Human Development Index:

Introduction

Sabina Alkire (OPHI), 29 Feb 2011

Sen: Decade of Human

Development

• Public acclaim is not always a sound way of judging the

success of an intellectual

enterprise.

Sen: Decade of Human

Development

• John Stuart Mill’s book Subjection of Women: his only book on which his publisher lost money;

• Bertrand Russell’s book on mathematical logic initially had very few readers;

• Wittgenstein’s Philosophical Investigations achieved its prominence only very slowly;

• Mozart’s appreciation in the world of music came ... more hesitantly than he had hoped.

Sen: Decade of Human

Development

• why has the Human Development Report

received so much refl�ective attention

with such speed in a world where

new ideas often take decades,

sometimes centuries, to receive the

recognition they deserve?

Sen: Decade of Human

Development

This is, at one level, an easy question to answer. Rather than concentrating only on some solitary and traditional measure of economic progress (such as the gross national product per head), ‘human development’ accounting involves a systematic examination of a wealth of information about how human beings in each society live…. It brings an inescapably pluralist

conception of progress..

Basic Human Development

Measures

• Well-Being measures summarize the data of allpeople.Average --- HDI, GII

• Inequality measures summarize the range of the *entire* distribution – ratio of two standards.Spread --- IHDI

• Poverty measures are based on the population who fall short of some minimum standard. Base --- MPI

What kind are these?

• Gini Coefficient

• Happy Planet index

• $1.25/day index

• GDP/capita

• Ratio of 90% to 10%

• Percentage of malnourished children

Note: many people may not be clear on

these distinctions

Sen: Decade of Human

Development

• John Stuart Mill’s book Subjection of Women: his only book on which his publisher lost money;

• Bertrand Russell’s book on mathematical logic initially had very few readers;

• Wittgenstein’s Philosophical Investigations achieved its prominence only very slowly;

• Mozart’s appreciation in the world of music came ... more hesitantly than he had hoped.

History of

HDI: 1990

History of HDI: 1990

• Data

• Indicators

• Treatment of Income

• Weights

• Bounds/Normalisation

• Functional form

History of HDI: 1990

• Data International

• Indicators – Life Expectancy at birth,

– GDP/capita

– Literacy

• Treatment of Income Log

• Weights Equal

History of HDI: 1990

• Bounds/Normalisation

– 1987 values for minimum

– 1987 values for longevity as max

– 100% literacy as maximum

– Income maximum $4861 PPP = poverty line!

• Functional form Simple average

History of HDI: 1991

Key Document: Technical Notes in HDI 1991 –addresses many concerns from 1990

•Indicators– Adult Literacy + Mean Years of Schooling

• Weight: 2/3 Weight: 1/3

•Income: the poverty max was too sharp– Especially for rich countries

– Replaced log with a ‘by hand’ version:

History of HDI: 1991

The new approach to income…?

History of HDI: 1991

The new approach to income…

…. Actually lasted quite awhile!

History of HDI: 1994

Income Threshold changed to ‘current average global value of GDP per capita in

PPP’. ($5120)

Minimum income now $200; Max $40,000

(LE: 25, 85)

(Literacy: 0, 100)

(Schooling: 0, 15)

History of HDI: 2000?

Income Threshold was dropped

Minimum income lowered to $100;

Maximum maintained at $40,000

Income treated with simple log

(log y) – log (100)/ (log 40K)-log 100

Old Human Development Index

Dimension Indicator

Health • Life expectancy at birth (I1)

Education (I2): Weighted average of:

• Adult literacy rate (w=2/3)

• Combined primary, secondary and tertiary gross

enrolment ratio (w=1/3)

Standard of living • Log of GDP per capita (PPP US$) - log to

incorporate the diminishing returns. (I3)

Old Human Development Index

• For each dimension, maximum and minimum values are determined and a dimension index is calculated as:

I=[Actual Value-Min]/[Max-Min]

HDI=(1/3)[I1+I2+I3]

Criticisms of HDI• Dimensions

– Why not political freedom?

• Indicators

– Why only these? Why not nutrition? HH income?

– Correlation between indicators => redundancy?

• Data (doesn’t change every year)

• Weights

• Aggregation

– How treat income? Censored? Log?

