Human developement beyond HDI

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DEPARTMENT OF ARCHITECTURE AND REGIONAL PLANNING
INDIAN INSTITUTE OF TECHNOLOGY, KHARAGPUR

HUMAN DEVELOPEMENT BEYOND HDI

SUBMITTED BY- ARUN C BABU
12AR60R09
MCP FIRST YEAR (2012-14)

Human development beyond HDI

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ABSTRACT
The well-known Human Development Index (HDI), created by economist Mahbub ul Haq,
followed by economist Amartya Sen in 1990, encompasses only three basic aspects of human
welfare - life expectancy, education, and income. This paper aims to go beyond this, by
identifying more categories of human development, propose plausible candidates as indicators of
these categories. This paper suggests that a full assessment of human development requires a
much broader set of indicators than the HDI alone. The HDI (and the other two broad indicators)
are shown to be worse indicators of the extended categories of human development for OECD
countries than for developing countries.
Furthermore the key changes made in the 2010 human development report are discussed. The
indicators considered for HDI calculation, how the criticism is taken in to consideration etc.. are
discussed.


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CONTENT

1. INTRODUCTION……………………………………………………4
2. SOME BASIC DEFENITIONS …………………………………….5
3. DEFINING THE FULL LIFE, OR A BROAD DEFINITION
OF HUMAN DEVELOPMENT…………………………………….6
4. SELECTION OF INDICATORS AND PROCEDURES
FOR THEIR USE …………………………………………………...9
5. CORRELATIONS WITHIN THE CATEGORIES
5.1 Mental well being………………………………………...9
5.2 Empowerment……………………………..…………….10
5.3 Social relations……………………….………………….10
5.4 Community well-being………………….....……………10
5.5 Inequalities………………………………………………10
5.6 Work conditions…………………………...…………….11
5.7 Leisure conditions……………………………………….11
5.8 Economic stability………………………………………11
5.9 Political stability…………………...…………...……….12
5.10 Environmental conditions...……………………..….12
6. KEY INNOVATIONS IN 2010 REPORT………………………….13
6.1 New indicators to measure human
Development…………….……………………………….14
6.2 combining achievements into aggregate measure………16
6.3 addressing other critiques………………………………16
7. CONCLUSION……….....…………………………………………...18
REFERENCES…………………………………………………….....….19


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1. INTRODUCTION
Human Development (HD) goes well beyond the Human Development Index (HDI), with which
it is often equated. Human Development can be defined as „a process of enlarging people‟s
choices. The most critical ones are to lead a long and healthy life, to be educated, and to enjoy a
decent standard of living. Additional choices include political freedom, guaranteed human rights
and self-respect‟ (HDR 1990, p. 10). The HDI itself is thus a reductionist measure, incorporating
just a subset of possible human choices. It only considers life expectancy, education, and income.
It has long been recognized that the HDI is, therefore, a very incomplete measure of HD, leaving
out many aspects of life which are of fundamental importance.
Since its introduction in the first Human Development Report in 1990, the Human Development
Index (HDI) has attracted great interest in policy and academic circles, as well as in the media
and national audiences around the world. Its popularity can be attributed to the simplicity of its
characterization of development - an average of achievements in health, education and income –
and to its underlying message that development is much more than economic growth.
Yet the HDI‟s very simplicity prompted critiques from the start, with some contending that it
was too simplistic, while others who accepted its self-imposed limitations still questioned its
choice of indicators and its computational methodology.
One significant flaw of the HDI is that the three variables, which are income, knowledge and
G.D.P, are confounding. This means that they are inter-related with one another. For example,
the higher the level of education, the more likely the country will have a higher G.D.P. This
means that it is hard to tell which of the factors influenced the level of development of a country
the most. Another weakness of the HDI is that it does not show the variations of data within a
country. Because of this, it is difficult to compare the levels of development for each variable
within a country. Moreover, the data is sometimes not helpful in getting useful feedback on how
to improve an aspect of a country. For example, a country may have gotten a score near to 1 for
one of the factors, but this doesn't mean that it has no room for improvement. Also, these results
are relative to other countries, which mean that it is impossible to know the history of
development of a particular country. The ranks are values compared to other countries so each
set of data of a country is not significant on its own. Moreover, the index fails to take into
account some of the key aspects of development such as gender equality and respect for human
rights and freedoms. Another point to note is that of the three components, only the G.D.P is
responsive to short-term policy changes. In other words, it is important to consider the
development of the two other components over time. One last inconvenience of the index is that
not all parts of the world have data for the measurement.


