Preston Curve: A Relationship between Life Expectancy and Income

The Preston Curve shows the consistent pattern observed between a country's average life expectancy and its per capita income.

1. It was first proposed by American sociologist Samuel H. Preston in his 1975 paper “The changing relation between mortality and level of economic development”.

Explanation:

1. The Preston Curve represents the correlation between a country's average life expectancy and its per capita income.
2. It was introduced by American sociologist Samuel H. Preston in 1975.
3. Preston observed that individuals in wealthier countries generally have longer life spans compared to those residing in poorer countries.
4. This disparity is likely due to factors such as access to healthcare, education, a clean environment, and better nutrition in more prosperous countries.
5. As a developing nation experiences economic growth, its per capita income increases, leading to a significant initial rise in life expectancy.
6. For example, India's average per capita income increased from ₹9,000 in 1947 to ₹55,000 in 2011, with life expectancy also increasing from 32 years to 66 years.
7. However, beyond a certain level of development, the positive correlation between per capita income and life expectancy tends to diminish.
8. This suggests that while economic growth can significantly improve life expectancy, there may be limits to how long human life can be extended.

What is GDP?

GDP is the total monetary value of all final goods and services produced within a country's borders during a specific period (usually a year). It provides a comprehensive overview of economic activity and is used to:

1. Measure Economic Growth: Changes in GDP over time indicate whether an economy is expanding (growing) or contracting (recession).
2. Compare Economic Performance: GDP figures allow comparisons between countries or regions to assess their relative economic strengths.
3. Inform Policy Decisions: Governments and central banks use GDP data to make informed decisions about fiscal and monetary policies.
4. Guide Investment Decisions: Businesses and investors use GDP as an indicator of market potential and economic stability.

How is GDP Calculated?

There are 3 main approaches to calculating GDP, all of which should ideally yield the same result:

1. Expenditure Approach: This approach adds up all the spending on final goods and services in an economy. It includes consumer spending, business investment, government spending, and net exports (exports minus imports).
2. Production Approach: This approach sums up the value added at each stage of production in an economy. It avoids double-counting by only considering the final value of goods and services.
3. Income Approach: This approach calculates GDP by totaling all the incomes earned in an economy, including wages, profits, rents, and interest.

Types of GDP:

1. Nominal GDP: This is the GDP measured in current market prices, without adjusting for inflation.
2. Real GDP: This is the GDP adjusted for inflation, providing a more accurate picture of changes in the quantity of goods and services produced over time.

Limitations of GDP:

While GDP is a valuable economic indicator, it has some limitations:

1. Doesn't Measure Well-being: GDP focuses on economic output and does not account for factors like income inequality, environmental sustainability, or overall well-being.
2. Excludes Non-Market Activities: GDP does not include unpaid work, volunteer activities, or the black market, which can be significant in some economies.
3. Ignore Distribution: GDP does not reveal how income and wealth are distributed within a country.

Beyond GDP:

Given the limitations of GDP, economists and policymakers are increasingly exploring alternative measures like the Human Development Index (HDI), which take into account broader aspects of well-being and sustainable development.

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