Measuring Effectiveness and Efficiency of Resources Use by Countries

How can countries use their wealth more effectively benefit their people?

To further clarify this matter, the United Nations Development Program (UNDP) establised some indicators to measure economic development of countries which is aiming to achieve the most possible output with available resources. This particularly applies against the background that the effective use of resources can be a means of countries' endeavours to transform assets into income. The income is latter giving more benefit to people.

Gross Domestic Product (GDP) per capita is generally regarded as the relevant reference value to measure the level of economic activity of countries. This asumption is based on the interpretation that GDP per capita reflects the standard of living and, in particular, is accessible to measure the total value for final use of output produced by an economic activity. Beside the general suitability of the GDP per capita, it is questionable as to whether and to which content this value reflects the success of development achieved by a country.

To address this issue, the UNDP establised the Human Development Index (HDI) which attempts to analyze a country's socio-economic development comprehensively. In this context, HDI comprises a composite index to link the GDP per capita with the other basic provision of human developments : health and education. Therefore HDI is able to translate a country's benefits of economic growth and development into quality of life for its people.

To make a clear understanding about the difference between GDP per capita and HDI, let us use the example from Indonesia. Indonesia is ranked as a medium level of human development with 0,697 in value (data from HDI 2005) and amount of GDP is US$ 3,361 per capita. It is also derived from the UNDP data that HDI rank is higher than GDP per capita (Indonesia's position in HDI is 110, while in GDP per capita, the rank is 115). With this regard, it is seen that Indonesia has paid much more attention to human development, since the country has tranformed its wealth to benefit its people. An evidence can be given here that the government was intended to allocate at least 20% of its budget to education. It is parallel with the 9-years policy undertaken by the Government which covers the level of primary study up to junior high school. Also, this is aimed to reduce literacy and building human capacity for the long turn. From this standpoint, it might lead us to justification on which the negative difference in the rank on GDP per capita rank and HDI rank somewhat brings different meaning.

An emphasis can be given that the levels of human development can only be reflected from HDI. GDP, which is in a broader sense, measures an overall activity of residents and non-residents that can be generalised as a country's performance. Hence, considering basic human development provisions as one of the area of analysis will lead to a better understanding to indicate the level of effectiveness and efficiency of resources used by countries.

HDI is not a perfect indicator, though. The next question that cross in my mind, is it apply to all of the countries of the world? Is it fair to calculate the same indicator and level of human development between people in developed countries and less-developed countries?