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2. SOME BASIC DEFENITIONS
HDI or Human developement index - measures the income, knowledge and the longetivity of
the people in the country. This was designed to give a more comprehensive definition of
development, which looks beyond the GNP and the GDP of a country.
Income -This is measured by purchasing power parity (PPP). This shows the standard of living
of a country.
Knowledge - This is evaluated by adult literacy rates and the percentage of children attending
school.
This represents the quality of education in a country.
Longetivity -This is gauged by life expectancy in a country. This allows us to see if the
individuals of a country live a long and healthy life.
Life expectancy index
(Life Expectancy - 25) / (85-25) = Life Expectancy Index
Education index
(2/3 * ALI) + (1/3 * GEI) = Education Index
Adult Literacy Index(ALI)
adult literacy rate - 0 / 100 - 0
Gross Enrollment Index(GEI)
Gross Enrollment ratio - 0 / 100 - 0
GDP Index
log(GDP per Capita) - log(100) / log(40000) - log(100) = GDP Index
Human Development Index
HDI = 1/3 (life expectancy index) + 1/3 (education index)
+ 1/3 (GDP index)


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3. DEFINING THE FULL LIFE, OR A BROAD DEFINITION OF HUMAN
DEVELOPMENT.
Throughout history, defining what makes for a fulfilled life has been a central theme of
philosophers and politicians. Aristotle‟s ethics, for example, was devoted to identifying the
conditions needed to achieve eudaimonia, commonly interpreted as „the best life‟ (bostock,
2000, p. 15). Alkire (2002) provides lists produced in 39 attempts to identify what makes for a
flourishing life produced over the years 1938-2000. Here we will consider six (see table 1),1 each
of which adopts a different philosophical approach and justification:
Rawls: identifies primary goods through „deliberative rationality‟. According to The Theory of
Justice, primary goods „are in general necessary for the framing and execution of a rational plan
of life‟ „following full deliberative rationality, that is, with careful consideration of the relevant
facts and after a careful consideration of the consequences‟ (Rawls, revised edition, 1999, p. 359,
p. 380). They are derived from „some general facts about human wants and abilities‟ and the
necessities of social interdependence.
Finnis‟ approach is derived from practical reasoning (Finnis 1980; Finnis et al. 1987) which has
a lot in common with „deliberative rationality‟, as it is derived from „critical reflection about the
planning of one‟s life‟ (Nussbaum 2000, p. 79); or the „internal reflection of each person upon
her own thoughts, reading, imagination and experiences‟ (Nussbaum 2000, p. 39; and see Table
3.2, p. 110- 111).
Doyal and Gough’s definition of basic needs is based on the principle of the avoidance of
serious harm where harm is defined as preventing people realizing activities which are essential
to their plan of life (Miller 1976; Doyal and Gough 1991).
Nussbaum’s list, which broadly follows Rawls but is more extensive and detailed, is largely
based on „overlapping consensus‟ (a concept developed by Rawls (1993)) as a basis for justice in
a plural society) plus intuition as to what is needed to be „truly human‟ (Nussbaum 2000).3 An
overlapping consensus is an informed view of what people agree about, even with different
overall philosophies or religions.
The „Voices of the Poor‟ analyzes of Chambers, Narayan-Parker and others (Narayan-Parker
2000), represent what the poor identify as their needs, based on focus groups of poor people
carried out around the developing world.
A similar exercise is being conducted by the ESRC Research Group of Wellbeing in Developing
Countries (Camfield 2005), in which people are consulted as to what makes for a good quality
of life in four countries.


