Economic science/ 16.Macroeconomics

Kapelyuk S.D., senior lecturer

Siberian University of Consumer Cooperation, Russia

Human development index: pro and contra

 

Since 1990, the United Nations has presented annual Human Development Report (HDR). These reports are mostly recognized for comparing the standard of living in different countries by the human development index. The human development index (HDI) is a summary measure of three indicators: longevity, educational attainment and standard of living. The index was created by Pakistani economist Mahbub ul Haq.

In 2010, there were presented significant changes in the methodology of calculating the HDI [3, pp. 263–264]. First, the index for country k is calculated now by the geometric mean:

                             (1)

Second, the maximum values (max õi ) are not fixed but defined as the actual observed maximum values of the indicators. Third, gross national income (GNI) per capita is used for constructing the income index in place of GDP per capita. Fourth, education index (Jõ2) is based on new indicators: mean years of schooling and expected years of schooling. This subindex for country k is calculated now according to the formula:

,                                  (2)

where y is mean years of schooling index, z is expected years of schooling index.

The main principles of the new HDI methodology are reflecting opportunity freedoms, diminishing returns and neglect of inequality [5].

The vast amount of literature is devoted to assess the availability of the human development index to reflect the well-being. Critics of the HDI proposed that the index doesn’t reflect several important dimensions of the well-being [12; 13]. Ivanova, Arcelus and Srinivasan argued that the HDI “hardly gives more significant information in the ranking of the countries than each of its components” [4]. The same opinion was presented in the article of McGillivray who argued that the HDI is a redundant indicator [8]. Berenger and Verdier-Chouchane argued that the HDI mixed measures of resource availability (GDP per capita) and of functioning and capabilities (longevity and education indices) [2]. Aturupane, Glewwe and Isenman noted that the best measurement of achievements in the well-being is a change over time. Thus, it is important to focus on annually available measures but the HDI includes indicators (schooling) with data collected no more than one time per ten years [1].  Ranis, Stewart and Samman using rank order correlation analysis showed that the HDI couldn’t reflect extended categories of human development [9]. 

The new methodology immediately generated the new wave of the critique for insufficient covering of the well-being. Martin Ravallion, the Director of the World Bank's Development Research Group, argued that the new functional form of the HDI is inappropriate because it caused the “troubling trade-offs” between longevity and income [10]. His article promoted a long discussion in the literature [7; 11].

The most persuasive argument for the validity of the HDI is presented in a recent paper written by the group of authors including the director of UNDP’s Human Development Report Office, Jeni Klugman, who pointed out that assessing of changes in the HDI is more important than assessing of levels in particular year [6]. 

Thus, we could conclude that the validity of the HDI in the academic research largely depends on the correctness of its usage.

 

References:

1.                 Aturupane H., Glewwe W., Isenman P. Poverty, Human development and Growth: An emerging consensus // American Economic Review. – 1994. – ¹ 2. – Pp. 244–249.

2.                 Berenger V. Multidimensional Measures of Well-Being: Standard Of Living and Quality of Life Across Countries // World Development. – 2007. – ¹ 7. – Pp. 1259–1276.

3.                 Human Development Report 2010. – New York: United Nations Development Programme, 2010 [Electronic resource]. – Access mode: http://hdr.undp.org/en/media/HDR_2010_EN_Complete.pdf

4.                 Ivanova I., Arcelus F. J., Srinivasan G.  An assessment of the measurement properties of the human development index // Social Indicators Research. – 1999. – ¹ 2. – Pp. 157–179.

5.                 Kapelyuk S. The main principles of the new Human development index // Materiály VIII mezinárodní vědecko - praktická konference  «Dny vědy – 2012». – Díl 22. Ekonomické vědy. – Praha: Publishing House «Education and Science», 2012. – Pp. 72–74.

6.                 Klugman J., Rodriguez F., Choi H. The HDI 2010: new controversies, old critiques // Journal of Economic Inequality. – 2011. – ¹ 9. – Pp. 241–288.

7.                 Klugman J., Rodriguez F., Choi H. Response to Martin Ravallion // Journal of Economic Inequality. – 2011. – ¹ 9. – Pp. 497–499.

8.                 McGillivray M. The Human Development Index: Yet another redundant composite development indicator // World Development. – 1991. – ¹ 10. – Pp. 1461–1468.

9.                 Ranis G., Stewart F., Samman E. Human Development: Beyond the Human Development Index // Journal of Human Development and Capabilities. – 2006. – Vol. 7. – ¹ 3. – Pp. 323–358.

10.            Ravallion M. Troubling tradeoffs in the Human Development Index // Journal of Development Economics. – 2012. – In press.

11.            Ravallion M. The human development index: a response to Klugman, Rodriguez and Choi // Journal of Economic Inequality. – 2011. – ¹ 9. – Pp. 475–478.

12.            Sagar A., Najam A. The human development index: a critical review // Ecological Economics. – 1998. – ¹ 25. – Pp. 249–264.

13.            Srinivasan T.N. Human development: A new paradigm or reinvention of the wheel // American Economic Review. – 1994. – ¹ 2. – Pp. 238–243.