Economic Stability Index

The Economic Stability Index is a set of guidelines that outlines and further categorizes nations on their capacity for economic stability and growth. The index takes into consideration several Macronational Factors such as HDI, GDP, GDPPC, and Population Density. By considering these factors it is possible to categorize and rate a nation based on its economic capacity for production, trade, and growth.

Terms and their Definitions

HDI

The Human Development Index is a measurable statistic that accounts for the life expectancy, education, and income to determine the development of a nation. More broadly outlined, a nation with a Very High HDI ranges from around 1-..8; High around .7-.6; Medium around .6-.5; and Low is considered below .5. As a result of this, nations rated lower are considered less developed society wise than nations rated highly. HDI when applying to economics is dependent on a few factors - most particularly on that of GDP, GDPPC and Population.

GDP

Gross Domestic Product is an attainable measure on the National Production capability and buying power of a nation. GDP in total is determined and used to outline the economic prospect or reach of a nation and is subject to that of the individual income and buying power of an individual. When applying GDP in a calculable rough estimate, to determine a nations GDP - One takes the median or average income of an individual, and then multiplies this by the population of the respective nation. A GDP Calculable Equation can be seen below.

I represents an individual where as P represents the Gross Population of a nation.

I(~$33,500 per annum) x P(~90,000,000) = GDP ($3,015,000,000,000)

In this manner, this respective nation holds a GDP of $3 Trillion, 15 Billion.

GDPPC

Gross Domestic Product Per Capita is an attainable measure based on the Individual Purchasing Power and capability. Essentially, this can be determined within a range easily measured by the average or mean income an individual attains before taxes every year. This is determined quite simply by the economy and value of currency based on the production potential of an individual when working. The I represented in the GDP Calculable Equation would be the representation of GDPPC.

It is very possible for nations to actually attain a very high GDPPC, but due to population restraints actually have a lower GDP in total. This means essentially that on the individual level - an individual in their respective nation can purchase more than a neighbour, but in turn the nation as a whole has less economic weight and purchasing power.

Therefore if the GDP Calculable Equation from above was Nation A, and Nation B had more population, the difference can be thoroughly observed below.

Nationa A: I(~$33,500 per annum) x P(~90,000,000) = GDP ($3,015,000,000,000)

Nation B: I(~$23,500 per annum) x P(~230,000,000) = GDP ($5,405,000,000,000)

Nation A by GDPPC is greater than B - however it holds a smaller population. As a result, although Nation B makes lower per capita - the nation actually has a larger purchasing power base, and therefore the economy is determined to be larger.

Population Density

Population Density is essentially the amount of individual living within a squared area of land. This is typically illustrated in Kilometers, but can also be demonstrated in miles. Population Density is determined and bound by two factors, the land a nation holds and the total population. This is calculable with an equation below.

P(90,000,000) / L(12,500km²) = D(7,200)

Taking the population of the nation, and dividing it by the land the nation holds (square kilometers or miles) thus giving you youres the nation's population density. The example provided shows a nation with 90 million people, and a land area of 12,500km² would thus have a Population Density of 7,200pkm²

Capital (Primary & Secondary)

In order to determine the ESI for a nation - it is necessary to understand the significance and difference of Primary versus Secondary Capital. Primary Capital is outlined as a nation's ability to manufacture and produce for itself. Capital is further defined as integral parts of an economic machine whether it be defined on the micro or macroeconomical level. In definition, even the working populace can be defined as Capital - being an important cog in providing and running the economy.

On the Macroeconomical level, Capital is typically outlined by % of the Population Working, Number of factories, Large equipment and machinery, Ships and amount of transport, even land. Anything that is directly or indirectly related to the production output of a nation can be defined as capital.

When a nation is listed as having Primary Capital, it more than likely produces for itself and has the capabilities to produce for itself. Primary Capital Nations therefore are more likely to export produced and manufactured commodities than import them - the center for their production is therefore defined and set within their own national boundaries.

A nation that relies on Secondary Capital is the opposite - relying on either foreign industries or oversea subsidized or owned industries in foreign boundaries. Secondary Capital means the nation can not adequately produce for itself and thus must rely on extranational industries to produce for it. As a result, Secondary Capital Nations will often import more than export.

Primary Capital Advantages and Disadvantages

There is an obvious link between land and population density among other major factors that outline the advantages of Primary Capital. These links can also determine the prosperity potential of a nation and further determine the ESI. The advantages of a Primary Capital Economy can be listed below.