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The six sets of requirements for human flourishing are not in total agreement, and some
emphasize some aspects more than others. For example, Finnis and Nussbaum are quite thin on
material aspects, but emphasize non-material aspects such as friendship and emotions, which are
left out by Doyal and Gough, and get short shrift from Voices of the Poor. Environmental issues
only appear explicitly in Nussbaum; she is the only author to record „respect for other species‟ as
a significant dimension.
People/societies may or may not choose to promote all aspects identified. Hence, as a starting
point, the relevant set of dimensions is the set which includes all elements that have been
identified as possible aspects of human flourishing, with the aim of trying to measure country
achievements on these manifold dimensions. There are obvious problems with such
measurement, including, first, identifying what a good measure of each would ideally be, and
then finding what (normally imperfect) measures are available in practice. The latter is likely to
vary across societies. To make the measurement issue easier, we first draw up a comprehensive
set of broad categories to use as a starting point to search for indicators of achievement. For
example, we identify „community wellbeing‟ as an important category of HD; then, as indicators
of this elusive concept, we include measures of „crime rate‟, „alcohol use‟, „corruption‟, „orphan
rate‟, „AIDS deaths‟, „% in civic associations‟, „trust in others‟, „rule of law‟, „confidence in
public institutions‟, tolerance of neighbors and „natural disaster rates‟.
It is useful to start with the broad dimensions (shown in Table 1 above), first, because objectives
of human development are generally thought of in this way. Secondly, while there may be
agreement on these broad categories, there is not necessarily the same agreement on selection of
better defined and measurable ways of fulfilling the broad categories. For example, we may
agree that political freedom and political participation are important dimensions of HD, but this
does not imply a precise form of government and constitution. Thirdly, the best ways of
achieving progress in broad categories may vary across countries according, for example, to the
level of development or geography. Fourthly, partly for this reason, data availability varies
across countries, i.e., each country may have data on some indicators relevant to any single broad
category, but not consistency across others.
In the light of the efforts to identify dimensions of human flourishing just cited, following broad
categories of HD can be proposed:
1. The HDI itself, which includes health, education and a measure of income
(i.e., it broadly covers bodily health, literacy and basic aspects of material Well-being).
2. Mental well-being (i.e., an individual‟s psychological state)
3. Empowerment (particularly of the deprived)
4. Political freedom
5. Social relations
6. Community well-being
7. Inequalities
8. Work conditions
9. Leisure conditions
10. Dimensions of security – political (i.e., freedom from political violence or instability)
11. Dimensions of security – economic (i.e., freedom from economic fluctuations)
12. Environmental conditions

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4. SELECTION OF INDICATORS AND PROCEDURES FOR THEIR USE
Ideally, there would seem to be many potential measures for each of the broad categories. In
practice, there are difficulties. In the first place, some of the categories of HD are in principle
difficult to measure (for example, mental well-being). Some data are based on surveys of
performance and some on perceptions of observers, with the latter involving an obvious element
of subjectivity. In addition, data are often unavailable, or seriously incomplete, covering only a
small sample of countries. Some indices are themselves constructed out of a variety of elements
and sources in ways that might be subject to challenge. Thus we should be aware of the
limitations and pitfalls of data in this field. The choice of indicators listed here is to a certain
extent dictated by data availability.
The purpose is to identify a set of indicators which broadly represent the more all encompassing
version of HD. We shall, therefore, correlate representative indicators of each category with what
we call the three core indicators. These core indicators are those commonly used to assess
country performance: HDI, per capita income and under-five mortality rates. The HDI, as noted,
represents a reductionist approach to measuring human development, incorporating basic aspects
of health, education and material well-being. Income per capita is, of course, the most common
way of assessing overall country performance, used in particular by the World Bank, under-five
mortality, used by UNICEF as a way of assessing country performance.
The indicators include,
1. Mental well-being
2. Empowerment
3. Political freedom
4. Social relations
5. Community well-being
6. Inequality
7. Work conditions
8. Leisure conditions
9. Economic stability
10. Political security
11. Environmental conditions

