The Human Development Index: "Handle with Care" Author(s): Allen C.

Kelley Reviewed work(s): Source: Population and Development Review, Vol. 17, No. 2 (Jun., 1991), pp. 315-324 Published by: Population Council Stable URL: http://www.jstor.org/stable/1973733 . Accessed: 03/02/2013 17:14
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The Human Development Index: "Handle with Care"

ALLEN

C.

KELLEY

growth of grossnationalproductper capita (GNP/N)as the singulargoal and measure ofnational development. fails GNP/N to capture thedistribution ofthebenefits ofeconomic progress-inparticular, thenumber and condition of personslivingin poverty; and it abstracts froma multitude of specific factors thatrelatedirectly to human welfare-forexample,the benefits of health,education, and political and social freedoms. Thearguments advancedin favor ofusingtheGNP/N goal and measure have been itssimplicity, the assertion thatit represents a reasonableproxy for several dimensions ofhumanwelfare, and mostimportantly, theabsence of an alternative singlemeasurethatbetter approximates human developin theaggregate. ment Such an alternative measurehas recently been offered by the UnitedNationsDevelopment Programme (UNDP) in itsHuman Development Report1990 (HDR) (New York: Oxford University Press),which unveilsa "Human DevelopmentIndex" (HDI). The UNDP appropriately recognizes the considerable in conceptualizing difficulty and measuring the somewhat nebulouscondition of humandevelopment, and thusnotesthat the HDI "opens the debate" (p. iii) thatwill resultin refinements of both the analytical framework and the empirical inputsovertime. I proposeto participate in thatdebate.I will challengethe usefulness of the conceptual framework of "human development" as specifically repin the HDI, illustrate resented the sensitivity of thismeasureto plausible and arguethatit offers refinements, onlylimited insights beyondthoseobtainedby smallmodifications to simplemeasuresofeconomicoutput.Until theconceptual oftheHDI aremorefirmly underpinnings established, analysts and policymakers are better servedby using much simpler measuresand
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ECONOMISTS AND POLICYMAKERS have long questioned the emphasis on

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methods for evaluating humandevelopment. In themeantime, itis important thatthenature and pitfalls oftheHDI be understood. I contend thattheHDI is a tool of limitedvalue, and my goal is to stampthisnew tool with a precautionary label: "Handle withCare."

Definition, measurement, and assessment ofhumandevelopment

Definition intheHDR as "a process Humandevelopment is defined ofenlarging people's choices" (p. 1). According to the HDR, this is accomplished most fundamentally by livinga long and healthylife,being educated,and havinga decent standard ofliving; and itis bothaugmented and facilitated bypolitical and personalself-respect. freedom, While this guaranteedhuman rights, represents a defendable listofcomponents of individual (or indicators) weltheindicators fare, thekeyto appraising thislistis whether can be aggregated in a way thatpermits assessment, and thatexposes the impactsof policy Such aggregation thespecification between manipulation. forces oftradeoffs thevariousindicators It also results in an indexthat ofhumandevelopment. is potentially capable of answering the central questions:when has human to what level or extent;and what has caused it? development occurred; Measurement To thisend, the HDR unveilsa "Human Development Index," a composite of lifeexpectancy at birth, adult literacy, and real grossdomesticproduct of the HDR's conper capita (GDP/N).Because the HDI is the centerpiece itis important thisindexbe understood and assessed. that ceptual framework, In particular, one seeksto knowhow theHDI differs from theusual measure of development and weaknesses, (per capita GNP), what are its strengths and in what ways it can be improved. The mostcommonly used indexesofwelfare and poverty are based on an absolutestandarddefinedin termsof a specified bundle of goods and often tiedto minimum services, caloricneeds. (For example,the WorldDe1990 [WDR-1990] uses US$370 GDP/N in 1985 purchasingvelopment Report dollars.Thisrepresents theupperrangeofthepoverty power-parity linesin a number oflow-income In contrast, countries. theHDI is based on a relative and represents an assessment standard ofthe extent to whicheach country in attaining is successful the maximumvalue (described as "adequate" or a specified "desirable")within rangeofvaluesfor each humandevelopment indicator. of the extent to whicha country fallsshortof the (A calculation

