the human development indices

THE HUMAN DEVELOPMENT THE HUMAN DEVELOPMENT INDICESINDICES

M.H. SuryanarayanaIGIDR

Mumbai

April 19, 2023 surya@igidr.ac.in 2

Human Development Index

Lecture Outline

Why was the HDI created?

What is the Human Development Index (HDI)?

What does the HDI tell us: evidence from the Human Development Report 2005.

Is the HDI measure a foolproof measure of human development?

Why was the HDI created?

Limitations of GNP: GNP may grow due to sale of knives and rifles ..does not allow health of children, quality of education, or the joys of their play…

For cross-country comparisons.. Assess progress in human development across countries. Assess individual development with reference to ‘well-being’

Though open to criticism, serves as a basic indicator and allows ranking of countries in terms of human development

Why was the HDI created?, Cont…

Certainly not easy to gather the relevant information for each United Nations country!!

Just think of the statistics and logistics that are required to generate HDI for 177 countries!!!

The HDI can signal where problems lie which are important for both country policy makers and international policy makers and agencies – this really indicates the importance of information in the modern day world and indeed the importance of information and how this is processed for resource allocation.

What is the Human Development Index (HDI)?

“The human development index (HDI) is a composite index that measures the average achievements in a country in three basic dimensions of human development: a long and healthy life, as measured by life expectancy at birth; knowledge, as measured by the adult literacy rate and the combined gross enrolment ratio for primary, secondary and tertiary schools; and a decent standard of living, as measured by GDP per capita in purchasing power parity (PPP) US dollars”

(United Nations(2005): Human Development Report 2005, p. 214)

What is the Human Development Index (HDI)? Cont…

• Dual dimension of HD:

1) Formation of human capabilities: improved health, knowledge and skills

2) Using the capabilities for productive work or leisure.

• HDI: concerned with the first only and measures average formation of human capabilities

• Composite index measuring key dimensions of human capabilities– HDI introduced in HDR of 1990, with an HDI for 1987,

and has since become universally known– UNDP’s annual HD report eagerly awaited globally

• Technically the HDI involves calculating a series of indices using primary data gathered from a number of different international agencies (e.g. UN, World Bank, ILO, IMF etc…).

Since the HDI was first published, it has gained wide recognition as a powerful tool for advocating for and monitoring human development.

The HDI is constantly being monitored and trends in HDI performance are re-calculated with better information in order to provide the best picture of human development over time.

The Human Development Indices

• The HDI (Human Development Index) - a summary measure of human development

• The GDI (Gender-related Development Index) - the HDI adjusted for gender inequality

• The GEM (Gender Empowerment Measure) - Measures gender equality in economic and political participation and decision making

• The HPI (Human Poverty Index) - Captures the level of human poverty

• What is ‘Human Development’?

• - process of enlarging people’s choices

• But choices are infinite in number and change overtime; if so, how to measure HD?

• - Identify the most critical choices, measure achievements in enlarging these choices, and aggregate these achievements into an index, which can be used for inter-country comparisons.

• What are the most critical human choices?

• - Long and healthy life

• - Knowledge

• - Decent standard of living

• HDR 1990: Health, Education & Income – Most critical dimensions of Human Development

• How to measure the critical dimensions?– Issues related to data like measurement, collection and quality

should be minimum– Each indicator should be universally valued; conceptual problems

should be minimum in terms of relevance and sensitivity– Values of each indicator should be comparable across countries

• What could be such measures? Longevity: Life Expectancy at birth Knowledge: Adult Literacy rate & Gross Enrolment Ratio in

primary, secondary and tertiary levels Std. of Living: per capita GDP (PPP US$)

• Statistical indicators used in HDI are– life expectancy at birth– adult literacy and gross enrolment in primary,

secondary and tertiary levels– per capita GDP (PPP US$)

• Life expectancy at birth: # of years a new born infant would live subject to the prevailing patterns of age specific mortality rates

• Adult literacy rate: % of people ages 15 & above capable of reading and writing (with understanding) a simple statement.