5. CORRELATIONS WITHIN THE CATEGORIES
5.1 Mental well-being.
The mental well-being indicators cover measures of unhappiness, as shown by suicide, lack of
adjustment to society as shown by the prison population, and life satisfaction. Of the indicators
available, male and female suicide are highly correlated, and neither is correlated with the other
variables – i.e., a measure of life satisfaction, unhappiness and prisoners per population. It is
therefore not particularly important which we select, but we can choose the male suicide rate
because, in most countries, it is larger than the female rate. The other variables – life satisfaction
and prisoners – are not significantly related to each other. Therefore life satisfaction, prisoner
population and male suicide can be selected as independent indicators of mental well-being.

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5.2 Empowerment.
The empowerment indicators cover various measures of poverty and of the status of females.
The $1 a day poverty rate is highly correlated with national poverty rates, the Human Poverty
Index (HPI) and the share of girls aged 15-19 years who are married, while the other poverty
indices are highly correlated with fewer variables within the category. Therefore, $1 a day
poverty rate can be adopted as the indicator for this category.
The GEM is highly correlated with female parliamentarians. GEM represents a wider range of
female empowerment. The ratio of female to male secondary education is not highly correlated
with any other variable, though it is moderately (negatively) correlated with the poverty
measures and the rate of teenage marriage, and (positively) with the unmet need for
contraceptives. The rate of union density is not correlated with any of the other variables, while
unmet need for contraceptives is not highly correlated with other variables in the category.
Consequently, we choose the $1 a day poverty rate, GEM and female/male secondary education,
the unmet need for contraceptives and union density as representing the empowerment category.
5.3 Social relations
This is an area where information is particularly scarce and available samples are small. We have
indicators for values placed on friends and family, tolerance for different types of neighbors4, as
well as the divorce rate. The crude divorce rate is moderately (negatively) correlated with the
importance of families, but there are no high correlations among the variables. We therefore
retain all four variables – the value placed on families, value placed on friends and the divorce
rate – to represent this category.
5.4 Community well-being
AIDS deaths are highly correlated with the rate of orphans. AIDS deaths represent a more
comprehensive condition, and are a cause of the high orphan rates and of other problems in
society, so it can be chosen as an indicator. The public institutions variable is highly correlated
with the rule of law and the rate of corruption. We chose that to represent these two variables,
since the latter two were only highly correlated with one other variable. The three variables, rule
of law, public institutions and corruption are all highly inter-correlated, with little to choose
among them. We choose the rule of law (a World Bank measure of the extent to which agents
have confidence in the rules of society and abide by them) as a more comprehensive indicator
than the other two. The share of the population involved in natural disasters was not highly
correlated with any of the other indicators, nor was tolerance of neighbors. Consequently, we can
select AIDS deaths, the rule of law, tolerance of neighbors and the rate of natural disasters as
representative of community well-being.
5.5 Inequalities
Of the various measures of inequality, GDI (UNDP‟s composite measure of gender inequality) is

