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THE HUMAN DEVELOPMENT INDICES

THE HUMAN DEVELOPMENT INDICES. M.H. Suryanarayana IGIDR Mumbai. 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.

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THE HUMAN DEVELOPMENT INDICES

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  1. THE HUMAN DEVELOPMENT INDICES M.H. Suryanarayana IGIDR Mumbai

  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? surya@igidr.ac.in

  3. Human Development Index 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 surya@igidr.ac.in

  4. Human Development Index 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. surya@igidr.ac.in

  5. Human Development Index 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) surya@igidr.ac.in

  6. Human Development Index What is the Human Development Index (HDI)? Cont… • Dual dimension of HD: • Formation of human capabilities: improved health, knowledge and skills • Using the capabilities for productive work or leisure. • HDI: concerned with the first only and measures average formation of human capabilities surya@igidr.ac.in

  7. Human Development Index What is the Human Development Index (HDI)? Cont… • 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…). surya@igidr.ac.in

  8. Human Development Index What is the Human Development Index (HDI)? Cont… 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. surya@igidr.ac.in

  9. 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 surya@igidr.ac.in

  10. Human Development Index • 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. surya@igidr.ac.in

  11. Human Development Index • 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 surya@igidr.ac.in

  12. Human Development Index • 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$) surya@igidr.ac.in

  13. Human Development Index • 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$) surya@igidr.ac.in

  14. Human Development Index • 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. surya@igidr.ac.in

  15. Human Development Index • 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) surya@igidr.ac.in

  16. Goalposts for calculating the HDI surya@igidr.ac.in

  17. Calculating the HDI Dimensions: Indicators: Dimension index A long and healthy life Life Expectancy Life Expectancy Index Being Knowledgeable Literacy & Enrolment Education Index A decent standard of living GDP per capita GDP Index The HDI surya@igidr.ac.in

  18. Calculating the HDI HDI 1/3 1/3 1/3 PPP per capita income with declining weight for higher incomes Life expectancy Education 1/3 2/3 Primary, secondary and tertiary enrolment Adult literacy surya@igidr.ac.in

  19. 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 surya@igidr.ac.in

  20. Calculating the HDI: an example (Zambia) Life expectancy index Education index Income index HDI Literacy (2/3) Enrolment (1/3) 100% 100% 1 85 years 1 40,000 1 1 78.1 0.68 49 0.433 780 0.34 41.4 0.27 0% 0% 0 100 0 25 years 0 0 (log scale) 0.27 + 0.68 + 0.34 =0.433 3 surya@igidr.ac.in

  21. Calculating the HDI: Afghanistan 2002 Life expectancy index Education index Income index HDI Rank=173 Literacy (2/3) Enrolment (1/3) 100% 100% 1 85 years 1 40,000 1 1 44.9 0.346 0.34 822 0.36 44.5 0.33 28.7 0% 0% 0 100 0 25 years 0 0 (log scale) 0.33 + 0.34 + 0.36 =0.346 3 surya@igidr.ac.in

  22. Calculating the HDI: Afghanistan 2005 Life expectancy index Education index Income index HDI Rank = 174 Literacy (2/3) Enrolment (1/3) 100% 100% 1 85 years 1 40,000 1 1 59.3 964 0.345 0.35 0.34 43.1 0.30 23.5 0% 0% 0 100 0 25 years 0 0 (log scale) 0.30 + 0.35 + 0.36 =0.345 3 surya@igidr.ac.in

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  24. 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). surya@igidr.ac.in

  25. Interpretation • The simple rule of interpretation of the various HDI measures is the higher the HDI the better the country. surya@igidr.ac.in

  26. 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 surya@igidr.ac.in

  27. Break away from the GDP dominance surya@igidr.ac.in HDR 2004

  28. 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 surya@igidr.ac.in

  29. Critiques: • What about inequality? • Can it capture policy changes? • Ranking countries – unknown uncertainties • Why cap values? • Why have an index at all? surya@igidr.ac.in

  30. Critiques: • What about future generations – an environmental degradation component? • Political freedoms and rights? • Culture • Nutritional status • Uncertainty • Personal security surya@igidr.ac.in

  31. 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 surya@igidr.ac.in

  32. 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 surya@igidr.ac.in

  33. 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 surya@igidr.ac.in

  34. 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 surya@igidr.ac.in

  35. 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? surya@igidr.ac.in

  36. 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 surya@igidr.ac.in

  37. 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 surya@igidr.ac.in

  38. 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 surya@igidr.ac.in

  39. 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 surya@igidr.ac.in

  40. 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 surya@igidr.ac.in

  41. 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 surya@igidr.ac.in

  42. HDI Trend for India surya@igidr.ac.in

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  47. HDI – INDIA & MAJOR STATES 2001 surya@igidr.ac.in

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