if we want to build a performance index depends on a set variables. what's the indicators can be used to measure economic performance and whats the desired values to these variables?
There are common indicators, which required less of personal reasoning. They are: Gross Domestic Products, per capita income, poverty incidence among others...
1. GDP
https://www.imf.org/external/pubs/ft/weo/2018/02/weodata/index.aspx
2. HDI
http://hdr.undp.org/en/content/human-development-index-hdi
3. MULTIDIMENSIONAL POVERTY INDEX
http://hdr.undp.org/en/2018-MPI
4. GLOBAL COMPETITIVENESS INDEX
https://www.weforum.org/reports/the-global-competitiveness-report-2017-2018
5. CORRUPTION INDEX
https://www.transparency.org/news/feature/corruption_perceptions_index_2017
Real GDP Growth, Inflation, Unemployment, Current Account, Government Borrowings, Real Disposable Income, Exchange Rate, Investment Levels, Labor Productivity
we don't talk about individual indicators, which measure performance. we want to build a performance index depends on a set variables.
How is this indicator or index.
Hi
The link below may be of help to you. Thank you.
https://www.economicshelp.org/blog/10189/economics/key-measures-economic-performance/
If you are trying to do nowcasting of variables like GPD, you may use a set of variables including energy demand, retail sales, real wages, etc. These approach is commonly related to business cycle issues.
Dear Benali,
The Human Development Index (HDI) is such a measure for a country. It superseded GDP as the time honored measure. If you want to estimate values for different levels of aggregation, then Data Envelope Analysis (DEA) will be useful. Sometime performance indices are publish for example in the case of automobile performance, which might be calculated base of horsepower. You can also create an index based on data you have such as effort or input.
Paul: The three main economic variables you should track are: Inflation rate, Unemployment rate, and the GDP Growth rate.
The desired values depend on the country. In the United States, the desired values are: Inflation = 2%, Unemployment rate = 5%, and GDP Growth rate = 3%
You could also make use of the the total levels of per capita energy consumption, purchasing power parity, globalization index, passport index, NHDI, per capita income, etc...
Compare the outcomes of the above with the following indicators: the GDP growth rate(%), unemployment rate(%), inflation rate(%), real exchange rate (%) and literacy rate(%)
Best of luck !
I agree with both Paul and M. Murshed. You can also track some of United Nations - UNDP indicators on development aspects as well. E.g. Poverty level, Education, Healthcare, Mobile phones & Internet penetration. Currency reserves and exchange rate will also be a useful index.
I concur to Prof. Stock. However, recent studies fall back to HDI to measure economic performance. GDP may not be able to provide comprehensive understanding to know if a country is performing well or not. I prefer using Unemployment and Inflation rates.
What is economic permorfance? It is not an easy question.
Most answers voted for a mix of GDP growth, unemployment and low inflation. This seems very reasonable (albeit I’d prefer to use GNI rather than GDP in an open economy).
But is an economy growing at 5%, with an inflation lower than 2% and unemployment below 5% a « performing » economy? Performance means comparing with similar economies.
For example, during the commodity super-cycle (2003-2011), most primary goods exporters did well. The Economist wrote about an African miracle, for exa. To judge if some of them were real performers requires comparing them.
But in a purely comparative ranking, you may have to forget the absolute targets: in a world recession, the best performer may be the economy doing 1% growth, 8% unemployment and 0% inflation...
And what about an unsustainable high GDP growth due to higher indebtedness ?
I would therefore add a couple of additional indicators: ratio Investment/GDP and current account deficit/GNI
Using the UNDP HDI is an interesting approach, but it includes many non-economic dimensions. I wouldrather useit as a development indicator, rather than an economic one.
Cheers, HE
Paul: I agree with Hubert in that the HDI is more of a measure of development than economic progress. The HDI includes measures of health and education. This question was about economic performance. Good point, Hubert!
@ national level as Paul Stocks state you can use Inflation rate, Unemployment rate, and real growth in GDP. But, at industry level you should use variables like productivity ( Labor productivity, capital productivity & multi factor productivity), efficiency, capacity utilization,Profitability ( Net profit Margin) etc.
Practically speaking, Paul Stock must be right. Hubert Escaith 's comment is also valuable. I here want to raise a more fundamental question:
Why should we take these three indicators instead of one or two of them? And why is it sufficient to observe these three indicators instead of four or five indicators?