• Gross enrolment ratio: # of students enrolled in a level of education (irrespective of age) as a % of the population of official school age for that level.

• GDP (PPP US $): GDP converted US dollars at a rate of exchange that takes into account price differences across countries.

• How to aggregate when the measures differ in units & hence are not comparable?

• - Normalization w.r.t bounds:

• Normalized Score = Actual Value – Minimum Value

• Range

• Where Range = (Maximum value – Minimum value)

Goalposts for calculating the HDI

Indicator Minimum value Maximum value

Life expectancy 25 years 85 years

Adult literacy 0% 100%

Gross enrolment 0% 100%

GDP per capita 100 (PPP US$) 40,000 (PPP US$)

Calculating the HDI

Dimensions:

Indicators:

Dimensionindex

A long and

healthy life

Expectancy

Knowledgeable

Literacy &

Enrolment

Education

A decent

standard

of living

per capita

The HDI

PPP per capita income with declining weight for higher incomes

Life expectancy

Education

Primary, secondary and tertiary enrolment

Adult literacy

1/3 1/3 1/3

1/3 2/3

Calculating the HDI

The weights in the HDI

• The three dimensions in the HDI – health, education, standard of living – weighted equally

• Equal weighting is not an accident; reflects a belief that all three are equally important

• Assumption of substitutability – central, but sometimes forgotten

25 years

85 years

Life expectancy

78.1 0.68

Literacy (2/3)

Enrolment (1/3)

100% 1

Education indexIncome index

40,000

0.34780

(log scale)

0.27 + 0.68 + 0.34 3

= 0.433

Calculating the HDI: an example (Zambia)

25 years

85 years

Life expectancy

Literacy (2/3)

Enrolment (1/3)

100% 1

40,000

0.36822

(log scale)

HDIRank=173

0.33 + 0.34 + 0.36 3

= 0.346

Calculating the HDI: Afghanistan 2002

25 years

85 years

Life expectancy

Literacy (2/3)

Enrolment (1/3)

100% 1

40,000

0.34964

(log scale)

HDIRank = 174

0.30 + 0.35 + 0.36 3

= 0.345

Calculating the HDI: Afghanistan 2005

HDI Computation: Nepal 1996Life Expect. ALR # yrs school GDPPC (US $ PPP)

55.0 36.72 2.25 1186

Normalized ScoresLife expectancy= (55-25) / (85-25) = 0.50

Adult literacy rate: (36.72 – 0) / (100 – 0) = 0.367

# yrs. of schooling: = (2.25 - 0) / (15 - 0) = 0.15

Education Index = (2/3) x 0.367 + (1/3) x 0.15 = 0.295

GDP : {log (1186) – log(100)} / {log(10000) – log(100)} = 0.413

HDI = (1/3) (0.50 + 0.295 + 0.413) = 0.403

Calculating the HDI

As for any index, the key thing is how to rank different countries – the HDI uses minimum and maximum values of average age expectancy, of average education level and of average GDP per capita (using purchasing power parity information so takes into account the cost of living in each country relative to a base currency (the $US).

Interpretation

• The simple rule of interpretation of the various HDI measures is the higher the HDI the better the country.

Advantages:

– Tool for advocacy

– Ranking of areas

– Tool for research (if composite measure of development is needed)

– More reliable tool than per capita income measures for capturing improvement in human well-being

– Registers potential impact of over-development

– Politically appropriate – focuses on social sectors, policies and achievements

Break away from the GDP dominance

HDR 2004

Critiques:

– Composite indicators may hide more than reveal

– Fundamental problem of weighting and aggregation

– Sometimes mixing of output and input indicators: not useful as evaluation tool

– No immediate uses for policy design: tailor made tools required

Critiques:

• What about inequality?• Can it capture policy changes?• Ranking countries – unknown uncertainties• Why cap values?• Why have an index at all?

Critiques:

• What about future generations – an environmental degradation component?

• Political freedoms and rights?

