Two composite measures: the HDI and the Gender Inequality Index

Overview

Composite measure of development, human Development Index and who publishes it and how the HDI is calculated.

What you need to know

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Questions from this subtopic

Each one with the model answer underneath.

1. 1

   What is a composite measure of development, and why were composite measures developed?

   Model answer

   A composite measure combines several separate indicators, usually drawn from different dimensions of development, into a single index value. They were developed because single measures are one-dimensional: income says nothing about health, and literacy says nothing about income. Combining them produces a broader picture, a single number for ranking and mapping, and a way of showing that income and welfare do not always move together. The cost is that combining requires arbitrary decisions about which indicators to include and how to weight them, and that the resulting number hides its own components.

2. 2

   What is the Human Development Index and who publishes it?

   Model answer

   The Human Development Index is a composite measure published annually by the United Nations Development Programme, first appearing in its Human Development Report in 1990. It was designed to shift attention away from income alone towards people's capabilities, on the argument that development means widening the choices open to people. It produces a value between 0 and 1 for each country, and the UNDP groups countries into low, medium, high and very high human development bands.

3. 3

   Which three dimensions does the HDI combine, and which indicators represent each?

   Model answer

   A long and healthy life, measured by life expectancy at birth. Knowledge, measured by two indicators: mean years of schooling of adults aged 25 and over, and expected years of schooling for a child of school-entering age. A decent standard of living, measured by GNI per capita at purchasing power parity. So it uses four indicators grouped into three dimensions.

4. 4

   Outline how the HDI is calculated.

   Model answer

   Each indicator is first converted to an index between 0 and 1 using fixed minimum and maximum 'goalposts': for example life expectancy is scaled between 20 and 85 years, mean years of schooling between 0 and 15, expected years of schooling between 0 and 18, and GNI per capita at PPP between about $100 and $75,000. The two schooling indices are averaged to give a single education index. Income is entered as its logarithm before scaling. The three dimension indices are then combined as a geometric mean, that is the cube root of the three multiplied together, giving a final value between 0 and 1.

5. 5

   Why is income entered into the HDI as a logarithm rather than directly?

   Model answer

   Because the contribution of extra income to human development diminishes as a country gets richer. An extra $500 per head transforms life in a country with a GNI per capita of $1,000, funding food, clean water and schooling; the same $500 added to $50,000 changes very little. Taking logarithms compresses the top of the income scale so that this diminishing return is reflected, and it stops a handful of very high income countries from dominating the index.

6. 6

   Why does it matter that the HDI uses a geometric mean rather than a simple average of its three dimensions?

   Model answer

   Because a geometric mean does not let strong performance in one dimension fully compensate for weak performance in another, whereas an arithmetic average does. Multiplying the three indices together means a very low score in any one of them drags the whole result down, so a country that is rich but poorly schooled scores worse than a balanced country with the same arithmetic average. This was a deliberate change made in 2010 to reflect the view that the three dimensions are not substitutes for each other: money cannot buy back a short life expectancy. It is therefore wrong to say the HDI simply averages its dimensions.

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