Unit 2 Macro: Human Development Index (HDI)

The Human Development Index (HDI) forms part of the annual human development report and is a composite measure of economic and social welfare that has three main components. At its most basic the HDI focuses on longevity, basic education and minimal income and progress made by countries in improving these three outcomes. The inclusion of education and health indicators is a sign of successful government policies in providing access to important merit goods such as health care, sanitation and education. Click here for the World Human Development Map
1.Knowledge: First an educational component made up of two statistics – mean years of schooling and expected years of schooling
2.Long and healthy life: Second a life expectancy component is calculated using a minimum value for life expectancy of 25 years and maximum value of 85 years
3.A decent standard of living: The final element is gross national income (GNI) per capita adjusted to purchasing power parity standard (PPP)
“Human development is the expansion of people’s freedom to live long, healthy and creative lives; to advance other goals they have reason to value; and to engage actively in shaping development equitably and sustainably on a shared planet. People are both the beneficiaries and the drivers of human development, as individuals and in groups” Source: HDR Report, November 2010
HDI Indicator Gateway

Important note: GNI is now used rather than GDP because of the growing significance of remittances in the global economy and also the importance of international aid payments. For example, because of large remittances from abroad, GNI in the Philippines greatly exceeds GDP

Log of income is used in the HDI calculation because income is instrumental to human development but higher incomes have a declining contribution to human development

Uneven progress but deep inequalities

• The world average HDI rose to 0.68 in 2010 from 0.57 in 1990, continuing the upward trend from 1970, when it stood at 0.48
• The fastest progress has been in East Asia & the Pacific, followed by South Asia and Arab States.
• All but 3 of the 135 countries have a higher level of human development today than in 1970
• The exceptions are the Democratic Republic of the Congo, Zambia and Zimbabwe
• From 1970 to 2010 real per capita income in developed countries increased 2.3 percent a year on average, compared with 1.5 percent for developing countries
• The real average income of people in 13 countries in the bottom quarter of today’s world income distribution is lower than in 1970

Limitations of the Human Development Index

1. The HDI notably fails to take account of qualitative factors, such as cultural identity and political freedoms (human security, gender opportunities and human rights for example).
2. Many argue that the HDI should become more human-centred and expanded to include more dimensions, ranging from gender equity to environmental biodiversity
3. The GNP per capita figure – and consequently the HDI figure – takes no account of income distribution. If income is unevenly distributed, then the GNP per capita will actually be an inaccurate measure of the monetary well-being of the people. Inequitable development is not human development.•PPP values change quickly and are likely to be inaccurate or misleading
4. The 2010 edition of the Human Development Report marked the launch of a new Inequality-adjusted HDI and also a Gender Inequality Index and a Multidimensional Poverty Index

Key point:
The United Nations HDI is intended to allow economists to draw broad conclusions about which countries enjoy relatively high standards of living, and which are, by comparison, under-developed.

Life expectancy and fertility rates