Assignment 1 Case Study Analysis

International Differences in GDP and the Quality of Life

Submitted To
Khim Singh Dhami, M. Phil Faculty, Macroeconomics and the Global Economy Uniglobe College, Pokhara University

Submitted By
Bibek Khadgi MBA (Finance) Trimester III, Roll No. 30

January 16, 2013

1. Analyse the relationship between real Gross Domestic Product (GDP) per capita and life expectancy. Ans: It is often debated whether or not Gross Domestic Product (GDP) of the country is a good indicator of the well being? However, the trends in economic system of the world have included the per capita real GDP as the measure of standard of living or quality of the life. Having said that it is also very important to note that, material living standard like owning the car, having a luxurious house etc. can only be justified by the differences in GDP. The social well being of the country till now has doubtful relationship with the real GDP per capita. Even though there is the strong relationship between real GDP and social well being of developed economies, it is still a matter of debate that the differences in GDP can actually reveal the differences in social well being of developing and under developed economies. One factor that is crucial in factors affecting social well being is social health index which includes the other factors like life expectancies. Life expectancy at birth is the average number of years a group of individuals can expect to live. It is clearly evident from the data provided in the case that the countries such as the United States, Japan, Germany etc. with high per capita real GDP has high average life expectancies compared to the countries like Bangladesh, India, Pakistan etc. Thus, it can simply support the fact that real GDP is linked with life expectancies. Yet there are some exceptional examples like that of Cuba. Though Cuba has low per capita real GDP but the life expectancy is as high as 77 years which in fact is slightly lower than much more developed nation, the United States. Life expectancy is often taken as a proxy, more generally for health. The high positive association of life expectancy with GDP per capita coupled with higher levels of food, clothing, and housing consumption made possible by higher income, leads naturally to the assumption that Wealthier is Healthier. To make thing simple we can just look how the increased real GDP per capita works in order to increase the average life span of the people. GDP per capita is each persons share of GDP. Increased GDP signals the higher production of goods and services within the country which in turn reflects the vibrant economy with high degree of mobilization of the resources like capital and labour. It creates employment opportunities for the person which further helps in increasing the average income level of the people. Higher level of income will stimulate the wants of education for all which in turn 1

results in raised level of health awareness of the population. In such circumstances, people are likely to adopt the sanitary and hygienic behaviours and live a healthy life. Improved awareness makes people more informed and concerned about their health. At the mean time, increased government spending in the infrastructure development will help to establish hospitals and other health care services in every nook and corner of the country. It guarantees availability of health care services to people of the country. In addition, the people can afford the health care services in and out of the country due to their increased level of income. Finally, the infant mortality rate, maternal mortality rate decreases and simultaneously literacy rate, health awareness will increase which indeed will increase the life expectancy of the country. In case of Nepal, the nominal per capita GDP has increased to NRs. 57726 ($690) in 2069 from NRs. 19072 ($230) in 2059. Likewise, real per capita GDP has seen mere growth of 3% during the period and has reached to NRs. 24908 ($300) in 2069 from NRs. 19072 ($230) in 2059. However, the real per capita GDP has grown insignificantly, the life expectancy of Nepalese has boomed up by about 7 years from average of 60 years in 2059 to average of 67 years now. Though the change in real GDP per person has changed negligibly, the change in life expectancy is considerable. So, it poses a question; is per capita real GDP actually linked with higher life expectancy in Nepal?

2. Discuss the issues raised in the case. Ans: The case here intends to explore the rationale behind using the GDP as measure of the economic well being. Whether or not GDP is a good indicator of well being is a long standing debate. The contradictions arise when the relationship between GDP and standard of living or quality of life comes into the scene. What are we referring to when we are saying quality of life? Lets say, happiness, one of the foremost important factors of quality of life remains unmeasured by GDP. This might be the reason why President Kennedy once said GDP does not allow for the health of our children, the quality of their education, or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public officials. It measures neither our courage, nor our wisdom, nor our devotion to our country. It measures everything, in short, except that which makes life worthwhile, and it can tell us everything 2

about America except why we are proud that we are Americans.So how can we justify that an international difference in GDP is closely associated with quality of life? Quality of life (QoL) embraces the multiple dimensions of human experience that affect well-being. QoL is captured in both objective and subjective indicators. Objective indicators are those external to the individual and encompass measures of material living levels and their components, as well as family life, physical and mental health, work, environment, and so on. The measures relate both to circumstances whose increase raises QoL, such as level of nutrition or life expectancy, and to bads, like pollutants and crime, whose increase lowers QoL. Subjective measures are self-reports of personal wellbeing, happiness, general life satisfaction, prevalence of positive and negative moods, and the like. Even though there is ongoing debate in this issue, the data from around the world has made it clearly evident that nations GDP is closely associated with its citizens standard of living and quality of life.

The table demonstrate data on life expectancy, literacy rate, and Internet usage rate of twelve worlds most populous countries ranked in order of GDP per person. These data illustrate a clear pattern about what differences remains in the rich countries, such as the United States, Japan, and Germany, where people can expect to live to about 80, almost all of the 3

population can read, and a half to two-thirds of the population uses the Internet and in poor countries, such as Nigeria, Bangladesh, and Pakistan, where people typically die 10 to 20 years earlier, a substantial share of the population is illiterate, and Internet usage is rare. These 3 components are just the representative factors of the standard of living and quality of life. When we observe the data on other aspects of the quality of life, relationship is same as it was before. Infants with low birth weight, higher rates of infant mortality, higher rates of maternal mortality, higher rates of child malnutrition, and less common access to safe drinking water are some other facts about the countries with low per capita GDP. Moreover, such countries have very low primary school enrolment rate, and those who are enrolled must learn with fewer teachers per student. These countries also tend to have fewer televisions, fewer telephones, fewer paved roads, and fewer households with electricity. Thus from above findings we can accept the popular fact that GDP does not measure health, but a country with higher GDP can provide better health facility; GDP does not measure education but nations with larger GDP can provide better educations system; GDP does not measure the level of poetry but countries with higher GDP can make their people to read and enjoy poems and so on. The author tried to provide a clear insight on how international differences in GDP actually cause differences in various factors of quality of life. So, the author seems to support that the GDP is in fact not the overall but good measure of economic well being. In my view, the case should have indicated that the GDP per person is closely related with literacy rate than other two factors. It may be high literacy rate of citizens that may have triggered the life expectancy and internet usage rate. Further, the case has insufficiently justified the relationship between the GDP per person and the factors of quality of life. The case fails to mention what is the degree and direction of the relationship. Is it highly related or linearly related or non-linearly related or by some others ways?