assembly resolution, introduced by

What Is Income Inequality?

 Income inequality refers to how unevenly income is distributed throughout a

 Consequences of Income Inequality

provision, water purification, and climate regulation), biodiversity conservation,

What are the Challenges in Implementing Green GDP?

values to the environment can be seen as oversimplifying and commodifying

 Europe: The US has environmental-economic accounts but no green GDP

Index of Sustainable Economic Welfare (ISEW)

The Index of Sustainable Economic Welfare (ISEW) is an economic indicator designed

1. Purpose: The ISEW was developed in response to criticisms of GDP as a measure of

1. Holistic Measurement: The ISEW provides a more comprehensive measure of

Drawbacks And Limitations:

1. Subjectivity: Calculating the ISEW involves assigning values to various non-market

partially offset by investments in environmental conservation. Balancing these trade-offs

Multidimensional Poverty Index (MPI)

three dimensions. This approach allows for a more nuanced understanding of

 Benefits of Multidimensional Poverty Index

education and health, policymakers can prioritize investments in schools and

 Drawbacks of Multidimensional Poverty Index

 Thresholds: The MPI uses thresholds to determine whether individuals or

development outcomes. These contrasts can stimulate debate about government

A fuller picture of a country's level of human development requires analysis of other

HDI Dimensions and Indicators

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