Human Development Index:

Challanges and a way forward

Milorad Kovacevic
Human Development Report Office, UNDP

Workshop on Measuring Human Development,

June 14,2013
GIZ, Eschborn, Germany

United Nations Development

Human
Development Report Office
Programme
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Human Development
A standard definition of human development
(1990 HDR):
[] a process of enlarging peoples choices to
live lives they have reason to value The most
critical ones are to lead a long and healthy life, to
be knowledgeable and to enjoy a decent standard
of living.
A broader definition (2010 HDR):
Human development is the expansion of peoples
freedoms to live long, healthy and creative lives; to
advance other goals they have reason to value;
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and to engage actively in shaping development

Measuring is as more relevant than ever

Quantifying and describing our changing world
Finding ways of improving peoples well-being:
o

Informed policy making and advocacy

Human development is an evolving idea

As the world changes analytical tools change
But there is a persistent importance of the chain:

Concept
s

Measurements

Impacts

Human Development Index

Emphasizes that outcomes for people and their
capabilities should be the ultimate criteria for
assessing the progress of a country, not economic
growth alone.
Accounts for average achievements in
life expectancy (proxy for leading a long and
healthy life),
education (proxy for being knowledgeable) and
income per capita (proxy for command over
resources to have a decent standard of living).

Human Development Index (Contd.)

A simple index (non-comprehensive) with the
purpose of
- initiating discussions
- attracting attention to issues that prevent
countries from performing at a higher level
- international comparison and benchmarking
- temporal comparison

General criteria for a good HDI

(Foster, 2013)

(I) Corresponds to strong policy and advocacy needs

Understandable and easy to describe
-

Understandable at a deeper level including goalposts and groupcutoffs

Measuring absolute size of HD - independent from other
countries

Conforms to a notion of what is being measured

-

Anchored in underlying variables

Numbers mean something

(II) Concerns the intended purpose of the index

It must fit the purpose for which it is being developed
-

Complements GDP or/and GNI

Compares HD achievements across countries
Monitors progress across time for a given country
Analytical utility (subgroups or dimensions)
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General criteria for a good HDI

(contd.)

(III) Theoretically justified

Technically solid
-

Axioms to make sure that indexs properties conforms

to purpose
Theoretical framework (within human capabilities
approach and/or welfare economics)

(IV) Practicality
Operationally viable and easily replicable
- Works with existing data for all the countries and all
the years
- It can be updated in time

How to anchor
HDI values?
Through normalized variables
Necessary for comparability on the same scale.
- Only after rescaling they can be combined into a single
scalar a composite index.
-

Enable each dimension index to range between 0 and

1

- net variable
- reference level (range)
Cardinal interpretation:
-

Distance travelled or
Achievement in % of the reference level
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How to decide about

goalposts ?

Purely data driven goalposts cause confusion

Ought to have firm normative basis
Different purpose of goalposts:
-

Upper (aspiration level)

- may change periodically but infrequently, 5 10 years,
normative targets

- In a constrained way (or proportionate)

- All past inconsistencies will then be caused by data
revisions
Lower (natural zeros) should stay fixed

Properties of the index should not be compromised

-

Equal implicit weights (by making the range of variation

very similar)
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How to decide about demarcation cut-offs for

categorizing countries into different levels of
HD?
Fix absolute demarcation cut-offs for categorizing
countries
- Choose relatively, then fix absolutely, or
- Look within variables for natural cut-offs
Cut-offs are always arbitrary
- Like poverty lines, like middle class ranges
But if fixed over time, countries can progress
- Consistent cut-offs can be maintained over time
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Changes in the HDI introduced in 2010

Goal posts
Minima:
Fixed at
natural
zeros

Maxima:
Observed
maxima
since
1980

Comments:
A possible change of maxima every
year;
HDI level of Congo depends on LE of
Japan, education in USA and GNI of
Qatar (!?)