• Culture

• Nutritional status

• Uncertainty

• Personal security

Critiques that have been incorporated

• Absolute maximum and minimum values for each indicator

• Supplementing literacy with a second education indicator

• Changing the adjustment of GDP per capita

Political freedom

• Political freedom index (PFI) presented in HDR 1991

• Meant to be incorporated in the HDI

• Caused technical and political controversy

• Ultimately dropped because of the difficulties of measurement

Key data problems

• Literacy

– Conceptually and practically limited

– Definition and collection of literacy varies widely from country to country

– Culturally specific: script systems and other factors vary across the world

Key data problems

• GDP per capita (PPP US$)

– Based on the ICP programme, limited to some 60 countries

– Based on regressions for other countries

– Imperfect measure but certainly better than exchange rate terms

• Life expectancy

– Should measure “long and healthy life” but does not take into account health, just length

Why has the HDI been successful?

• HDI has become one of the best known and most used indicators of development.

• Despite some remaining controversies, broadly accepted and used by media, policymakers and academics

• What factors likely contributed?

Policy relevance, and acceptability

• Underpinned by four aspects:

– Conceptual clarity that facilitates its power as a tool of communication

– Reasonable level of aggregation

– Use of universal criteria and variables

– Use of standardized international data explicitly designed for comparison

Conceptual clarity

• Specification of the HDI derived from a clearly defined concept:

– Dimensions and variables correspond to the concepts of human development

– Meaning of variables intuitively understandable

Reasonable level of aggregation

• HDI focuses on a set of universally -applicable core issues

• Aggregating too many issues tends to compromise analytical usefulness and policy relevance

• Separate indices for e.g. gender empowerment, human poverty

Universal Acceptance

• Universally-relevant concepts and variables

• High degree of consensus that more is better in each of the variables

• In contrast with e.g. election frequency, voter turnout, share of largest party

Universal Acceptance

• Uses data that are legitimized through the international statistical system

– Of course, still data problems but data have been standardized to ensure inter-country comparability

Appropriate uses of the HDI

• Ordinal vs. cardinal – HDI value has a meaning but it is not intuitive and should be used carefully

• Ranking

• Example: reversals in HDI? Arguably meaningful exercise, if weights are accepted

HDI Trend for India

Year of Publication of Global HDR

HDI Value HDI Rank

(Number of countries in parentheses)

0.619 (2005)

0.595(2002)

128 (out of 177 countires)

127 (out of 177 countries)

2003 0.590 (2001) 127 (out of 175 countries)

2002 0.577 (2000) 124 (out of 173 countries)

2001 0.571(1999) 115 (out of 162 countries)

2000 0.563 (1998) 128 (out of 174 countries)

HDI & GEI for India: Departures from UNDP Indices

UNDP-Indicators Attainments NHDR-Indicators

Life Expectancy at Birth (LEB)

Longevity Life expectancy at age 1 & IMR

Adult Literacy Rate combined with enrolment ratio

Educational attainment

Literacy rate 7+ & Intensity of formal Education

Real GDP per capita in PPP $ Economic attainment

Per capita real consumption exp. adjusted for inequality; worker-popln. ratio in case of gender equality index