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very highly correlated with happiness inequality. We can select GDI because it encompasses a
broader set of variables. While health inequality is moderately correlated with the income, the
correlation is not high enough to allow us to eliminate either indicator, as is also the case with
rural-urban inequality and horizontal inequality (HI). Consequently, we select the income Gain,
HI, rural/urban inequality, GDI and health inequality to represent their category.
5.6 Work conditions
We have five indicators of work conditions – the unemployment rate at a recent date, child labor,
an index of employment conditions reflecting the regulatory situation, informal employment as a
proportion of the total and an index indicating the existence of a minimum wage policy. Child
labor is inversely correlated with the unemployment rate, although there are only 12 cases of
countries with both sets of data. We can retain unemployment because the indicator is available
for a much larger number of countries. However, it is well known that data for this (as well as for
child labor) are unreliable and variable, since definitions differ markedly across countries. Since
none of the other indicators is highly correlated with each other, although there is a moderate
correlation between minimum wage policy and employment conditions, we retain the remaining
three variables – informal employment, minimum wage policy and employment conditions – as
well as the unemployment rate to represent the work conditions category.
5.7 Leisure conditions
We can select six variables in this category – phone availability, internet use, radio use,
television ownership, newspaper use per person and cinema attendance. The first five are all
highly correlated with each other. We can choose phone availability, because the correlations are
highest, and cinema attendance (which is moderately related to the other variables), as our
indicators for this category.
5.8 Economic stability
Variables chosen because they are likely to cause fluctuations in incomes include the share of
manufacturing exports (inversely related), portfolio investment as a share of GDP and
fluctuations in the terms of trade. We also include the actual GDP business cycle. Individual
economic vulnerability is likely to result from these macro-fluctuations and also from
fluctuations in the inflation rate, although individual economic insecurity may be reduced by
social security coverage. A high correlation was observed between the terms of trade fluctuations
and the share of manufacturing exports in output. Since terms of trade fluctuations are likely to
have an immediate effect on many people‟s incomes, we retain it instead of manufacturing
exports as a share of total exports. None of the other variables was highly correlated with other
variables, although portfolio share of investment and social security policies were moderately
positively correlated, presumably because each is higher at higher levels of per capita income.
We can therefore select all the other indicators noted above.


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5.9 Political stability
The four indicators in this area are: „political stability‟, a composite index reflecting the
likelihood of the overthrow of government compiled by the World Bank; net refugee outflows as
a proportion of the population 1998-2002 (from UNHCR); an index of collective violence,
including excessive civilian targeting (Marshall); and one for political violence (defined as any
type of armed conflict from 1990) (derived from Marshall‟s dataset). Political stability, collective
violence and political violence are all highly intercorrelated. We choose political violence since
the correlation coefficients are higher than in the other two cases. The refugee flow indicator is
only moderately correlated with the other indicators and is therefore retained as an indicator
representing this category.
5.10 Environmental conditions
There is just one composite indicator for this category, environmental sustainability, produced by
the World Economic Forum, Yale Center for Environmental Law and Policy and CIESIN, which
will therefore represent this category.
HDI alone does not encompass many other important dimensions of HD, even on our rather
modest requirements of a 0.6 correlation. For each of the eleven categories, at least one other
variable needs to be included in order to assess the overall state of Human Development, and
altogether we add 31 indicators.


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6. KEY INNOVATIONS IN THE 2010 REPORT
In 2010, for the twentieth anniversary edition, the Human Development Report undertook a
comprehensive review of these critiques and introduced several major changes to the HDI.
Though the HDI had been modified before, as summarized in the table below, 2010 was the first
time that major changes were made simultaneously to the indicators used to measure progress,
and to the functional form used to convert those indicators to a single measure of progress.

