Human Development Index

The logic behind development of Human Development Index (HDI) was to do away with the inherent weakness of use of GDP as measure of development. HDI is a part of the Human Development Report, which is an editorially independent annual publication of UNDP. The report was first launched in 1990 by the Pakistani Economist Mahbub ul Haq and Indian Nobel laureate Amartya Sen. Its goal was to place people at the centre of the development process in terms of economic debate, policy and advocacy. “People are the real wealth of a nation,” was the opening line of the first report in 1990. This report ranks the countries on the basis of the Human Development Index.

About Human Development Index

Human Development Index (HDI) is a summary measure of human development. It measures the average achievements in a country in three basic dimensions of human development:

  • A long and healthy life
  • Access to knowledge
  • A decent standard of living.

The HDI is the geometric mean of normalized indices measuring achievements in each dimension, viz. Life Expectancy Index, Education Index, GNI Index. They are shown in the following graphics:

There are two steps to calculating the HDI.

  • Step 1. Creating the dimension indices
  • Step 2. Aggregating the sub-indices to produce the Human Development Index

In the first step, the Minimum and maximum values (goalposts) are set in order to transform the indicators into indices between 0 and 1. The minimum value for life expectancy is 20 years while maximum value is 85 years. It is based on the premise that in 20th century, no country had a minimum life expectancy below 20 years. Similarly, in education, minimum value is 0, while maximum value is 18 years of schooling with 15 mean years of schooling. GNI is 100 dollars at minimum while 75000 at maximum. Maximum value of GNI at 75000 dollars per year is based upon a study by Kahneman and Deaton (2010) that there is a virtually no gain in human development and well-being from annual income beyond $75,000.

Having defined the above values, the sub-indices are calculated as follows:

After that, the HDI is calculated as geometric mean of the three dimension indices. The following example, sourced from the HDR-2014 shows calculation of the same for Costa Rica:

Inequality-adjusted HDI (IHDI)

The Inequality-adjusted Human Development Index (IHDI) adjusts the Human Development Index (HDI) for inequality in distribution of each dimension across the population.  The IHDI accounts for inequalities in HDI dimensions by “discounting” each dimension’s average value according to its level of inequality.

If there is no inequality across people, HDI is equal to IHDI. However, in case of inequalities, the value of IHDI is always less than HDI. This implies that the IHDI is the actual level of human development (accounting for this inequality), while the HDI can be viewed as an index of “potential” human development (or the maximum level of HDI) that could be achieved if there was no inequality.

The “loss” in potential human development due to inequality is given by the difference between the HDI and the IHDI and can be expressed as a percentage.

Gender related Development Index (GDI)

The Gender related Development Index (GDI) measures gender inequalities in achievement in three basic dimensions of human development as follows:

  • Health, which is measured by female and male life expectancy at birth
  • Education, which is measured by female and male expected years of schooling for children and female and male mean years of schooling for adults ages 25 and older
  • Command over economic resources, measured by female and male estimated earned income

The index shows the loss in human development due to inequality between female and male achievements in these dimensions. It ranges from 0, which indicates that women and men fare equally, to 1, which indicates that women fare as poorly in comparison to their male counterparts as possible in all measured dimensions.

In order to address shortcomings of the GDI, a new index Gender Inequality Index (GII) was proposed. This index measures three dimensions viz. Reproductive Health, Empowerment, and Labor Market Participation.

Multidimensional Poverty Index (MPI)

The Multidimensional Poverty Index (MPI) identifies multiple deprivations at the individual level in health, education and standard of living. It uses micro data from household surveys, as basis of deprivation of Cooking fuel, Toilet, Water, Electricity, Floor, Assets.  Each person in a given household is classified as poor or non-poor depending on the number of deprivations his or her household experiences. These data are then aggregated into the national measure of poverty. The indicator thresholds for households to be considered deprived are as follows:

  • School attainment: no household member has completed at least six years of schooling.
  • School attendance: a school-age child (up to grade 8) is not attending school.
  • Nutrition: a household member (for whom there is nutrition information) is malnourished, as measured by the body mass index for adults (women ages 15–49 in most of the surveys) and by the height-for-age z score calculated using World Health Organization standards for children under age 5.
  • Child mortality: a child has died in the household within the five years prior to the survey.
Standard of living
  • Electricity: not having access to electricity.
  • Drinking water: not having access to clean drinking water or if the source of clean drinking water is located more than 30 minutes away by walking.
  • Sanitation: not having access to improved sanitation or if improved, it is shared.
  • Cooking fuel: using ‘dirty’ cooking fuel (dung, wood or charcoal).
  • Having a home with a dirt, sand or dung floor.
  • Assets: not having at least one asset related to access to information (radio, TV, telephone) and not having at least one asset related to mobility (bike, motorbike, car, truck, animal cart, motorboat) or at least one asset related to livelihood (refrigerator, arable land, livestock).

Computation of the Multi-Dimensional Poverty Index (MDPI) reveals that, despite recent progress in poverty reduction, more than 2.2 billion people are either near or living in multidimensional poverty.