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The organization and coverage of the World Development Indicators reflect the priorities of an institution dedicated to promoting economic development. The focus is on people, the environment, the economy, the relative roles of states and markets, and the links between industrial and developing economies. But what is development? And how do we measure it?

Since the 17th century economists have viewed development as a means of improving standards of living and the quality of life in very broad terms. Sir William Petty, one of the first development economists, was interested not only in national income but also in such factors as "the Common Safety" and "each Man’s particular Happiness" (cited in Sen 1988).

"Ultimately," Amartya Sen argues that "the assessment of development achieved cannot be a matter only of quantification of the means of that achievement. The concept of development has to take note of the actual achievements themselves" (1988, p. 15). These achievements—Sen labels them as "functionings"—include the length of life (life expectancy) and the "nature of life" and what people value as important to their well-being (nourishment, good health, clean air and water, the ability to move about freely).

True, these values differ greatly from individual to individual, reflecting different aspirations, conceptions, abilities, and tastes—and from society to society, reflecting culture and tradition. Yet there clearly are certain basic needs common to all mankind for food, health, shelter, and personal freedoms, which if met constitute development (Dasgupta 1993).

In measuring development, it helps to distinguish between indicators that measure the "constituents" of development (such outcomes as health and literacy) and those that measure its "determinants," the goods and services that produce development or well-being, such as food, shelter, safe drinking water, clean air, education, health care, and real national income (Dasgupta and Weale 1992). Partha Dasgupta and Martin Weale show a strong correlation between the rankings of 48 developing countries for GNP per capita (adjusted for purchasing power parity) and their rankings for five other indicators (life expectancy, infant mortality, adult literacy, political rights, and civil rights). This leads Dasgupta to observe that "recent suggestions that national income is a vastly misleading index are not borne out by this exercise. We can do better than merely rely on national income, but we wouldn’t have been wildly off the mark as regards an ordinal comparison of countries had we relied exclusively on national income per head" (1993, p. 115).

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One reason to go beyond national income is to capture inequalities in access to resources. Life expectancy, infant mortality, and adult literacy measure outcomes, but they also say much about differential access to assets and income and about other pervasive forms of differentiation based on gender.

The causes of gender inequality, linked as they are to the decisions in households, are particularly complex. Regardless of how such decisions are made, they clearly are influenced by market signals and institutional and cultural norms that do not capture the full benefits to society of investing in women. Limited education and training, poor health and nutrition, and denied access to resources depress women’s quality of life—and hinder economic efficiency and growth. This is disturbing, because women are agents of change, shaping the welfare of future generations.

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The environment can no longer be thought of as a source of free goods and services. Environmental values and costs should be included when measuring the quality of life. Although this is easier said than done, we cannot ignore the damage that people do to their environment or the damage done to themselves through environmental degradation. The poor often suffer the most. They cannot escape the polluted air in the streets of cities or from the open fires burning wood or dung in rural areas. They cannot protect themselves from contaminated water, and their farmlands are more likely to suffer from soil erosion. Development may be a cure for environmental ills—the rich can afford to maintain a healthy environment—but it is also associated with greater consumption of natural resources, particularly energy, and potentially destabilizing alterations in natural balances. The challenge for governments and citizens alike is to find development strategies that are sustainable at a local and a global level.

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The process of development is sometimes referred to as "structural transformation," the change in patterns of consumption, production, technology, foreign trade, and resource use. And the developed market economies have perhaps seen more profound change in this century than at any other time in human history (Drucker 1994).

At the beginning of the 20th century farmers constituted the largest single group in today’s industrial economies. Today they make up no more than 5 percent of the workforce. Even blue-collar workers, who dominated the labor force of high-income economies in the 1950s, have retreated to proportions common at the beginning of the century.

East Asian economies are now experiencing a similar—possibly even faster—structural transformation. But they are at one extreme. At the other are many countries and parts of countries that remain untouched by major change.

Fueling the structural transformation is economic growth, the "expansion in productive resources and the increase in the efficiency of their use" (Syrquin 1988). This growth comes through increases in inputs and through technical change. A proxy for technical change is the growth of what is called total factor productivity (TFP)—that is, the contribution to economic growth by the increase in productivity of all factors combined—of such inputs as land, natural resources, and human and physical capital. In practice, however, it is difficult to disentangle technical change from the factors of production, because that change is embodied in labor (through education, training, and experience) and in capital (through the innovations embodied by machinery and equipment).

Developing countries nevertheless appear to experience slower TFP growth than do the industrial countries—and countries that grow faster typically enjoy faster TFP growth (World Bank 1991b).

A large number of cross-country studies of the post-World War II period throw light on the process of structural transformation (Syrquin 1988):

Savings and investment tend to rise as a share of GDP during periods of rapid transformation. All the evidence points to strong correlations between growth rates and investment rates. Rapid agricultural growth has been generally associated with successful industrialization and sustained gains in overall output and productivity. Such growth usually reflects improvements in yield (output per unit of land) and is often associated with the use of modern inputs (fertilizers, agricultural machinery). While agriculture provides the initial stimulus for transformation, its importance declines with development. The share of agriculture in output and employment tends to fall with industrialization, but farm productivity outstrips the relatively inelastic demand for food. So, food prices fall relative to other consumer prices. In household budgets food’s share declines with sustained progress, facilitating the diversification of spending and choices. Changes in the structure of demand therefore tend to drive changes in production. International trade is an important pathway for structural transformation, especially for small economies. Small economies have small domestic markets and must specialize—their share of trade (exports plus imports) in GDP is high. If they lack natural resources, they must develop competitive exports of manufactured goods and, increasingly, services. Large economies with large domestic markets may have a relatively smaller share of trade in GDP, but they are still likely to be important world traders. Production for domestic consumption provides them with a base for developing an efficiently sized and competitive export sector. For all economies, regardless of size, access to imports from world markets is important for sustaining efficient production processes and high levels of consumption.

The tables in this section provide an overview of the quality of life, gender differences, and economic structure in the 209 economies for which data are available. (In the rest of this book indicators are shown only for 148 economies whose populations exceed one million.) Following the tables is a set of charts that summarize key development trends shaping the world economy.

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