Human Development Index (HDI): Indicators & Shortcomings | Economics

In this article we will discuss about:- 1. Introduction to Human Development Index 2. Indicators of Human Development Index 3. Shortcomings and Critique.

Introduction to Human Development Index (HDI):

Growth in national income (GNP) or per capita income considered above as indicator of economic growth does not represent a true and adequate measure of welfare and economic development of the people of a country. Therefore, a need was felt to put forward an index which should truly and correctly reflect the level of economic welfare and economic development of a nation.

Thus, Human Development Report (1997) states, “Income is clearly only one option that people would like to have, though an important one. But it is not the sum total of their lives. Income is also a means, with human development, the end”. Human development index is a composite measure of three aspects of good life and well-being. Three questions were raised regarding what people want in order to have a good and cherished life.

Answers provided were:

1. People want to lead a long and healthy life;

2. They want to be educated and to acquire knowledge; and

3. They want to have access to resources so that they enjoy a decent standard of living. In other words, they want to have a per capita income which is high enough to ensure them a decent standard of living.

The concept of human development has been developed by a number of economists, prominent among who are Dr. Mehbub-ul-Haq and Nobel Laureate Dr. Amartya Sen. Explaining the concept of human development, Prof. Amartya Sen writes, “The process of widening people’s choices and the level of well-being they achieve are the core of the notion of human development. But regardless of the level of development, the three essential choices for people are to lead a long and healthy life, to acquire knowledge and to have access to the resources needed for a decent standard of living. Human development does not end there, however, other choices highly valued by many people range from political, economic and social freedoms to opportunities for being creative and productive and enjoying self-respect and guaranteed human rights.”

It is clear from this that in the concept of human development Prof. Amartya Sen would like to include the social, economic and political freedoms as well as human rights they enjoy in a country. Therefore, the latest Human Development Reports consider and assess the performance of the countries in respect of these questions of freedoms and human rights along with the three indicators or criteria.

Indicators of Human Development Index (HDI):

The three criteria or indicators which represent different aspects of good life or the three goals of human development are:

1. Longevity:

It is measured by life expectancy at birth. Life expectancy at birth means how many years a newly born infant can hope to live in this world. This represents element of health in the Human Development Index (HDI).

2. Education or Knowledge:

It is measured by the weighted average of adult literacy and mean years of schooling. For this 2/3rd weight is given to adult literacy and 1/3rd weight is given to the mean years of schooling.

3. Standard of Living:

It is measured by real per capita income of a country at purchasing power parity (PPP) prices, that is, adjusted for purchasing power of currencies of different countries.

Let us explain how Human Development Index (HDI) is estimated for different countries. There are three goals of development, namely, better health as measured by life expectancy at birth, better education or knowledge as measured by literacy rate and standard of living as measured by per capita income measured in terms of purchasing power parity prices (PPP) in US dollars. To construct human development index, fixed minimum and maximum values are taken for each variable or component included in the index.

For example, for life expectancy at birth the range is 25 to 82 years, for literacy rate the range is 0 to 100 per cent and for per capita income the range is $ 100 to 40,000 in terms of PPP (US $). The value of each component of human development index is calculated by using the following formula –

HDI for individual component = (Actual Value – Minimum Value) / (Maximum Value –Minimum Value)

If the actual value of an individual variable in HDI of a country is equal to the minimum, the index of that variable for a country is zero. On the other hand, if the value of an individual component is equal to the maximum value, the index of that component will be equal to one.

For example, India’s life expectancy at birth in 2011 was 65.5, the life expectancy index for India according to the above formula (with the given range of 25-85) will be-

Life expectancy Index of India = (65.5–25) / (85 – 25) = 0.673

Similarly, with 3460 PPP (US $) of India’s per capita income, its individual index (with range 100-40,000) = (Y_j– Y̅)² = 0.084

In constructing overall HDI we take average of three individual indexes with each having 1/3 weight. Thus,

HDI = 1/3 (per capita income index) + 1/3 (life expectancy index) + 1/3 (literacy index)

After finding the values of Human Development Index (HDI) for various countries they are ranked from the highest to the lowest.

Shortcomings and Critique of Human Development Index (HDI):  

Some shortcomings of HDI as a true indicator of well-being for purposes of estimating development disparities among nations may be noted:

First, for estimating literacy rate, expected years of schooling by children at the entrance age is used which overstates the literacy rate as in many countries (including India) many children who join primary school later drop out at some stage.

Secondly, in preparing HDI equal weight of 1/3 is given to each of the three variables, namely, life expectancy, literacy rate and GNI per capita. This involves some value judgement and seems to be quite arbitrary. Besides, since these three components of HDI are measured in different units, to give equal weight to each component of HDI does not make much sense.

Thirdly, in constructing human development index, role of quality has been ignored. For example, there is a big difference between extra year of life for a healthy well-educated person and extra one year life for a person who is bed-ridden and has limited capability to do work. Similarly, in constructing HDI only the number of years of schooling is taken into account while the quality of education also matters a lot for good living. Due to lack of adequate data about quality of health and education, it is not incorporated in the construction of HDI. But without the quality of health and education being considered, HDI does not represent the true index of human development.

But the important drawback of human development index (HDI), is that it is of composite character which makes it an imperfect indicator of development or well-being of the people. If these three components are highly correlated to each other, then a single one will serve the purpose of comparing the levels of development and well-being of the people of different countries.

However, in our view it is not proper to put the three variables reflecting development into a single composite index. It is better and much more revealing if performance of different countries is compared in respect of various indicators separately because putting them together obscures the performance of development of various countries in respect of some crucial areas. Thus, in our view, human development index hides more than it reveals. Besides, in constructing human development index (HDI) there is a problem of what to be included and what to be excluded and what weights be assigned to the various variables included for construction of the index.

In fact until recently human development index was prepared taking into account three variables, namely, life expectancy, literacy and per capita income and inequality in income distribution which also determines well-being of the people was ignored. Realising the importance of inequalities in income distribution, recent Human Development Report, 2013 has also given ‘inequality-adjusted HDF in addition to the HDI without such adjustment.

Besides, human development index still does not take into account social, economic and political freedoms as well as human rights on which Amartya Sen laid a great stress in his book “Development as Freedom”. Further, human development index as it is being presently constructed is not compre­hensive as it does not include the two important indicators such as poverty and unemployment as reduction in them are important indicators of development. However, UNDP which constructs human development index separately calculates ‘human poverty index’ (HPI) which has now been replaced by ‘multi-dimensioned poverty index’.

But the existence of unemployment which is an important aspect of human development still remains excluded. Thus in our view, the chief drawback of human development index (HDI) is that it obscures many dimensions of the concept of development. The concept of development is so much wider, deeper and richer that single composite measure like HDI cannot adequately measure it. Therefore, it is better to judge and assess the development performance of different countries by a number of indicators that reflect different aspects of development rather to judge it by a single composite index of HDI.