To consider this question, it seems we should consider two things:
(1) Is the triplet explains nicely almost all countries in the world and in the past? If there are many countries of which performance was not very good in spite of the fact that they possess three good indicators.
(2) Is there any theoretical explanation that approves that three indicators are
sufficient?
In the second consideration, international trade theory must be important, because no countries are now aloof of international economic relations. Many Latin American countries face the foreign reserve constraint. If there is no such thing, many countries could have grown more easily. To make international trade more balanced, inflation rate must be repressed if one wants more stable exchange ratio. On the other hand, if one wants lesser unemployment rate, to lower exchange rate (devalue the home currency) is an easy possibility. How these measures are reflected to three indicators?
It seems there are many points to argue.
Re Yoshinori Shiozawa comment, I don’t consider the indicators as targets but as statistical measures that provide information on something else, that is not directly observable:
High GDP: creating income
Low Unemployment: making sure as many people possible participate in the economy and receive income
Low Inflation: avoiding the erosion through time of the savings that the low-income people may have accumulated
Low balance of payment deficit and high productive investment ratio: making sure the growth pattern is financially and economically sustainable.
But other indicators can be chosen: there are many ways to measure an economic process.
Where I have more difficulties, is when Benali Abdelghani looks for a synthetic index, in order to have a single measure. To do that, we needto add some value judgement: is today’s growth (the GDP) more important than tomorrow’s (the investment rate)? Is high inflation good for low unemployment or not? ( the 1970s debate)... Not easy.
For those interested in the building of such synthetic indicators, I recommend going to the UNDP HDI website: they have been discussing the pro and cons and revising it during the past decades.
When I said that Paul Stock must be right, I was only thinking the choice of three indicators: Inflation rate, Unemployment rate, and the GDP Growth rate. As these indicators go independently, there would be no target point to pursue. People of a nation must think of trade-offs between different states which are indicated by these numbers. In this sense, there is no "the desired values" or target values.
I proposed totally different problem. Please re-read my previous post.
Generally speaking, the number of poor people can be regarded as a great indicator of economic development in a country. Putting the technicalities aside, wealth and prosperity in the hands of some do not reveal economic growth. According to Immanuel Kant , " We are not rich by what we possess but by what we can do without.” Economy should be mixed with spiritual factors: cooperation, love, and caring for all members of the community.
Reza Biria
Economic performances should be measured depending on what range of time you are interested of. If you are interested in the performance for a long period of time, "the number of poor people" may be a good indicator of the economic performance. However, this number does not change rapidly and does not show the state of economic healthiness for a time range from a year to five years time.
GDP, inflation rate, unemployment rate, GDP Per Capita, Debt to GDP Ratio, Currency stability, GDP growth, Poverty Rate Changes, Export performance, HDI. Can compare those indicators with other countries performance (indicator)
Rafiq Idris
You are only increasing the number of indicators. Are they really indispensable for mapping economic state or performance of a nation? Please read my comment 5 days ago.
I have a question Bebali:
are you referring quantitative performance economic ?
Best Regards
I thank everyone who answered the question
to martha pantoja
I apologize for the late reply
because the idea is not yet clear ...
Due to their size, indicators to measure performance can be classified into: 1) Efficiency 2) Efficiency 3) Quality 4) Economy
Dear Mr. Benali Abdelghani , What happens in Indonesia, actually there are so many indicators on a macro basis, but in general it can be detailed as follows: a reduction in poverty, an increase in the number of exports, a stable import value of goods or raw materials, a stable exchange rate against the US dollar, balanced trade, increasing foreign exchange earnings, growing small economies (micro-enterprises), increasing income from the tax sector, the state not increasing debt, the ability of the state to pay off external debt better, decreasing unemployment, the state increasingly able to meet food needs internally, and many indicator again. thank you and regards.
Income is one of the most significant factors in measuring economic performance, and gross domestic product (GDP) is the most commonly used measure of a country's economic activity. In short, GDP reflects the value of all final goods and services legally produced in an economy in a given time period.
Due to its size, the Gross Domestic Product is an indicator of effectiveness.
Indicators are at different levels of macroeconomics and enterprises. What are you interested in?
Hello:
The methodological basis is technical, depending on the objective that the measurement seeks, it is that the indicators will be selected.
Economic performance depends even on the country or city or subject matter of measure. To look at factors that determine it will explain the performance in best manner.
Agree with Jasmin. We need precision on place, time, etc. Greetings. Jorge.
These indicators can be used to measure economic performance
Gross National Product per capita
Birth and death rates
The Human Development Index (HDI)
Infant mortality rate.
