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Measures for Evolving Reality:NEW HUMAN DEVELOPMENT INDEX

Milorad KovacevicHuman Development Report Office, UNDP

Workshop on HD Approach and Measurement for the GCC States, Doha, 9-11 May, 2011

Measures for Evolving Reality:NEW HUMAN DEVELOPMENT INDEX

Doha, Qatar, 9-11 May

Workshop on HD Approach and Measurement for the GCC States, Doha, 9-11 May, 2011

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Human development and its measurement

Several important steps

Conceptual:How to define human development?

Operational:How to observe and measure its components and determinants? How to aggregate the different indicators to obtain a commonly acceptable single index of human development in order to measure its changes?

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Human development and its measurement

A standard definition of human development as

“a process of enlarging people’s choices. The most critical ones are to lead a long and healthy life, to be educated and to enjoy a decent standard of living.”

A broader definition (2010 HDR):“Human development is the expansion of people’s freedoms to live long, healthy and creative lives; to advance other goals they have reason to value; and to engage actively in shaping development equitably and sustainably on a shared planet”

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PrinciplesAt the onset there were six basic principles (Ul Haq, 1998)

The HDI should1. Measure the basic concept of human development to 

enlarge people’s choices;  

2. include a limited number of variables to keep it simple and manageable;

 

3. be  a composite rather than a plethora of separate indices;  

4. cover  both social and economic choices;  

5. be sufficiently flexible in both coverage and methodology; 

6. not be inhibited by lack of reliable and up-to-date data series.

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Human development and its measurement

INDICATORS

AGGREGATION

HDI

Theo

ries,

Con

cept

sM

easurements, m

ethods, quality

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Definition of HDI

The Human Development Index (HDI) is a summary composite index that measures a country's average achievements in three basic aspects of human development: health, knowledge, and income. 

The HDI was recognized from the onset as simple and crude

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20th anniversary of measuring the human development

• Measuring is as relevant as ever

• Quantifying and describing our changing world 

• Finding ways of improving people’s well-being

• Human development is an evolving idea

• As the world changes – analytical tools change

HDI Indicator Criteria

Inherent and statistical criteriao Conceptual relevanceo Value-addedo Capturing a “quality” aspecto A possibility of having a distribution over households or 

individuals

Practical and data relatedo “Reasonable” country coverage (preferably >170) o Past time-series preferred o Future “regular” updates requiredo Power of discrimination (especially at top and bottom of HDI)

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Potential HDI Indicators

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LONG AND HEALTHY LIFE ACCESS TO KNOWLEDGE

• Health-Adjusted Life Expectancy (HALE)•   Malnourishment of         Children under 5         Total population•    Survival rate to age 5•    Life expectancy at birth (LE)•    Life expectancy at age 10 or 15

• Mean years of schooling of adults • Educational attainment (of adults) (secondary and higher)

•   School life expectancy (of children)•   Gross enrolment ratio (secondary &      tertiary)•    (Gross) Primary completion rate

STANDARD OF LIVING ($PPP)

•  GDP per capita•  GNI per capita•  Household consumption per capita•  Total consumption:    (household + Government) per capita 

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• Adult literacy: - not sufficient for 21st century- does not discriminate between developed countries

• Mean years of schooling for adults (the highest grade attained) is a better measure of human capital

• Expected years of schooling for a child of the school entrance age is another way of expressing the GER.

• GDP is the monetary value of goods and services produced in a country irrespective of how much is retained in the country

• GNI expresses the income accrued to residents of a country, including some international flows and excluding income generated in the country but repatriated abroad. 