Human Development Index for India — Combined

States/UTs 1981 Value

1981 Rank

1991 Value

1991 Rank

2001 Value

2001 Rank

Andhra Pradesh 0.298 9 0.377 9 0.416 10

Assam 0.272 10 0.348 10 0.386 14

Bihar 0.237 15 0.308 15 0.367 15

Gujarat 0.360 4 0.431 6 0.479 6

Haryana 0.360 5 0.443 5 0.509 5

Karnataka 0.346 6 0.412 7 0.478 7

Kerala 0.500 1 0.591 1 0.638 1

Madhya Pradesh 0.245 14 0.328 13 0.394 12

Maharashtra 0.363 3 0.452 4 0.523 4

Orissa 0.267 11 0.345 12 0.404 11

Punjab 0.411 2 0.475 2 0.537 2

Rajasthan 0.256 12 0.347 11 0.424 9

Tamil Nadu 0.343 7 0.466 3 0.531 3

Uttar Pradesh 0.255 13 0.314 14 0.388 13

West Bengal 0.305 8 0.404 8 0.472 8

All India 0.302 0.381 0.472

HDI – INDIA & MAJOR STATES 2001

Constant Marginal Utility of Income Assumption: Rs 1 = 1 util at all levels

Scenario I II III

Citizen Income Utility Income Utility Income Utility

A 100 100 200 200 150 150

B 100 100 0 0 50 50

Total 200 200 200 200 200 200

Per capit 100 100 100 100 100 100

Declining Marginal Utility of IncomeAssumption: Rs 1 = 1 util up to Rs 100

Rs 1 = (1/2) util above Rs 100Scenario I II III

Citizen Income Utility Income Utility Income Utility

A 100 100 200 150 150 125

B 100 100 0 0 50 50

Total 200 200 200 150 200 175

Per capit 100 100 100 75 100 87.5

Equivalent Incomes

Scenario I II III

Total 200 200 200

Equivalent Income

200 150 175

Engendering the HDI: GDI and GEM

• Attempt to explore gender dimension of human development

• 1995: Beijing Conference and Global HDR

• Gender Development Index (GDI): simple measure of inequality between men and women on components of the HDI

• Gender Empowerment Measure (GEM): a positive measure of progress by women in the economic, professional and political spheres

State Male Female Persons

Andhra Pradesh 50.35 26.43 38.51

Bihar 50.30 18.47 35.13

Gujarat 69.25 41.62 55.88

Haryana 64.17 31.23 48.92

Karnataka 63.78 37.46 50.94

Kerala 92.65 83.64 88.00

Madhya Pradesh 55.91 22.86 40.02

Maharashtra 74.36 45.33 60.37

Orissa 61.96 29.69 46.10

Punjab 61.29 43.39 52.90

Rajasthan 52.54 16.89 35.53

Tamil Nadu 69.92 43.87 57.02

Uttar Pradesh 53.95 20.99 38.62

West Bengal 67.98 42.98 56.19

INDIA 61.89 34.09 48.54

India: Adult Literacy Rate - 1991 Census

The Gender-related development Index (GDI)

• Same components as the HDI

• After calculating dimension index for each sex – they are combined in a way to penalize gender equality (equally distributed index)

• The GDI is calculated by taking the un-weighted average of the three equally distributed indices

The Gender-related development Index (GDI)

Formula for the equally distributed index:

)]}.(..[

)].(..{[

indexmalesharepopmale

indexfemalesharepopFemale

determines the size of gender equality in a society. In the global HDR it is set at 2.

Goalposts for calculating the GDI

Indicator

Life expectancy

Female 27.5 years 87.5 years

Male 22.5 years 82.5 years

Adult literacy 0% 100%

Gross enrolment 0% 100%

GDP per capita $100(US) $40,000(US)

Minimum

Maximum

GDI-related information: Afghanistan 2005

Indicators(Step 1: Normalized

scores)

Female Male

Share of population 0.483 0.517

Life expectancy at birth 43.0

(43.0 – 27.5)/60 =0.258

(43.1 – 22.5) / 60 = 0.343

Adult literacy rate 12.6

(12.6 – 0.0) / 100 = 0.126

(32.4 – 0.0 ) /100 = 0.324

Gross enrolment 41.8

(41.8 – 0.0 ) / 100 = 0.418

(73.7 – 0.0 ) / 100 = 0.737

Estimated earned income (per capita GDP in PPP$)

478(log(478) – log(100))

/(log(40000 – log(100))= 0.261

1428(log(1428) – log(100))