• The nation can typically hold a Trade Surplus - by exporting more and importing less
• The nation often holds several sectors of an economy therefore making it diverse and less likely to suffer if one sector lags behind.
• The nation can auto-produce the majority of its own industry.
• The nation will typically have a much larger GDP.

Disadvantages of a Primary Capital Economy can be listed below.

• Primary Capital Economies are very large and robust, and often are hit with larger spending deficits.
• Nations are also more prone to the boom and bust cycles, often experiencing them at far greater magnitudes than Secondary Capital.
• Nations are also more likely to have lower GDPPC, and much greater Income Inequality.
• Due to the magnitude of booms and bust, impoverished zones grow and drop significantly.

Secondary Capital Advantages and Disadvantages

Secondary Capital Economies are defined by their ability to rely on extranational industry to produce for them.

• Secondary Capital Economies are small and specific, and often are less likely to suffer major spending deficits.
• Nations are also less prone to the boom and bust cycles, often experiencing them at far lesser magnitudes than Primary Capital.
• Nations are also more likely to have a higher GDPPC, and much lower Income Inequality.
• Impoverished zones are typically less frequent in a Secondary Capital Economy.

Disadvantages of a Secondary Capital Economy can be listed below.

• A Secondary Capital Economy is more likely to have a Trade Deficit as a result of importing more and exporting less.
• The nation is a specialized economy rather than diverse - and as a result can suffer greatly if its specialization lags behind.
• The nation must rely on extranational industries to provide it with manufactured commodities.
• Compared to Primary Capital Economies, SCEs will have a lower GDP.

When comparing the two styles of economies, PCEs are often diverse and large - whereas SCEs are specialized and small. However, each has their own advantages and disadvantages. SCEs can actually hold trade surpluses, and PCEs trade deficits - this is an interesting factor and necessitates the importance of determining a nation's capabilities with ESI.

Calculating GDPPC

Calculating GDP Per Capita can be easy to determine using the graph below. Nations can be divided into three Tiers, I, II, and III. Tier I is usually associated with nations that are heavily developed already. II is usually associated with a nation that is developing or growing, III is associated with a nation who's growth has stagnated.

File:ESII.png

This graph shows the correlation between Capital, Population, and Median Income (GDPPC)

Green Nations are nations that are considered the most valuable, they usually have large service sectors and primarily focus on trade and investments to keep their economy running. Yellow Nations are the most stable, perfectly in the middle and have long-lasting and reliable economies. Red nations are the largest economies, hegemons on the economic stage but are prone to civil issues such as income inequality.

The far left numbers signify the typical average GDPPC for nations in this range, the graph is then colour coded and divided into the Tiers respective of that range. The numbers set between the two graphs are associated with population, while the graph on the far right shows the range of capital usually associated.

Relation of Capital and Population Density

File:ESIII.png

The relation between capital and Population Density is easier to understand following the graph to the left. A nation's production capacity can largely depend on this aspect. Generally, the more land that is available and the lower the population, the higher the potential production output can be. Given the work force can be based on the density of an area, lacking a high enough population density will leave this land relatively uncultivated.

Blue-Zones are considered the best and most opportune balance to hold for maximum economic efficiency and production out-put. High enough Population Density, and the correct amount of land can allow a nation to rely on Primary Capital and thus build a production-based economy. Yellow-Zones can be argued as more stable and diverse, and are sometimes considered Goldilocks-Zones - nations classed in this zone can actually balance between Primary and Secondary capital and thus a balance between production and service industries.

Red-zone nation almost always must rely on Secondary Capital and develop a service styled economy rather than a production-based one. The benefits here however depend largely on the population density itself. If there exists large amounts of land, but a small population industry, Potential Capital is considered. Potential Capital is a determining factor in deciding if a nation has untapped potential - or Reserve Capital. This means a nation can theoretically and quickly increase its production output beyond expected means and actually operate as a Primary Capital economy if this land is cultivated. The disadvantage is that a nation must spend large amounts of money to reap this Reserve Capital before it can see positive results.

On the other end of the spectrum, if the nation has a large population density but a small area of land, than the nation must always rely on Secondary Capital. This area of the Red-Zone is king for a service economy, the disadvantage to this side of the spectrum however rests in the potential for a high unemployment rate and significant poverty.