• Gross national income better reflects income available to people within a country 

 

Change of indicators

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Scaling (Normalization)

 • Necessary for comparability on the same scale.• Only after rescaling they can be combined into a single scalar 

– a composite index.  • Enable each dimension index to range between 0 and 1

, , 

Dimensional indices

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Minima/Maxima (goalposts): Observed maxima and natural minima since 1980

 

Dimensional indices

Indicator Observed maximum MinimumLife expectancy 83.2 

(Japan, 2010)20.0 

Mean years of schooling 13.2(United States, 2000)

0 

Expected years of schooling 20.6(Australia, 2002)

0 

Combined education index 0.951 (New Zealand, 2010)

0

Per capita income (PPP US$) 108,211 (United Arab Emirates, 1980)

163(Zimbabwe, 2008)

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Functional form: Aggregation 

Old HDI: arithmetic mean

• Perfect substitutability:– a low achievement in one dimension is not anymore linearly compensated for by high achievement in another dimension. 

Ex. (0.5, 0.6, 0.7)HDI=0.6, (0.4, 0.6, 0.8) HDI=0.6• Changing of minima and maxima impacts the rankings by 

HDI

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Functional form: Aggregation 

New HDI: geometric mean

• No perfect substitutability reduced substitutability.• Ex. (0.5, 0.6, 0.7)HDI=0.594, (0.4, 0.6, 0.8) HDI=0.577

• Awards round performance

• Changing of maxima does not impact ranking by HDI

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Other similarities and differences • Equal weighting (normative)• Logarithmic transformation of income – diminishing return principal

• No capping of income by $40,000• Equal weighing of educational subindices

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0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1

HD

I 201

0, n

ew a

ggre

gatio

n

HDI 2010, old aggregation

LOW HD MEDIUM HD HIGH HD VERY HIGH HD

LOW HD

MED

IUM HD

HIGH HD

VERY HIGH HD

Estonia

Comparison of HDI - new vs. old form

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Other related changes and properties • Grouping of countries to four quartile groups:

Very High HD, High HD, Medium HD, Low HD• Relative boundaries, relative ranking• HDI values are not comparable across additions of HDR due to data revisions and possible changes in maxima– Each HDR has a table with calculated HDI

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Summary of added values • Uses more discriminating indicators• Rewards balanced performance: countries cannot fully compensate for poor performance in one dimension by another

• Normalization based on actual values• When maxima change the ranks of countries are preserved due to the multiplicative form of the new HDI.

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Human Development Index

HDI Category:

NALOWMEDIUMHIGHVERY HIGH

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Very few critiques Ravallion (2011) argues “Implicit Tradeoffs in the HDI seem unreasonable”

“An extra year of life expectancy much more valuable in monetary terms for rich versus poor countries”

• Implicit tradeoffs are embedded in the HDI by the implicit weights and the aggregation formula.

• Tradeoffs refer to – the amount that must be given up of a component in order to achieve an 

extra unit of another component holding the same level of overall HDI.

• In economics, that’s called the Marginal Rate of Substitution.

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Very few critiques A simple reply is• The HDI is not a welfare function to be maximised. It does not encompasses all the development aims. It should be seen merely as index of capabilities. 

• The HDI is an ordinal measure for relative ranking among countries

What does the HDI tell us?

• People and their capabilities should be the ultimate criteria for assessing the development of a country, not economic growth alone.

 • It can also be used to question national policy choices, asking how two countries with the same level of GNI per capita can end up with such different human development outcomes. 

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What does the HDI tell us?

• Example: • Saudi Arabia has GNI per capita more than $2000 higher 

than Czech Republic, but life expectancy and expected years of schooling differ greatly between the two countries.  Czech Republic is much higher ranked than Saudi Arabia. 

• These striking contrasts can directly stimulate debate about government policy priorities.

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Implications for the future• The main problem at the global level:

–  the lack of appropriate data and insufficient data quality of international databases, persists over time. 

• Nonetheless, over the last 20 years there was a considerable improvement in all aspects of  relevant measuring of socio-economic and environmental phenomena.

• Still, a long way to go! • Continuous investment in data and their efficient

use are needed.

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Thank you

milorad.kovacevic@undp.org