GCSE Geography | Economic Indicators of Development (Development Gap 2)

In order to compare the levels of development between countries we use development indicators - these are pieces of data that measure important aspects of a country. There are economic and social indicators that we can use. This page focuses on economic measures of development.

Economic indicators

The level of development in a country is usually measured by the economy, or how much money it make - Gross National Income (GNI), is the total monetary value of all income earned by a country's residents (both individuals and businesses) from both domestic and foreign sources during a specific period, typically a quarter or a year. It takes into account not only the production that occurs within the country's borders, but also the income earned by its citizens and businesses outside the country's borders.

This value is then divided by the total population to give an average figure for each person - GNI per capita. It is always measured in US dollars in order to be able to compare countries - you wouldn't be able to compare the level of wealth if you were using hundreds of different currencies.

GNI or GNI per capita?

We use GNI per capita to compare countries rather than total GNI.

Based on 2023 rankings the top 5 countries for total GNI are...

1. United States - US$ 26,894,543,000,000 (26.9 trillion)
2. China - US$ 18,899,260,000,000 (18.9 trillion)
3. Japan - US$ 4,859,878,000,000 (4.8 trillion)
4. Germany - US$ 4,559,133,000,000 (4.6 trillion)
5. India - US$ 3,630,237,000,000 (3.6 trillion)

However the 2023 rankings for GNI per capita look quite different!

1. Bermuda - US$ 134,640 (ranked 153rd for total GNI)
2. Norway - US$ 102,460 (ranked 25th for total GNI)
3. Switzerland - US$ 95,160 (ranked 20th for total GNI)
4. Luxembourg - US$ 88,370 (ranked 87th for total GNI)
5. Ireland - US$ 80,390 (ranked 35th for total GNI)

So it is much more helpful to think about the total GNI being divided between the population - i.e. how many people is that wealth having to support? E.g. China might have the world's second largest economy valued at US$ 18.9 trillion - but that wealth is divided between 1.4 billion people, so they have a GNI per capita figure of US$ 13,400 = 75th place in the world!

What about the UK? In terms of total GNI we are in 6th place with US$ 3,266,990,000,000 (US$ 3.3 trillion), and we are ranked 27th for GNI per capita at US$ 47,800.

However, some argue that it isn't that straightforward. For example, in 2023 the GNI per capita in Burundi was $230 - this sounds very little (because it is very little) but $230 in Burundi is very different to $230 in a high-income country like the UK - prices in Burundi are much cheaper than many countries so that $230 will pay for much more goods and services than it would in the UK. So to overcome this disparity the World Bank uses Purchasing Power Parity (PPP) - where it converts the GNI per capita value into a figure that describes what that amount of money would be able to buy using local prices. The PPP figure for Burundi is $840 - this is 3.7 times the GNI per capita, to reflect that in Burundi prices are 3.7 times cheaper.

But what about GDP?

Sometimes Gross Domestic Product (GDP) is used to measure wealth instead of GNI. GDP is the total monetary value of all goods and services produced within a country's borders during a specific period, typically a quarter or a year. It includes all economic activities that take place within the country, regardless of whether they are carried out by domestic or foreign entities. GDP accounts for production that happens within the country's geographic territory, regardless of who owns the production factors (i.e. labour and capital).

GDP is actually part of GNI... GNI = GDP + net income from abroad*

*Net income from abroad is the difference between income earned by the country's residents from foreign sources (such as overseas investments, wages of citizens working abroad, etc) and income earned by foreign residents within the country.

The main difference between GDP and GNI, therefore, is that GDP measures the total production within a country's borders, whereas GNI measures the total income earned by a country's residents, regardless of where that income is generated.

Limitations of using economic data

Measures of development need to be used carefully or they can lead to generalisations and misconceptions. For example, a country may have high GNI but that doesn't mean that its citizens all have a good quality of life or standard of living - that wealth could be concentrated in urban areas, whilst people in rural areas are much worse off, like in China, or there could be a divide between regions, such as in Nigeria, where quality of life is significantly lower in the northern part of the country.

Development data is not always up-to-date, some countries have data missing, and some data is inaccurate as corrupt governments try to make their countries look better than they are by manipulating figures - e.g. China has a history of fiddling with demographic data and their most recent census was delayed due to Covid, making their data both inaccurate and out-of-date!

Calculations of GNI only take the products of the formal economy into account, but in many low-income countries or newly-emerging economies much of the economy is informal and many of the farmers produce food for their own families rather than to sell.

Finally economic wealth alone isn't enough to judge the development of a country - we also need to consider social indicators such as education and healthcare, which can still be lacking in some countries with high GNI per capita.