• Limitations

Inequality, Gender, Macro, Welfare

Some Criticisms of HDI

• Weak Indicators

• Missing Dimensions

• Normalization introduces artifacts

• ‘Equal’ Weights are not equal, nor justified

• Functional Form

• Comparisons across Time Problematic

• Ignores Inequality

• Redundancy

Weak Indicators

• For all countries, one indicator is highly correlated (>.9) with other two (McGillivray & White 93) – not for subsets of countries by low/med/high HD.

• Issues of comparability; extrapolation for missing values.

• Stock and flow indicators are combined

• Some Indicators (LE) are not highly policy responsive

• LE at birth problematic – better age-specific LE (Anand)

• PPP imperfect

• Log of income arbitrary

• Use of US Dollar currency PPPs affects rankings (e.g. vs gold)

Missing Dimensions

• Too restricted. “One of the most common criticisms leveled at the HDI is that it excludes other social achievements crucial to the quality of life most notably political freedom and human rights.” – Booyesen 2002 See Lind, 1992, Srinivasen 1994, Hopkins 1991, ), Chakravarty.

• Also excludes environment, work, personal security• Streeten 1994 argues against adding political freedom to

the HDI because: 1) political freedom can’t be traded off against the other dimensions; 2) PF has more volatility so affect intertemporal stability of index; 3) new dimensions compromise objectivity; 4) relation between political freedom and HD not that clear cut.

Ranis

Samman &

Stewart 06:

31

indicators

have low

corrs and

reflect 12

dimensions

Normalization

• Weight of indicator is sensitive to the choice of endpoint

• HDI rankings sensitive to the upper bound (Noorbakhsh, 1996)

• Income upper bound too low for developed countries? (Trabold-Nubler, 1991)

• No principle of diminishing returns (Kelly 1991, Noorbaksh 1996, Lüchter & Menkhoff 1996)

2004Education Index

(%)

Life Expectancy

(Years)GDP (PPP USD) HDI Rank

USA 97.0% 77.5 39,676 0.948 8

Finland 99.0% 78.7 29,951 0.947 11

2005

USA 97.1% 77.9 41,890 0.951 12

Finland 99.3% 78.9 32,153 0.952 11

Difference in

performance in

two years

USA 0.1% 0.4 2214 0.003

Finland 0.3% 0.2 2202 0.005

0.953 HDI of USA in 2005, had the GDP been not restricted to 40,000 PPP USD

Normalization

‘Equal’ Weights

• Weights are not effectively equal but are affected by the lower and upper bounds.

• Still, Chowdhury and Squire, 2006 found that expert-derived weights did not significantly differ from equal weights

• When robustness tests are applied 2004 human development index ranking, 70% of all possible comparisons between countries would not change under any weights. If the weights vary only between 0.25 and 0.5 for each dimension, then 92% of comparisons are robust (Foster, McGillivray and Seth 2009 See also Cherchye, Ooghle and van Puyenbroecke 07).

Functional Form

• HDI components’ means have different variances

• Multiplicative more sensitive to improvements in underachieving domains

Comparison across time

• Low, Med, Hi and now VHigh HD category definitions vary over time.

• Direct intertemporal comparisons are not possible from HDRs.

• Reports provide up-to-date HDI trends based on consistent data time series &

methodology. (e.g. Table G in HDR 2009)

Ignores inequality

• HDI is the same for any distributions having the same mean. This has generated a huge amount of criticism and many proposals for improvement – e.g. Hicks 1997, Sagar and Najam 1998, Foster Lopez-Calva Szekely 2005, Grimm Harttgen Klasen and

Misselhorn 2008, Seth 2009.

Redundant?

• Stewart 1985, McGillivray 1991 and McGillivray & White 1993, and Srinivasan 1994 among others draw attention to association between indicators [E.g. the Kendall tau20 coefficients (τ) for 2004 are 0.55 for health and education, 0.66 for health and income, and 0.58 for income and education].

• However note that positive associations between indicators produce rankings that are more robust to small changes in weights (Foster McGillivray & Seth 2009).

Incomplete Bibliography on HDI MethodologyAnand, S., Sen, A.: The income component of the human development index. J. Hum.

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(2003)

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