Until 2010, the HDI had been defined as a simple arithmetic average of normalized indices in the
dimensions of health, education and income: HDI = (1/3)*(Hh + He + Hls). Hi denotes the subindex for dimension I, with i={h,e,ls} respectively denoting the health, education and living
standards dimensions. Life expectancy (le) and GDP per capita (gdp) were the proxies for health
and living standards respectively, whereas the education dimension used two indicators: literacy
(lit) and the gross enrolment ratio (ger).
The indices were normalized using upper and lower bounds. Thus:
Hh = (le-lemin)/(lemax-lemin),
He = (1/3)*((ger-germin)/(germax-germin))+(2/3)*((lit-litmin)/(litmax-litmin)),
Hls = (ln(gdp)-ln(gdpmin))/(ln(gdpmax)-ln(gdpmin)).
The 2010 Human Development Report introduced several significant changes in the HDI. The
new formula is: HDI = (hhealth * heducation * hliving standard)1/3 The indices Hi are still normalized
indicators of achievements. Life expectancy (le) remains the indicator for the health dimension,
while Gross National Income (gni) replaces GDP, and mean years of schooling for adults (mys)
plus expected years of schooling (eys) for children now make up the education dimension.
Hh = (le-lemin)/(lemax-lemin)
He = [((mys-mysmin)/(mysmax-mysmin)) *((eys-eysmin)/(eysmax-eysmin))] 1/2
Hls = (ln(gni)-ln(gnimin))/(ln(gnimax)-ln(gnimin)).


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The approach introduced in 2010 retains the same three-dimensional structure with equal
weights, with several key changes: It replaces the indicators for income and education, it changes
the method of aggregation from an arithmetic average to a geometric average, and it redefines
the upper and lower bounds used to normalize the index, eliminating the practice of capping
variables that surpass the upper bounds.
Three of the four variables that go into the HDI were revised. GDP per capita was replaced by
GNI per capita (both valued in PPP US$), while literacy and gross enrolments were replaced by
mean years of schooling and expected years of schooling.
To supplement these changes to the HDI, three new complementary indices were introduced in
2010 that were designed to capture the deprivations and disparities: the Inequality-Adjusted HDI,
the Gender Inequality Index, and the Multidimensional Poverty Index. It is worth focusing on the
changes related to income. The Human Development Report and its HDI was an explicit
challenge to the reigning paradigm of the late 1980s in development policy circles, commonly
known as the Washington consensus. The prevailing approach for development economics was
best symbolized then in the World Bank‟s World Development Report’s practice of ranking
countries by per capita income.
Throughout its history, the HDI has effectively pinpointed the differences in rankings that
emerge from a comparison between the HDI and per capita incomes. Haq pointed out in 1995
that of the 173 countries included in the HDI rankings, there was no difference between the HDI
and per capita income rankings for only four countries, while for more than a third of the sample
the HDI and per capita income ranks differed by more than 20 places. These patterns still hold
true today. The 2010 Human Development Report systematically explores the links between
economic growth and other dimensions of human development and documents the finding that
over relatively long periods of time high rates of economic growth are not necessarily
accompanied by improvements in other dimensions of human development.

6.1 New indicators to measure human development
The 2010 HDI revisions took into account measurement improvements in its three dimensions
over the past two decades. Unfortunately, alternative measures that may be conceptually
preferable are available for fewer countries than were typically covered by the HDI, and are
often not updated frequently.
The best example is perhaps life expectancy. The World Health Organization has reported
Health-Adjusted Life Expectancy (HALE) for 192 countries, as the number of years that a
person might expect to live in good health. The estimates are based on country life tables,
analyses of 135 causes of disability for 17 regions of the world and 69 health surveys in 60
countries. However, the WHO does not plan to regularly update its estimates of HALE.
Similar problems arose in the case of education, where the cross-national assessments of science,
mathematics and reading levels that could be used to construct quality adjustments are only

