The Human Development Indices Oxford, Sep 14 2004 Claes Johansson United Nations Development Programme Human Development Report Office

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

The dimensions and indicators of the HDI HDI has three dimensions, measured by one or two indicators each: Leading a long and healthy life Life expectancy at birth Education Adult literacy rate Gross primary, secondary and tertiary enrolment A decent standard of living GDP per capita (PPP US$)

What dimensions to include The concept of human development has many dimensions Health, education and standard of living are dimensions that are basic and can be measured Proposed additions either are hard to measure or overlap with existing dimensions - Examples: political freedom, environment, child mortality HD can never be captured in single indicator!

Combining indicators for the HDI In order to create the HDI, ‘goalposts’ are chosen for each indicator Using goalposts rather than observed minima and maxima allows comparisons over time Set with the timeframe 1960-2050 Also set to allow for disaggregation – some subgroups can have lower values than observed in country data

Goalposts for calculating the HDI Indicator Minimum value Maximum value Life expectancy 25 years 85 years Adult literacy 0% 100% Gross enrolment GDP per capita 100 (PPP US$) 40,000 (PPP US$)

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

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% 100 25 years (log scale) 0.27 + 0.68 + 0.34 = 0.433 3

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 Changing the weighting, even drastically, maintain

Changing weights – what would happen? How sensitive is the HDI to changing weights? Not very: for the full set of countries, the components are highly correlated Does not implicate redundancy: in sub-groups, large differences in how income is translated into other dimensions Life expectancy Education GDP - 0.74 0.78 0.75

Average absolute rank change with changing weights

Correlation with the HDI with increasing weights by subcomponent

Why include GDP per capita? GDP per capita included as a proxy for a decent standard of living Reflects a number of issues not explicitly included: the expanding choices available in many areas with increasing income Logarithm of GDP is used – reflects diminishing return in expanding choices

Are these all the dimensions of HD? Critiques of the HDI Critiques Are these all the dimensions of HD? Are these indicators good measures of the dimensions? What about inequality? Can it capture policy changes? Ranking countries – unknown uncertainties Why cap values? Why have an index at all?

Critiques, cont. ‘Missing’ components What about future generations – an environmental degradation component? Political freedoms and rights? Culture Nutritional status Uncertainty Personal security

Critiques incorporated in the HDI 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

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

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 UNESCO Institute of Statistics LAMP programme

GDP per capita (PPP US$) Key data problems, cont. GDP per capita (PPP US$) 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

Staying power of the HDI 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? When the HDI was first launched in 1990, it was something of a ‘trial balloon’. Convinced by the need for such an index, the authors were nonetheless fully conscious that it could be rejected and further publication stopped in the face of either methodological or political objections. Over the last decade, the HDI has in fact weathered the storms of controversy reasonably well and has become well established and accepted. While controversies remain, there are few voices that would argue for abandoning it. And in fact, of the multiple efforts to develop composite indices of national progress that focus on non-economic dimensions, the HDI is not only one of the most well known and used, but the only one that is published by an inter-governmental organisation. While it has received the attention and therefore the scrutiny of the world, it has survived.

Staying power of the HDI 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 In our view, the HDI owes its survival not only to a sound methodology, but also to two other factors: policy relevance and acceptability. First, policy makers have indeed found it useful and therefore they have wanted to see it continue. Second, they have also accepted it, even if they have not always liked the results. In fact, those who have theoretical objections to composite indices often accept the HDI on the grounds that it has had a positive policy impact and is being used. (see for example Handoussa in Journal of Human Development). Four aspects of the HDI have been critical to ensuring policy relevance and acceptability: conceptual clarity that facilitates its power as a tool of communication; a reasonable level of aggregation; use of universal criteria amenable to inter-country comparisons; use of standardized international data which have been legitimized through official processes.

Specification of the HDI derived from a clearly defined concept: 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 Conceptual clarity for the user: avoid the black box approach In developing composite indices, the first step is to define what is to be measured in terms that can be understood easily by the average user. The specification of the HDI was derived from a clearly defined concept, not the other way round. This logic may seem obvious but it is often not the case when efforts to develop indices of governance, corruption or environmental sustainability are made without the foundation of a clear conceptual framework. The strength of the HDI as a tool of communication also lies in its clarity to the average reader who can easily identify with the notion that the three components of the HDI – being knowledgeable, leading a long and healthy life and having a decent standard of living – do represent fundamental goals of human well-being. Thus it is easy for policy makers around the world to quickly and intuitively grasp the idea that HDI is measuring aspects of well-being not captured in GDP but that are important goals for any society. A low score in the HDI is indeed a cause of concern and a high score would be a source of pride and few would dispute that concern or pride. In contrast, many other composite indices are ‘black boxes’ with complex conceptual frameworks and methodologies. To compound the ‘black box’ effect, there is a lack of transparency in the publication of tables without full technical explanation of how the index is calculated or what the data sources are. [1] [1] The Davos environmental sustainability index is an example in which the method of calculation and the data sources used are not fully published along with the tables.

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

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 Use of universally-relevant criteria that permit inter-country comparison The HDI is based on dimensions that are clearly comparable across countries, with indicators that are universally relevant. Composite indices that rank countries are necessarily judgmental: they are evaluative, not just descriptive, measures in which more is definitely better than less. There is a high degree of consensus across the world on the indicators being used as important development objectives, namely health, education and incomes. Contrast this to more context specific indicators - such as area under woodland, often used in environmental sustainability measures, or frequency of elections, often used in governance measures – for which more is not necessarily better.