/(log(40000 – log(100))= 0.444

GDI-computation: Nepal 2000

Step 2: Education attainment index

Female (2/3) x 0.126 + (1/3) x 0.418 = 0.223

Male (2/3) x 0.324 + (1/3) x 0.737 = 0.462

Step 3: Equally distributed indices

Life expectancy index [0.483 x 0.258-1 + 0.517 x 0.343-1 ]-1 = 0.296

Education index [0.483 x 0.223-1 + 0.517 x 0.462-1 ]-1 = 0.305

Income index [0.483 x 0.261-1 + 0.517 x 0.444-1 ]-1 = 0.332

Step 4: GDI = (1/3) x (0. + 0. + 0. ) = 0.310

GDI-related information: Nepal 2000

Indicators(Step 1: Normalized

scores)

Female Male

Life expectancy at birth 59.8

(59.8 – 27.5)/60 =0.538

(59.3 – 22.5) / 60 = 0.613

Adult literacy rate 35.4

(35.4 – 0.0) / 100 = 0.354

(65.8 – 0.0 ) /100 = 0.658

Mean years of schooling 2.2527

(2.2527 – 0.0 ) / 15 = 0.150

4.4522

(4.4522 – 0.0 ) / 15 = 0.297

Estimated earned income (per capita GDP in PPP$)

911(log(911) – log(100))

/(log(40000 – log(100))= 0.369

1565(log(1565) – log(100))

/(log(40000 – log(100))= 0.459

GDI-computation: Nepal 2000

Step 2: Education attainment index

Female (2/3) x 0.354 + (1/3) x 0.150 = 0.286

Male (2/3) x 0.658 + (1/3) x 0.297 = 0.538

Step 3: Equally distributed indices

Life expectancy index [0.502 x 0.538-1 + 0.498 x 0.613-1 ]-1 = 0.573

Education index [0.502 x 0.286-1 + 0.498 x 0.538-1 ]-1 = 0.373

Income index [0.502 x 0.369-1 + 0.498 x 0.459-1 ]-1 = 0.409

Step 4: GDI = (1/3) x (0.573 + 0.373 + 0.409 ) = 0.452

Gender Empowerment Measure (GEM)

• Focusing on women’s opportunities rather than capabilities, in terms of :

– Political participation (% share of parliamentary seats)

– Economic participation (% share as in managerial and technical positions)

– Power over economic resources (estimated earned income, PPP US$)

The Gender Empowerment Measure

Dimensions: Indicators:Political participation and decision making

Share of parliamentary seats

Economic participation and decision making

Share of positions as legislators, senior officials and managers; and profesional and technical workers

Power over economic resources

Share of estimated earned income

• Equally distributed equivalent percentage (EDEP) calculated for each dimension:

={[female popn. share(female index1-)] +

[male popn. share(male index1-)]}1/1-, where = 2.

• The EDEP for political and economic participation indexed by dividing it by 50 assuming equal empowerment of the sexes

• GEM = simple average of the 3 indexed EDEPs

Calculate dimension index and equally distributed equivalent percentage (EDEP) for each dimension (like GDI)

For political and economic decision making divide EDEP by 50 (the ideal share women should have)

N.B. For political and economic decision making EDEP can be calculated directly (as indicators are already %)

Income is not logged in the calculation of the income index.

Again = 2, for moderate penalisation of inequality

GEM: Nepal 2000

Indicators Female Male

Share of participation in local elections (%)

19.3 80.7

Share of participation in professional job (%)

19.51 80.49

Share of participation in admin. Job (%)

10.62 89.5

Estimated earned income (per capita GDP PPP$)

91 1565

GEM Computation: Nepal 2000

Step 1: Compute equally distributed equivalent % (EDEP)

Political participation

Combined share (CS) = [ 0.502 x (19.3) -1 + 0.498 x (80.7)-1]-1 = 31.074

EDEI = 31.074 / 50 = 0.621

Economic participation

CS Eco. Participation= [ 0.502 x (19.51)-1 + 0.498 x (80.49)-1]-1 = 31.331

EDEI = 31.331 / 50 = 0.627

Combined shares of admin jobs

[ 0.502 x (10.65)-1 + 0.498 x (89.5)-1]-1 = 18.972

EDEI = 18.972 / 50 = 0.379

EDEI for economic participation

(0.627 + 0.379) / 2 = 0.503

GEM Computation: Nepal 2000 (contd.)