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available for a limited number of countries. The approach in the 2010 Human Development
Report was to adopt mean years of schooling as calculated by Barro and Lee as the indicator to
measure the education of adults. This indicator is more frequent, has broader coverage, and
better discriminatory power than literacy. The calculations are based on primary data from the
UNESCO Institute of Statistics‟ Database of Censuses and can thus be replicated and updated.
Literacy – which had up to now carried a 2/3 weight in the education index – has become deeply
unsatisfactory over time as a measure of progress in education. The world average literacy rate
rose from 60 to 83 percent between 1970 and 2010. Almost half of countries have a literacy rate
higher than 95 percent and, indeed, developed countries no longer collect data on basic literacy.
Further, many developing countries are poised to attain universal literacy in future years. While
literacy was a good measure to evaluate progress in the past, it is now much less informative.
The new HDI also changed its measure of the education of children, replacing the gross
enrolment ratio with a measure of expected years of schooling. This captures the average number
of years that children today could be expected to attain in adulthood if enrolment rates stay at
their current levels. The education indicator is now framed as a measure of years of schooling,
with the education of current and future generations receiving equal weights.
There is extensive literature today on the drawbacks of GDP per capita as a measure of wellbeing and economic progress, most recently summarized by the report of the Commission on the
Measurement of Economic and Social Progress led Joseph Stiglitz, Amartya Sen and Jean-Paul
Fitoussi (2009). Some of these criticisms relate to its inadequacy as a broader measure of welfare
or capabilities, while others examine its ability to measure an economy‟s capacity to provide
goods and services to its people. Most notable among GDP‟s many shortcomings are that it does
not measure non-market activity, such as subsistence agriculture or household work; it does not
register productivity growth in public goods; it makes no adjustment for the depletion of natural
resource; and per capita GDP is often unrepresentative of the typical person‟s actual income.
Are all of these criticisms relevant for the income dimension of the HDI? In order to put some of
these criticisms in perspective, it is important to consider why income was included in the HDI
in the first place. As discussed in the early reports, income differs from health and education in
that it is not a direct measure of a capability, but rather an input into these capabilities. The
relevant capabilities include adequate nourishment, shelter, and access to participation in the
basic life of society. Attaining these capabilities requires people to have command over a basic
set of resources necessary to ensure a decent standard of living.
In other words, the measure of income in the HDI is a proxy for the typical person‟s command
over resources that they can use to acquire goods and services, and save for the future. Note that
this is very different from the idea of GDP as a measure of how much an economy can produce.
Gross Domestic Product does not include transfers received from other countries, for example,
while it does include transfers sent to other countries, as it is meant to capture the goods and
services produced within the national territory. But to the extent that one wants to capture
command over resources, one would like to include transfers from abroad and exclude transfers
to other countries. The new HDI does this by replacing per capita GDP with per capita Gross


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National Income (GNI), which is equal to GDP less primary income payable to non-residents
plus primary income receivable from non-residents.

6.2 Combining achievements into an aggregate measure
Perhaps the most radical innovation introduced in 2010 was the shift to a geometric mean in
order to aggregate dimensional indices. This marks a significant conceptual change in the way in
which one conceives the relationship between different dimensions of capabilities.
The shift to the geometric mean addresses the issue of perfect substitutability: This was a
problematic assumption of the old formula, in that the level of priority to be given to a dimension
was invariant to the level of attainments.
The new HDI attains a compromise by adopting a functional form that is between the extremes
of perfect substitutability and perfect complementarity. There is a distinct advantage to the
geometric mean – unlike the arithmetic mean or other forms of aggregation with a non-unitary
elasticity of substitution, the rankings produced by the geometric mean are invariant to the scale
in which each variable is measured.
Consider the comparison between Japan and France in the old functional form: Japan has a
higher life expectancy than France, with a higher education index and also a slightly higher per
capita income. With the additive functional form, Japan ranks 6 positions above France. But if
we were to change the maximum for life expectancy by 10 years, we see that Japan drops by 2
positions relative to France. This is problematic as thresholds are likely to be continuously
updated s the world experiences progress. This problem does not affect the new HDI, however.
In the same example but with the new functional form, the relative ranking between Japan and
France is unaffected by the choice of maxima, with Japan always occupying three positions
above France.
The choice of minimum, in contrast, will continue to have significant implications for rankings
even in the geometric mean. This makes sense because the minima have a concrete meaning as
subsistence indicators – values below which it would be very difficult for a society to survive
over time. In the new formula, these subsistence values are derived from the historical and
epidemiological literature.

