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Home Economic Development Human Development Index (HDI)

 

Human Development Index (HDI):

 

Measurement of Economic Development with Human Development Index (HDI):

 

Definition and Explanation:

 

The latest and most ambitious effort to analyze the comparative situation of socio-economic development in both UDCs and DCs has been undertaken by United Nations Development Program (UNDP) in its annual series of Human Development Reports. These reports were initiated in 1990 and they aim at construction and refinement of a Human Development Index (HDI).

 

Like Physical Quantity of Life Index (PQLI), the HDI attempts to rank all countries on scale of on scale of           0 (lowest HD) to 1 (highest HD) based on 3 goals or end products of development:

 

(i) Longevity is measured by life expectancy at birth, (ii) Knowledge as measured by a weighted average of adult literacy (two-thirds) and mean years of schooling (one-third weight), and (iii) Income as measured by adjusted real per capita income (i.e., adjusted for the differing purchasing power of each country's currency and for the assumption of rapidly diminishing marginal utility of income).

 

Using these three measures of development and applying a formula to 1990 data for 160 countries, the HDI ranks all countries into three groups:

 

Low HD (0.0 to 0.50), medium HD (0.51 to 0.79) and high HD (0.80 to 1).

 

It is told that HDI measures relative, not absolute levels of HD, and its stress is on the 'Ends of Development', like longevity, knowledge and material choice, rather on the 'Means', what has been the case of GNP per capita.

 

Calculations about HDI Index:

 

Since HDI is constructed, there have been brought a lot of changes in its construction, so that its construction could become simple. This is the reason that now-a-days it is constructed with a simple method. As to find the adjusted income, the natural log of current income is taken.

 

Income Index:

 

Then to find the income index, the natural log of 100 is subtracted out of natural log of current income, as it is believed that the minimum per capita income of last generation in a country has been $100 at PPP. The difference of the two incomes yields us the amount equivalent to which income increases the minimum Goal Post. To find it we take the income of $40,000 PPP, as supposed by UNDP. Therefore, we suppose that the current income of any country is $2215 PPP. Accordingly, to find the income index, we subtract the log of 100 from log of 2215 and divide it by the difference of log 40,000 and the log of 100, as:

 

 

Income Index = [log (2215) - log (100)]

                                                                            [log (40000) - log (100)]

 

Income Index = 0.517

 

Thus the income index obtained is 0.517. Accordingly, the value of such like index varies between 0 and 1. In the above example, the value of such index is near to 0.5 which is in between the maximum (1) and the minimum (0) limits. The per capita income of $2215 is about 6% of per capita income of $40,000. It means that such income is reasonably well. Against such country, if the per capita income of any rich country, say Switzerland, increases from $40,000 PPP, the UNDP assumes the maximum value to such income, i.e., $40,000. As a result, this country will attain the highest index of income which is 1.

 

Life Expectancy Index:

 

In order to find the Life Expectancy Index, the UNDP keeps in view the life expectancy period from its birth then 25 years are subtracted from it. Here the age of 25 years is supposed to be the minimum goal post , i.e., the minimum age of last different generations in a country. In the same way, the maximum life span is also supposed for the coming generation. For example, if in a country, the current average expectancy period in the year 1999 is 72.7 years, for the coming generations it is supposed to be 85 years, while it was 25 years for the past generation, then the life expectancy index will be as:

 

Life Expectancy Index = (72.7 - 25)

                                                                                             (85 - 25)

 

Life Expectancy Index = 0.795

 

Education, Adult Literacy Rate, and Gross Enrollment Indexes:

 

The Education Index is constructed in two parts where 2/3 weight-age is given to literacy and 1/3 to school enrolment. The maximum limit of literacy or index may be 100, and the minimum limit is zero. Therefore, if current rate of literacy is 98.3% in a country, the adult literacy index will be as:

 

Adult Literacy Rate = 98.3 - 0

                                                                                            100 - 0

 

Adult Literacy Rate = 0.983

 

If the present enrolment ratio at schools (primary, secondary and higher secondary) is supposed to be 79.9%, while the maximum enrolment index is 100, then the enrolment index will be as:

 

Gross Enrollment Index = 79.9 - 0

                                                                                               100 - 0

 

Gross Enrollment Index = 0.799

 

 In order to find the aggregate index of education, the literacy index is multiplied by 2/3 and the gross enrolment index is multiplied by 1/3 and they both are added up, as:

 

Education Index = 2/3 (0.983) + 1/3 (0.799)

 

Education Index = 0.922

 

Finally, to obtain the aggregate Human Development Index (HDI), all the three components of HDI like income, life and education are given the weights of 1/3 , as:

 

HDI = 1/3 (0.517) + 1/3 (0.795) + 1/3 (0.922)

 

HDI = 0.745

 

Merits of HDI:

 

(i) HDI is superior when we see that a country is economically well when its other indices are better despite its low per capita income. Again, it may also happen that the per capita income of a country is higher, say Kuwait, but its other indices are not good, the country will not be better economically.