Literacy rate
Income .PC. is an important factor to meassure economic status, but very difficul tu obtain , J.F. de C.
Other indicators:
Investment levels
Labour productivity
Income inequality (Gini coefficient)
The indicators to measure economic performance of the enterprises are: Profitability, solvency, financial stability, investment turnover, labor productivity, risk coefficients and so on.
A good and simplest solution is to select economic and financial indices that are appropriate to the needs, which determine specific issues of effectiveness, eg fixed assets, current assets or otherwise classified capital categories, production factors. It is also possible to analyze and measure the effectiveness of specific processes in an enterprise, the effectiveness of measures, specific investment projects, efficiency of logistics processes, work efficiency of employees, etc. For each of the mentioned types of effectiveness tests other economic or financial indicators are used.
However, in the situation of the analysis of complex, multi-factorial processes realized with economic entities, multifaceted processes covering various spheres of activity of a specific enterprise, covering the entirety of a large enterprise operating in various business areas and with the involvement of much larger financial resources for conducted economic efficiency analyzes, then they should Complex indicator models built from many interrelated economic, financial and other indicators can be used. A good solution in this situation is the involvement of Business Intelligence technology using large data sets describing the functioning of a specific large enterprise, gathered in Big Data database systems. In addition, advanced data processing and analysis can be made using cloud computing technology. In addition, access to data, data update and commissioning of specific analyzes of economic performance research can be carried out from the level of mobile devices, i.e. through the use of the Internet of Things technology.
I think the most important is the unemployment rate and in developing countries the percentage of people living in poverty. GDP is often also used, but national wealth can be very unequally distributed, and GDP does not necessarily say how it is formed: if one drives with his car against a tree then it has a positive impact on GDP 1) car must be repaired, 2) drivers received medical treatment.
According to Wasylenko (1997), the most common measures of economic development are income, employment, investment, plant expansions, relocations, and births.
Also
Anderson (2015) mentions the WEF’s Global Competitiveness Index, GDP per capita, foreign direct investment (FDI), capital formation and GDP growth.
I thing that definitely the most important index is the percentage of population living in poverty. #Jorge-
Jorge Fernández de Castro proposed indicator is difficult to criticise. But I will try my luck.
Indeed, absolute poverty is not acceptable (I would exclude here relative poverty which is a matter of income distribution and is more debatable: are you actually becoming poorer because some of your neighbours are becoming richer?).
The issue with poverty as a being a good indicator in today's open economies is dynamic.
Should we define the level of social development of an economy by the income of the poorest 5% when most of them are unskilled immigrants? I have here in mind the example of a small developing countries like Costa Rica. This is quite an inclusive society that is attracting a lot of poor people from Nicaragua or Honduras. Is it the fault of the Costa Rican social model if the level of poverty has been increasing in recent years because of immigration? I don't think so.
So, the indicator needs to be adjusted to reflect only the poverty resulting from the economic model being analysed, and not from the shortcomings of foreign countries. I suppose it is doable when statistical institutes are collecting the data.
Dear Hubert:
Indicators are quantitative and Benchmarking is needed. It´s important to take into account to measure economic performance, the most adequate indicators are those of efficiency and effectiveness
Take a look at the articles accessible at the following links;
1. https://www.academia.edu/5732937/Economic_indicators
2. https://www.academia.edu/11531295/Intro_to_Economics_ECS1500_07_-_Economic_Indicators
3. https://www.academia.edu/3469932/Structured_Approach_To_Measure_Performance
4. https://www.academia.edu/6341895/A_framework_to_measure_the_relative_socio-economic_performance_of_developing_countries
5. https://www.academia.edu/28961013/How_to_use_indicators_to_measure_scientific_performance_a_balanced_approach
6. https://www.academia.edu/38328046/Measure_to_Better_Manage_Proposal_of_Performance_Indicators
Gross Domestic Product in real terms is a good indicator to meassure economic performance, because inflation measures the change in the price levels of goods and services in an economy over time.
O.K., GDP tell us clearly economic performance,but it changes quite a lot and there are several ways of calculating it and differeJorge.nces in results accordingly.Jorge.
I think the most important is the unemployment rate and in developing countries the percentage of people living in poverty. GDP is often also used, but national wealth can be very unequally distributed, and GDP does not necessarily say how it is formed: if one drives with his car against a tree then it has a positive impact on GDP 1) car must be repaired, 2) drivers received medical treatment. Also much economic activities that are performed do not find their ways to the GDP. All housework is excluded, and the value of work in the informal sector usually is estimated.