6.3 Addressing other critiques
Another concern with the HDI relates to its potential redundancy, given the high correlation of
the index with its underlying components. The 2010 Human Development Report addresses this
criticism head on, by showing that this criticism is fundamentally unfounded. It explores how the
HDI illuminates investigations of advances in human development over time. The 2010 Report
argues that the picture of development obtained from looking at the past forty years through a

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human development lens is vastly different from that obtained through a sole focus on economic
growth.
To take just one example, China is by far the economy with the greatest rate of economic growth
in that period – its annual per capita growth rate of 7.6 percent significantly exceeds not only the
world average (1.8 percent) but also that of the second highest growing economy (Botswana, 5.6
percent). But China ranks 64th out of the same 135 countries in terms of average improvement in
non-income HDI, and is one of only 10 countries in the world with a lower gross enrolment ratio
today than in 1970. More generally, only three of the top 10 fast growing economies for the
period of study are also top improvers in the HDI – the majority of countries that get into the list
of top HDI performers do so because of their performance in terms of health and education, not
income. If one looks at changes over time instead of levels, the redundancy argument disappears.
Critics have argued further that the HDI categories that used to classify countries into low,
middle and high levels of human development are not robust to data revisions over time. This
was because the numerical HDI thresholds used to define these categories (0.5 and 0.8) were
kept fixed even after changes in methods and data. This valid criticism was addressed in the
2010 Human Development Report by changing the method used to create country categories.
Rather than using fixed thresholds, countries are now grouped by quartiles of the HDI
distribution. The problem of change in development groups due to data updates or formula
revisions is no longer an issue, because countries are grouped by HDI rank, not value.
Some recent criticisms have pointed to “paradoxes” that would arise if a society tries to
maximize the HDI. These criticisms are based on the incorrect premise that the HDI is a welfare
or utility function. There are at least three reasons why one should not recommend that societies
try to maximize the HDI. To begin with, not all elements of human development – such as
political freedoms, equity or sustainability - are included in the HDI. Second, the expansion of
capabilities is only one of the reasons why people may value the components of the HDI. People
may enjoy the luxuries that come from higher levels of income even if these don‟t contribute to
them leading substantively different lives. Third, the HDI is severely limited by data constraints,
and thus one can at best expect it to give a rough approximation of a country‟s relative
development level and progress.
Enabling debate
The Human Development Reports have always stressed that the HDI is not and was never
intended to be a definitive measure of development. By design, the HDI is a simple measure that
uses available international indicators (that are inevitably imperfect), that provides a broad vision
of the progress of people. The aim is to stimulate discussion and debate, including about the
appropriate ways to think about wellbeing and progress. As symbolized by the Human
Development Report website‟s introduction of online tools that allow users to construct their
own indices with variable weights and indicators, the HDI should be understood as a starting
point of a global conversation about development, rather than an endpoint.


18

7. CONCLUSIONS
This paper has considered how well the HDI represents Human Development when broadly
defined. Following other contributions in this area, the paper identified eleven categories of HD
which seem to encompass all the major dimensions of human development. For each category,
then identified a potential set of indicators which seem to be plausible measures and for which
data are available. The paper investigated correlations among these measures, and, in order to
reduce the number of variables representing each category, included only one indicator for any
set of indicators that are highly correlated with each other, also retaining any indicator that does
not show a high correlation with the other indicators in its category. The aim was to include only
variables which are broadly independent of each other.
This paper explored empirical correlations and did not attempt to investigate causality. The basic
purpose, however, is not to be definitive but to show that extending the concept and
measurement of Human Development to a broader set of dimensions seriously affects the way
one should measure and assess country performance.
In future work in this area, researchers should intend to identify typologies of developing
countries/regions according to their success or failure with respect to the different dimensions of
HD and relate this to potential policy choices. To the extent that data are available, we would
also like to trace the historical progress of the current OECD countries in the various categories,
which may help in drawing conclusions about transitions over time.


19

REFERENCES
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