Step 1: Compute equally distributed equivalent % (EDEP)

Income Normalized score for women’s income = (911-100) / (40000-100) = 0.020

Normalized score for men’s income = (1565-100) / (40000-100) = 0.037

EDEI = [ 0.502 x (0.020)-1 + 0.498 x (0.037)-1]-1 = 0.026

Step 2: EDEI aggregation

GEM ( 0.621 + 0.503 + 0.026) / 3 = 0.384

Afghanistan

• GEM could not be calculated for want of data: Nether NHDR 2004 nor NHDR 2007

Human Poverty Index (HPI)

• Measures the extent of deprivation in HDI’s three dimensions

• HPI –1 is calculated for developing countries

• HPI-2 is calculated for industrialized countries

The deprivational perspective

• HDI and GDI focus on national averages (conglomerate aspect)

– Conglomerate Perspective: Focus on advances made by all groups in the society

• HPI focuses on the worst off (deprivation aspect)

– Deprivation perspective: Focus on the poor and the deprived.

Why separate indices

• Distinguishing between developing and OECD countries recognized the relative nature of poverty

• Allows the use of richer, more appropriate data

• Different deprivations are more relevant in different contexts

IndicatorsDimensions

• A long and healthy life

• Knowledge

• A decent standard of

living

• Probability at birth of not surviving until age 40

• Adult illiteracy rate

• Access to safe water

• Children underweight for age

The Human Poverty Index for developing countries (HPI-1)

The Human Poverty Index (HPI-1)

Where:P1=Probability at birth of not surviving to age 40 (times 100)P2=Adult illiteracy rateP3= Average of people without access to safe water and children underweight

As rises greater weight is given to the dimension in which there is most deprivation. =1 implies simple

average (perfect substitutability), =∞ tests HPI = highest value (no substitutability). In he global HDR =3, giving additional but not overwhelming weight to areas of most acute deprivation

in the HPI formula

• As rises greater weight is given to the dimension in which there is most deprivation.

=1 implies simple average (perfect substitutability),

=∞ HPI = highest value (no substitutability).

• In the global HDR =3, giving additional but not overwhelming weight to areas of most acute deprivation

HPI Computation: Afghanistan 2005

Basic information:

Probability at birth of not surviving to age 40 (%) = 41.9

Adult illiteracy rate (%) = 76.5

Chronic malnutrition among children U5 (%) = 50

Population without access to safe water (%) = 68

Step 1: Deprivation index for std. of living

= (50 + 68) / 2 =59

Step 2: Computation of HPI

HPI { (1/3) (41.93 + 76.53 + 593) }(1/3) = 62.3

HPI Computation: Nepal 2004

Basic information:

Probability at birth of not surviving to age 40 (%) = 17.74

Adult illiteracy rate (%) = 51.4

Chronic malnutrition among children U5 (%) = 50.5

Population without access to safe water (%) = 20.48

Step 1: Deprivation index for std. of living

= (50.5 + 20.48) / 2 =35.49

Step 2: Computation of HPI

HPI { (1/3) (17.743 + 51.43 + 35.493) }(1/3) = 39.6

Indicators

Dimensions

• A long and healthy life

• Knowledge

• A decent standard of

living

• Probability at birth of not surviving until age60

• Functional illiteracy rate

• Relative income poverty

• Long term unemployment

The Human Poverty Index for OECD countries (HPI-2)

The Human Poverty Index (HPI-2)

Where:P1=Probability of not surviving to age 60 (times 100)P2=Functional illiteracy rateP3=Relative income poverty (population below 50% median income)P4 = Long-term unemployment

As rises greater weight is given to the dimension in which there is most deprivation. In the global HDR =3, giving additional but not overwhelming weight to areas of most acute deprivation

/14321 )](4/1[ PPPPHPI

Discrimination through the lens of the HDI

expectancy

Literacy

Income

Thank You

the human development indices

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