Along with all the valuable contribution, I want to answer a little bit different.
Spending money.
Purchasing power.
Quality of product.
Relationship with buyers and sellers.
Future demands.
Living standard
Begging and many more.
Regards
O.K., GDP tell us clearly economic performance,but it changes quite a lot and there are several ways of calculating it and differences in results accordingly.Jorge.
Dear Eberhard:
Ssome investigations suggest that unemployment is largely a feature of advanced economies. In developing "most skilled workers search for wage jobs, while most of the less skilled workers select into traditional self-employment activities", article Unemployment: An advanced economy problem?
Dear Martha, I agree that it appears like unemployment is a feature of more advanced economies, but having lived many years in developing societies (India, Thailand and Pacific Islands) is can certainly say that major social problems arise when people have no secure employment that earns them a decent livelihood. This would include informal activities as well as other self-employment activities: economic performance does not provide decent livelihood for everybody, neither in the formal sector nor the informal. I did research about artisan fisher people in Tamil Nadu, South-East India. Many would like to leave fisheries, but the way 'out of fisheries' is blocked by no alternatives are available. This keeps people in a sector, which has too many.... In Germany, right after the WW II employment in agriculture declined quickly when better jobs became available in industries. Such transitions 'ways out of agriculture' happened in two, three generations, from full time farmer, to farmers with industrial part-time income, industrialist workers which after hours did farming, and finally industrial workers without farm income.... Such processes are often missing in developing countries, where the industrial labour market is too weak to initiate a transition from agriculture to industrial employment.
Dear Eberhard:
Another problem in developing countries is that wages are low, which does not allow for an acceptable standard of living. Also, the form of hiring employees means a lot of instability because in many cases it is temporary.
To measure economic performance of enterprises can be used
coefficients, such es: Solvency (liquidity), financial stability, profitability, business activity, operational and financial risks.
key measures of economic performance in macroeconomics include
- Economic growth – real GDP growth-
- GDP Per Capita
- Inflation – inflation of 3% per year
- Unemployment – full employment
- Current account(Balance of Payment) low deficit or surplus
Yes, but GDP is one great economic indicator for macroeconomic level and not for enterprises performance.
I still think that unemployment rate is a very useful indicator as an economy is not a system for itself, but for the welfare of people, and a important mechanism to enhance people's welfare is through productive work. I also would not consider it development, if there is jobless growth....
Dear Eberhard:
The problem is that mainly in the service sector many of the jobs generated there are not considered productive since they do not generate a good
In México INEGI, (the office in charge of national statistics) informed that 50% of Mexican families survive with an income of 250 U.S.D. per year and only 5 % have 2'500 also per year-. Please compare these figures with those in your respective countries. Jorge Fernández de Castro.
Indicators that should not be used to measure economic performance, because they soften the effects
Gross Domestic Product, Underemployment rate, inflation rate and bank interest percentage
The best indicators to measure development are those that are internationally agreed, for example: Indicators of human development indices.
Traditionally, the key measures of economic performance in macroeconomics include: Economic growth – real GDP growth. Inflation – e.g. target CPI inflation of 2%
growth rate of GDP, growth of physical capital stock, g. Human capital stock and g. total factor productivity. that is what we called decomposing channels economic growth.
Economic achievements are measured by several indicators, such as the standard of living per capita, the number of unemployed, poverty, illiteracy, health services and basic infrastructure.
can O measure the economic performance through primary data specific to entrepreneurship. either the effect of entrepreneurship has on economic performance or not.
A performance indicator is the expression quantitative built from variables
quantitative or qualitative, which provides a means simple and reliable to measure achievements (compliance with objectives and goals established), evaluate your results.
Social Security, livelihood security, and universal income security will be the economic consideration for performance assessment. Growth, inflation, and unemployment will not matter at all as universal income security along with social security will definitely take care.
Real Gross Domestic Product
Inflation
Unemployment
Current account
Life expectancy
Happiness levels
Already two days ago I have chat on this site. In addition to that HAPPYNESS needs to be included. Gone those Keynesian days on the concept of full employment. Now, look Security in terms of livelihood, income, and social aspects. Inflation will not be reflected as globalization and different forms of supply chain management prevailed. So the market economy through competition
Kamal.
Some analysis show that high economic growth not necessarily translate into better living standards and an increase in the happiness index.
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