Human Development Measurement

1. Human Development Measurement Francesco Burchi Francesco.burchi@die-gdi.de

2. Table of Contents • Human Development Index: goal, components and aggregation procedure • New HDI • Inequality-adjusted HDI • Gender Inequality Index

3. The Human Development Index (1990) • It was elaborated following strong criticisms towards GDP growth • “Any measure that values a gun several hundred times more than a bottle of milk is bound to raise serious questions about its relevance for human progress” (ul Haq 1995, p. 46).

4. Old and New HDI • It is a composite indicator that cannot reflect the whole Human Development Approach • It has the main objective to shift the focus from the means of development to the ends. • The HDI was introduced to cover both social and economic choices. • A composite index was constructed rather than a plethora of separate indices.

5. Old and New HDI (2) • One of the most important decisions was to keep the coverage and methodology of HDI quite flexible – subject to gradual refinements as analytical critiques merged and better data became available. • The old HDI is available for 177 countries, the new HDI 187.

6. HDI: Which components? • Components should reflect basic capabilities, which are those universally accepted and without which people are harmed (Fukuda Parr 2003, 97-99). • Problem of operationalization: only functionings. • How many components? Problem of multicorrelation, double-counting and simplicity.

7. HDI: Components (2) • Final components: 1.Long and healthy life 2.Knowledge 3.Decent standard of living • The first two are ends, the third is a means. It is a proxy for all other variables not reflected in the first two components.

8. HDI: Components (3) • Other components? Long debate…environment, mortality rates, political freedom… • The index should be taken with caution: choice of dimensions is also based on data availability (Sen).

9. Units of Measurement • Each component is measured by one or more variables, which have different units of measurement. • Standardization: • Max and min are not observed, but set on a theoretical basis. Min. mean years of schooling =0 (societies can subsist without formal education), max.=15 (projected maximum of this indicator for 2025). • Each component has a value >=0 and <=1.

10. Current goalposts

11. Component 1: Long and healthy life • Variable: life expectancy at birth • Unit of measurement: years. • Standardization: Kenya 2014 Max=85 Min=20 Life Expectancy Index=

12. Component 2: Knowledge • The Knowledge component is now measured by two variables (with equal weight): A) Mean years of schooling; B) Expected years of schooling • then aggregated through simple arithmetic mean…

13. HDR 2010 & 2014: changes in the HDI (2) • Mean years of schooling of adults (years) = average number of years of education received by people aged 25 and older in their lifetime based on education attainment levels of the population converted into years of schooling based on theoretical durations of each level of education attended (Barro and Lee, 2010) • Expected Years of schooling of children (years) = number of years of schooling that a child of school entrance age can expect to receive if prevailing patterns of age-specific enrolment rates were to stay the same throughout the child’s life (UNESCO Institute for Statistics, 2010).

14. An example Kenya 2014 Mean years of schooling Index Expected Years of schooling Education Index = (0.42 + 0.61)/2 = 0.515

15. Component 3: Decent standard of living • PPP-adjusted per capita GNI: GNI is the income accrued to residents of a country, including international flows such as remittances and aid, and excluding income generated in the country but repatriated abroad. • It is measured in USD Kenya 2014 Minimum= 100 Maximum= 75000

16. Aggregation • Weights: there is no evidence regarding which capability is more important, thus each of the three dimensions has a weight equal to 1/3. • Aggregation procedure: geometric mean. No perfect substitutability across the dimensions: a low achievement in one dimension is not perfectly compensated for by high achievement in another dimension. New HDI = Indexlife1/3 · IndexEducation1/3 · IndexIncome1/3 HDI_Kenya = 0.641/3 · 0.515 1/3 · 0.501 1/3 = 0.548

17. The New HDI

18. HDI tables • HDI Value (between 0 and 1) • HDI Ranking • Division of countries in 4 groups: • VeryHigh Human Development Countries (HDI>=0.80) • High Human Development Countries (0.80>HDI>=0.70) • Medium Human Development Countries (0.70>HDI>=0.550) • Low Human Development Countries (HDI<0.550)

19. Exercise • Questions • What is the value of the HDI for these 7 countries? • What is their ranking based on the HDI? • How could we compare country’s relative position depending on whether we use GNI or HDI as a measure of development? • Does the HDI ranking changes if we aggregate dimensions through arithmetic rather than geometric mean?