 

(ii) The HDI index shows that the other indices reduce the explicit difference between the incomes. Moreover, this method shows that economic development which means a wider human development cannot be attained just through higher incomes, as, so many oil producing countries have attained economic growth, but not economic development. The health and education are not just the inputs of any production function, but they are also the end results of economic development. Accordingly, if a country has a higher per capita income, but a lower level of health while in an other country the per capita income is lower, whereas the life expectancy period is higher along with higher education, the latter country will be a developed country.

 

Criticism/Demerits:

 

Despite these merits of HDI measures, following criticism is levied against this measure:

 

(i) In so many cases of gross enrolment ratio at schools may enhance the ratio of schools in a country. However, it has also been observed that in case of so many developing countries that there is a big proportion of Drop-outs till at the primary level. Moreover, just keeping in view the enrolment ratio the quality of education will have to be kept in view.

 

(ii) The three indicators which have been included in HDI are good, but not the ideal ones. Moreover, it is not proper to assign the same weightage (i.e.., 1/3) to all these indicators, as priorities differ between societies. The dependence of weightage to the three indicators will depend upon social and ethical values of the societies.

 

(iii) The HDI measure does not consider the income inequalities in a country.

 

(iv) The HDI measure considers the absolute economic development. As, if the HDI of all the developing countries increases in the same proportion, there will be no relative development in the developing countries, whereas they have had some absolute development.

 

Despite these demerits, this measure has attracted a lot of attention on the part of economic experts, as it includes the GNP measure with the measure of social indicators.

 

Now we present the HDI of 22 countries of the world in 1999, according to UNDP Human Development Report, 2001.

 

Table/Schedule:

 

Human Development Index for Twenty Selected Countries, in 1999:

 

Country Relative Ranking (Lowest to Highest) Human Development Index (HDI) Real GDP Per Capita (PPPs) GDP Rank Minus HDI Rank
Low Human Development:
Sierra Leone 162 0.258 448 0
Ethiopia 0.321 628 0 --
Malawi 151 0.397 586 8
Guinea 150 0.397 1934 -32
Angola 146 0.422 3179 -44
Tanzania 140 0.436 501 21
Bangladesh 132 0.470 1483 -4
Medium Human Development:
India 115 0.571 2248 0
Nicaragua 106 0.634 42279 7
China 87 0.718 3617 7
South Africa 94 0.702 8908 -49
Peru 73 0.743 4622 8
Oman 71 0.747 13356 -33
Turkey 82 0.735 6380 -21
Malaysia 56 0.774 8209 -4
Thailand 66 0.757 6132 -3
High Human Development:
Kuwait 43 0.818 17.289 -14
Costa Rica 41 0.821 8.860 6
United Kingdom 14 0.923 22.093 5
United States 6 0.934 31.872 -4
Canada 3 0.936 26.251 3
Norway 1 0.939 28.433 2

 

The table shows the 1999 HDI for a sample of 22 DCs and UDCs ranked from low to high human development (column 2) along with their respective real GDP per capita (column 4) and the measure of differential between the GDP per capita rank and the HDI rank (column 5). A positive number shows by how much a country's relative ranking rises when HDI is used instead of GDP per capita, and a negative number shows the opposite. The country with the lowest HDI (0.258) in 1999 was Sierra Leone and the one with the highest (0.939) was Norway.

 

Again, it is also obvious from the above table that the countries having higher HDI also have a higher real per capita GDP. We also find that Tanzania's HDI is two times higher than Sierra Leone, while Sierra Leone's real per capita GDP equal to that of Tanzania's. While Brazil, with 10% higher per GDP than Cost Rica has a 13% lower HDI. Again, US which has a higher income, but a lower HDI than Canada. China's per capita real GDP is 60 times lower than that of South Africa, but a higher HDI than.

 

According to HDR (2007-08), Pakistan had an 0.551 HDI, while of India it was 0.619 of Bangladesh it was 0.547. A higher HDI shows more human development and less poverty.

Relevant Articles:

Why Economic Development

Lorenz Curve and GINI-Coefficient

Economic Development Vs Economic Growth
Different Definitions of Economic Development
Measurement of Economic Development By Traditional Approach
Approaches to Economic Development/Measurement of Economic Development in Terms of Quality of Life
Physical Quantity of Life Index (PQLI)
Growth of GNP Versus Basic Needs Approach
Human Development Index (HDI)
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Measurement of Humane Governance/Good Governance
Measurement of Economic Development with Combining GDP and Life Expectancy
Growth Versus Distribution
Re-Distribution with Growth (RWG)
International Inequalities
New/Modern Economic View of Development
Human Poverty Index (HPI) as a Measure of Economic Growth
 

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