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 Use of legitimized data Data availability is a problem that affects all measurement challenges in all sectors. In fact, many countries lack data on key social or economic issues such as employment on which only xx countries have data in the ILO statistics. Much of what we would want to monitor quantitatively has not been measured. A good number of issues of concern[1] such as political freedom have not been measured at all. Data used in the HDI are limited to international statistical series that have been published by inter-governmental organizations and originate in official national statistics. Almost all countries have data on literacy, school enrolment, life expectancy and per capita income. There are still data problems: Purchasing power parity estimates could be based on more recent and comprehensive surveys and for measuring knowledge net enrolment or mean years of schooling would be preferable. As with all statistical series, the cross-country quality does vary. But the HDI is able to use data that have near universal coverage, and have also been through a review process – i.e. data that have been produced and published after a legitimization process, including an assessment of their inter-country comparability. Often, attempts at developing composite indices do not use such legitimized dataand many use estimates to fill gaps in data coverage. Not only does this lead to indices that use unreliable data of poor quality, but also to data that have no credibility or legitimacy. Most indices of governance – such as corruption and political freedom – have particular problems of legitimacy because they use indicators of subjective perceptions. However accurate the data used and however sound the methodology, an index can not be considered legitimate when the underlying data have not themselves been through the legitimization process. [1] A notable example is the index of health systems published by the WHO in 2000. This index used data that were not officially published, were often estimated, and included indicators that were qualitative assessments.

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

The Human Poverty Indices (HPI-1 and HPI-2) Other indices The Human Poverty Indices (HPI-1 and HPI-2) Whereas HDI measures average achievement, the HPI measures deprivations Separate indices for developing countries (HPI-1) and high-income OECD countries (HPI-2)

The deprivational perspective Other indices The deprivational perspective HDI and GDI focus on national averages (conglomerative aspect) HPI focuses on the worst off (deprivational aspect)

Other indices Why separate indices Distinguishing between developing and OECD countries recognized the relative nature of poverty Allows the use of richer, more appropriate data Different deprivations are more relevant in different contexts

The Human Poverty Index for developing countries (HPI-1) Other indices The Human Poverty Index for developing countries (HPI-1) Dimensions: Indicators: A long and healthy life Probability at birth of not surviving until age 40 Knowledge Adult illiteracy rate A decent standard Access to safe water and children underweight for age

The Human Poverty Index (HPI-1) Other indices The Human Poverty Index (HPI-1) Where: P1=Probability of not surviving to age 40 (times 100) P2=Adult illiteracy rate P3= Average of people without access to safe water and children underweight For decent standard of living unweighted average is used All are already percentages – or can easily be made percentages. As  rises greater weight is given to the dimension in which there is most deprivation. =1 implies simple average (perfect substitutability), =∞ tsets HPI = highest value (no substitutability). In he global HDR =3, giving additional but not overwhelming weight to areas of most acute deprivation

 in the HPI formula As  rises greater weight is given to the dimension in which there is most deprivation. =1 implies simple average (perfect substitutability), =∞ HPI = highest value (no substitutability). In the global HDR =3, giving additional but not overwhelming weight to areas of most acute deprivation

The Human Poverty Index for OECD countries (HPI-2) Other indices The Human Poverty Index for OECD countries (HPI-2) Dimensions: Indicators: A long and healthy life Probability at birth of not surviving until age 60 Knowledge Functional illiteracy rate A decent standard Social exclusion Relative income poverty Long-term unemployment

The Human Poverty Index (HPI-2) Other indices The Human Poverty Index (HPI-2) Where: P1=Probability of not surviving to age 60 (times 100) P2=Functional illiteracy rate P3=Relative income poverty (population below 50% median income) P4 = Long-term unemployment For decent standard of living unweighted average is used All are already percentages – or can easily be made percentages. As  rises greater weight is given to the dimension in which there is most deprivation. In the global HDR =3, giving additional but not overwhelming weight to areas of most acute deprivation

The Gender-related development Index (GDI) Other indices The Gender-related development Index (GDI) Same components as the HDI After calculating dimension index for each sex – they are combined in a way to penalize gender equality (equally distributed index) The GDI is calculated by taking the unweighted average of the three equally distributed indices

The Gender-related development Index (GDI) Other indices The Gender-related development Index (GDI) Formula for the equally distributed index: Population shares just to take the weighted average – about levels not about inequality penalisation. determines the size of gender equality in a society. In the global HDR it is set at 2.

Goalposts for calculating the GDI Other indices Goalposts for calculating the GDI Maximum Value Minimum value Indicator Life expectancy Female 27.5 years 87.5 years Male 22.5 years 82.5 years Adult literacy 100% 0% Gross enrolment 100% 0% GDP per capita $40,000(US) $100(US)

The Gender Empowerment Measure Other indices The Gender Empowerment Measure While GDI shows women’s capabilities – GEM shows womens opportunities in economic and political life

The Gender Empowerment Measure Other indices The Gender Empowerment Measure Calculate dimension index and equally distributed equivalent percentage (EDEP) for each dimension (like GDI) For political and economic decision making divide EDEP by 50 (the ideal share women should have) N.B. For political and economic decision making EDEP can be calculated directly (as indicators are already %) NB. Only have to do the dimension index for income as the others are already scaled.

The Gender Empowerment Measure Other indices The Gender Empowerment Measure Income is not logged in the calculation of the income index. Again = 2, for moderate penalisation of inequality Why is income not scaled: In GDI it represents contribution to basic human development – here it represents economic power – which does not follow a logarithmic course.

Discrimination through the lens of the HDI Life expectancy Literacy Income