7.3 Measures of Development

• Gross domestic product (GDP): the total value of goods and services produced inside a country's borders in a year, no matter who owns the company.
• Gross national product (GNP) or gross national income (GNI): the total income earned by a country's residents and companies, whether at home or abroad. GNI adds income residents earn from abroad and subtracts income foreign owners take out.
• Per capita: divided by the population. GNI per capita is a common measure of average income.
• Purchasing power parity (PPP): an adjustment for what money actually buys in each country, since $1 goes further where prices are lower.
• Sectoral structure: the share of workers or output in each sector (7.2).
• Formal and informal sectors: the formal economy is taxed and recorded by the government; the informal economy, like street vending or unregistered work, isn't. Large informal sectors mean GDP undercounts real activity.
• Income distribution: how evenly income is shared, often measured with the Gini coefficient, from 0 (everyone earns the same) to 1 (one person earns everything). South Africa has one of the world's highest.

Ireland is a famous case. Many multinational companies book profits there, so in 2015 Ireland's GDP jumped by about a quarter in one year even though daily life barely changed. Because much of that income flows to foreign owners, Ireland's statistics office created a modified GNI measure in 2017 to show the real size of the domestic economy. Luxembourg's GDP is inflated in a different way, because many workers commute in from neighboring countries.

• Total fertility rate: average children per woman; it usually falls with development (2.4).
• Infant mortality rate: deaths of babies under age 1 per 1,000 live births; a strong signal of health care, clean water and nutrition.
• Access to health care and life expectancy.
• Literacy rate and years of schooling, often compared for women and men.
• Energy use per person, which rises with industrialization and income, and the mix of fossil fuels and renewable energy a country uses.

The Human Development Index (HDI), published by the UN Development Programme since 1990, combines three dimensions: a long and healthy life (life expectancy at birth), knowledge (expected years of schooling for children and average years of schooling for adults), and a decent standard of living (GNI per capita at PPP). Scores run from 0 to 1, and higher is better.

The Gender Inequality Index (GII) measures gaps between women and men in three areas: reproductive health (maternal mortality and adolescent birth rate), empowerment (share of seats in parliament and secondary education), and the labor market (participation in paid work). Here a lower score is better, because it means less inequality.

Composite indexes give a fuller picture than income alone. Two countries with similar GNI per capita can have very different HDI scores if one spends more on health and schooling. But national averages hide gaps between regions, cities and groups within a country, so look at different scales too.