20. HDR 2010 & 2014: changes in the HDI(http://hdr.undp.org/sites/default/files/hdr14_technical_notes.pdf ) • Goalposts are changed: max and min are not observed, but set on a theoretical basis. Min. mean years of schooling =0 (societies can subsist without formal education), max.=15 (projected maximum of this indicator for 2025. • The Knowledge Component is now measured by two variables (with equal weight): A) Mean years of schooling; B) Expected years of schooling - Critique to the binary nature of adult literacy

21. HDR 2010 & 2014: changes in the HDI (2) • Mean years of schooling of adults (years) = average number of years of education received by people aged 25 and older in their lifetime based on education attainment levels of the population converted into years of schooling based on theoretical durations of each level of education attended (Barro and Lee, 2010) • Expected Years of schooling of children (years) = number of years of schooling that a child of school entrance age can expect to receive if prevailing patterns of age-specific enrolment rates were to stay the same throughout the child’s life (UNESCO Institute for Statistics, 2010).

22. HDR 2010 & 2014: changes in the HDI (3) • PPP-adjusted per capita GNI replaces PPP-adjusted per capita GDP in the component “decent standard of living”: this is because GDP is the monetary value of goods and services produced in a country, GNI is the income accrued to residents of a country, including international flows such as remittances and aid, and excluding income generated in the country but repatriated abroad. - Moreover, natural logarithm replaces that with the base of 10.

23. HDI Vs. GDP • GDP focuses on the average income owned, while HDI tells us also about the DISTRIBUTION and the USE of income for valuable purposes. • GDP cannot be adjusted following people’s diversity (disability, age, sex, metabolism = conversion factors). • HDI shows directly the areas where performances are eventually low, thus where interventions should be made. • HDI can be disaggregated, by gender, ethnicity, region …. • HDI can also tell us about future economic growth because having accumulated human capital (education and health) can lead in the future to the enlargement of economic possibilities.

24. HDR 2015 • HDI 2015 Table 1: • http://hdr.undp.org/en/composite/HDI

25. The Inequality-adjusted HDI

26. Inequality-adjusted HDI (2010) (see notes HDR 2014 and http://hdr.undp.org/en/faq-page/inequality-adjusted-human-development-index-ihdi#t293n91 ) • The IHDI adjust the HDI for inequality in the distribution of each dimension across the population • IHDI=HDI if there is no inequality in all the dimensions (thus, IHDI<=HDI) • Data source different from HDI data source because we need information on the distribution of life expectancy, schooling, and disposable income/consumption.

27. IHDI: Step 1 • Measuring inequality in each of the 3 dimensions • Ax >=0 because geometric mean cannot be higher than arithmetic mean • The higher the difference between the two means, the higher inequality is. Geometric mean of the distribution Arithmetic mean of the distribution

28. IHDI: Step 2 • Adjusting the dimension indices for inequality • The inequality-adjusted income index, I*IIncome, is based on the unlogged gross national income (GNI) index, I*Income. Inequality measure Dimension Index

29. IHDI: Step 3 • Aggregation through geometric mean

30. The Gender Inequality Index (2010) • Replaces the Gender-related Development Index and the Gender Empowerment Measure • Main drawbacks of past indicators: • Unreliable data especially for gender-disaggregated income • Mix of absolute and relative variables • Main focus on gender bias in elites and urban areas (in the case of GEM) • Computed for 140 countries

31. GII: main purpose To highlight women’s disadvantage in 3 dimensions: • Reproductive health • Empowerment • Access to labour market

32. GII: Variables (http://hdrstats.undp.org/en/indicators/24806.html) • Reproductive health: maternal mortality ratio and adolescent fertility rate (number of births per 1,000 women age 15-19 years) • Empowerment: share of parliamentary seats by sex and attainment at secondary or higher levels • Labour market: labour market participation rate (Percentage of the working-age population (ages 15–64) that actively engages in the labour market, by either working or actively looking for work)

33. GII calculation • see technical notes HDR 2010: http://hdr.undp.org/en/media/HDR_2010_EN_TechNotes_reprint.pdf and • http://hdr.undp.org/en/statistics/gii/

34. PPP Purchasing power parity in US$ The purchasing power of a country’s currency, defined as the number of units of that currency required to purchase the same (or very similar) representative basket of goods and services that a US dollar (the reference currency) would buy in the United States.