Group cut-offs (relative)

Cut-offs:
Quartiles of
HDI
distribution

Groups
:
Quartile
groups
of equal
size

Comments:
Little movement mostly within the group
To move to the higher quartile, another
country has to move to the lower
Progress against other countries, rather
than against arbitrary numerical cut-offs
Fuzzy incentives, less practical value for
the country

HDI value and rank: change between two years

Due to:
Real change in performance
Data revision

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Logarithmic transformation of income

Diminishing marginal utility of income
ln(GNIpc)

Log transformation

20000

40000
60000
GNIpc

kernel = epanechnikov, bandwidth = 3.5e+03

80000

100000

.00001

.1

lngni

10

Density

Density
.00002
.00003

.2

12

.00004

.3

.00005

GNIpc

kernel = epanechnikov, bandwidth = 0.3960

8
lngni

10

12

20000

40000
GNIpc

60000

80000

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Logarithmic transformation in other

dimensions

There are arguments for and against transforming the

health and education variables to account for diminishing
returns.
Health and education are not only of intrinsic value; they,
like income, are instrumental to other dimensions of
human development not included in the HDI.
Expectancy
vs. LE
Their Lifeability
to be converted Log(LE)
into other ends mayLog(LE)
likewise
incur diminishing returns.

40

50

60

kernel = epanechnikov, bandwidth = 2.7427

HDRO

le

70

80

90

4.3
4.2
3.9

.01

4.1

lle

Density
2

Density
.02
.03

.04

4.4

.05

3.8

kernel = epanechnikov, bandwidth = 0.0388

4.2
lle

4.4

4.6

50

60

70
le

80

90

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Alternative transformations for variables?

Simplicity is always better
By transforming variables it is harder to interpret change on
the ground with change in the index it is a function of the
normalized transformed variables!
No possibility for subgroup decomposition
Chakravarty (2003) with all variables transformed by a
common concave function

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Aggregation: Geometric mean

No perfect substitutability - reduced substitutability

Awards well-rounded performance
Encourages improvements in the weakest dimension
Changing of maxima does not impact ranking by HDI
Higher discriminatory power

(0.6, 0.6, 0.6)HDI=0.600,

(0.5, 0.6, 0.7)HDI=0.594,
(0.4, 0.6, 0.8) HDI=0.577
Accounts for inequality across dimensions

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Aggregation: Geometric mean

Critiques:
A well rounded performance across dimensions is not a
requirement within the human development approach
Development/government policies should not be
focused on maximizing the HDI
Changing of aspiration levels should be done
infrequently and if it is done proportionally (a slopeinvariant linear transformation), maxima do not impact
ranking by the arithmetic mean based HDI
High discrimination power is based on the accounted
inequality across dimensions which is not as important
as the inequality within dimension and across population
No decomposition by dimension nor by subpopulation

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Aggregation: Arithmetic mean

Easy interpretation
Decomposability by dimension
Perfect substitutability:
- a low achievement in one dimension is linearly
compensated for by a high achievement in
another dimension.
Ex. HDI=0.6: (0.6, 0.6, 0.6), (0.5, 0.6, 0.7),
(0.4, 0.6, 0.8)
- Constant tradeoffs between non-income dimension
Low discriminatory power

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Changing the functional form may cause big changes in

the HDI values and ranks especially in the lower end of
distribution.
Example:
LE
EDU
GNI
Stde HDI
HDI
v

(geometri
c)

(arithmet
ic)

Mali

.496 .270

.346

.115

.359 (175)

.371 (176)

Liberia

.580 .439

.140

.225

.329 (182)

.386 (175)

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Summary of recommendations1

Revert to the original arithmetic formula

With fixed minima (zeroes)
With aspirational cut-offs constrained and
updated infrequently
With log of income component
With fixed cut-offs between groups

__________
2nd Conference on measuring human progress, March 45, New York
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Thanks
Milorad.kovacevic@undp.org

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