Measures of Development

The Human Development Index (HDI)

__Development __is a broader measure of well-being than income and economic growth. It includes the wider social and economic factors that contribute to human happiness and fulfillment.

Introduced in 1990 as part of the United Nations Development Programme, the HDI measures economic development. The UNDP publishes an annual Development Report which monitors the changes in each country’s level of development.

The HDI calculates an index for each country, with scores ranging from 0 to 1. The closer to 1, the higher is the level of development. There are three components of the index and they are equally weighted:

Health - measured by life expectancy at birth

Education - measured by adult literacy and number of years children can expect to be in school

Income - measured by Gross National Income (GNI) per capita at purchasing power parity.

Classification of countries by HDI:

An index of 0 – 0.49 low development – eg Niger was 0.354 in 2017

An index of 0.5 – 0.69 means medium development – eg India was 0.64 in 2017

An index of 0.7 to 0.79 means high development – eg Romania was 0.752 in 2017

An index of above 0.8 means very high development – eg the U.K. was 0.922 in 2017.

Evaluation of the HDI

The HDI is fairly simple to calculate and understand, and gives a much broader measure of well-being than income, but it has a number of limitations:

The HDI index is for a whole country, and as such does not distinguish between different rates of development within a country. For instance in India and China, urban areas have much higher levels of development than in rural areas.

The equal weighting between the three main components is arbitrary and rests on a value judgement about the relative importance of health, education and income.

Its economic component only looks at income, but wealth is also important. Also it does not look at how income is distributed; a country where income is very unequal means that the per capita figure is misleading as a guide to the typical level of income. It might be better to use the median and modal values too.

The index ignores important social and political issues that contribute to well-being and human progress, such as; respect for human rights; freedom of the press; uncensored access to the internet; levels of crime and corruption, respect for women and minority groups

It also fails to look at whether development is sustainable. For instance, in China, economic growth and rising living standards has been accompanied by serious problems of environmental degradation that is not captured in the HDI.

Other Indicators of Development

The inequality-adjusted HDI (the IHDI)

This measure addresses the problem that the HDI does not take into account how equally access to good health, education and income are shared. Inequality reduces the potential for human development. Each of the three elements of the HDI are adjusted for inequality using the Atkinson Index, which is similar to the Gini coefficient. The overall value of the IHDI is also between 0 and 1, but a country with greater inequality will have a lower IHDI compared to a country with a similar HDI, but which has greater equality.

The Multidimensional Poverty Index (MPI)

This measure looks at the % of the population that suffers a number of different kinds of poverty and deprivation. It applies only to developing countries, so it is not as universal a measure of development as the HDI or IHDI. It also looks at health, education and income, but takes into account more factors. It looks at infant mortality as well as life expectancy when measuring health. It takes into account access to electricity, clean water, housing quality and ownership of consumer durables such as cookers and fridges when measuring living standards. When measuring education it looks at school attendance, not just years of enrollment.

The Genuine Progress Indicator (GPI)

This is a much wider and more comprehensive measure of development. Unlike the HDI/IHDI and MPI it does take into account environmental factors, such as the costs on health of pollution and the depletion of non-renewable resources. It does therefore attempt to measure whether economic growth and development is sustainable. The key question is whether or not the production of goods and services today will reduce the ability to produce them in the future; if so, the development is not sustainable. Many highly developed countries are ranked lower under the GPI compared to the others, because it makes a negative adjustment for environmental degradation.

Explain why some economists regard the Human Development Index as an incomplete measure.

Your answer should include: sustainability / inequality / weighting / urban areas / rural areas / human rights / Inequality-adjusted Human Development Index / IHDI / Multidimensional Poverty Index / MPI / Genuine Progress Indicator / GPI