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index.") In thecase oflifeexpectancy maximum value yieldsa "deprivation values forthe 130 the lowestand highest thisrangeis simply and literacy, in the countries the UN data sample.For lifeexpectancy, rangeofvalues is 36 years(the difference between78 yearsforJapan and 42 yearsforAftherangeis 88 and SierraLeone in 1987); forliteracy, ghanistan, Ethiopia, in severaldevelopedcountries between100 percent percent (thedifference in Somalia in 1985). and 12 percent between is $4,641 (the difference The rangein the GDP/Nindicator measures of$220 and $4,861,theaverageofthepoverty-line Zaire'sGDP/N purchasing minimum denotedas the"North in severaldevelopedcountries, power by usinga "purchasing measureis constructed power"). The GDP/N and consumer poweracrosscountries; index"to better reflect buying parity less weightto imto provideconsiderably intologarithms it is transformed in spendingpower at higherlevels of income. (Hereafter provements is takento be in purchasing-power-parity dollars.)Thismathematical GDP/N economichyand important captures the widelyembraced transformation the"hapofincome-the notionthat marginal utility ofdiminishing pothesis at an additional dollarofincomeis greater gainedfrom piness"or "utility" are analytically lower than at higherlevels of income. Both adjustments index figures althoughmany of the purchasing-power-parity appropriate, is transformation logarithmic are stillof dubious quality,and the specific arbitrary.' necessarily withthe computation of a HDI starts The calculationof a country's These calof human development. index" foreach indicator "deprivation depculations are bestexplainedwithan example.Kenya'slifeexpectancy = thatKenya, indexis .53 (78 59)/(78 42). Thisvalue indicates rivation in thelifeexpectancy witha life of59, is approximately half-way expectancy Similar (78) worldwide. rangebetweentheworst(42) and bestperformance A "composite deprivation and GDP/N are compiled. adultliteracy indexes for (Technically, is obtainedby simpleaveraging. indicators index"ofthethree whose GDP/N exceedstheassumed is zero forcountries GDP/N deprivation no deprivalue ofzero represents line.) Since thelowestattainable poverty the level of human development), the highest vation(and correspondingly from index unity. thecomposite deprivation HDI is obtainedby subtracting honorswithan HDI value of .996; Nigeris lowest Japangetshighest witha value of .116; and the UnitedStatesscores.961. Some 44 countries as having"low" witha combinedpopulationof 1.47 billionare classified witha combined (HDI valueslessthan.5); 40 countries humandevelopment as having"medium"humandevelof2.06 billionare classified population witha combined opment(HDI valuesbetween.5 and .79); and 46 countries as having of1.47billion areclassified "high"humandevelopment population is offered forthesespecific they No defense cutoffs, although (.8 or higher). in each category. of countries roughly equal numbers provide

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Assessing themeaningand usefulness oftheHDI can be made on two grounds: theextent to whichitis based on an appropriate conceptual frameworkand is properly measured, and theextent to whichit provides new or modified insights intodevelopment. I: The conceptual Assessment and measurement framework An examination ofsome of theunderlying and features assumptions ofthe HDI at once illustrates in constructing the difficulty such an index,and the in usingit. cautionthatmustbe exercised First, theHDI isbasedon a country's position alonga range ofmaximum and minimum valuesfor each indicator ofhumandevelopment. The specific in the HDI can be sensitive weightof thatindicator to the choice of these for endpoints, whichtheHDRtends toselect values.Forexample, exceptional an adequate/desired lifeexpectancy is chosen to be 78, a value attained by only one country but reasonablevalue might (Japan). A less exceptional, have been 73 (theaverageofthedevelopedcountries in 1987), or even 71, in 1975. (Adopting thevalue forthesecountries thelatter value would raise .72 to .78, placingitclose to thecutoff China'sHDI from for"high" human It would have been usefulhad theHDR includedtests development.) ofthe of HDI rankings to alternative sensitivity endpoints. In fact, theHDI turns outtobe quitesensitive tothechoiceofmaximum I settheadequate/desirable life expectancy. As an experiment, life expectancy at age 73 and evaluatedthe impact. Thisraised22 countries from "low" to
dium" to "high" human development.
"imedium" human development and raised another ten countriesfrom"me-

the HDI effectively assumesthatlittle or no Second,as implemented, in human development can be made by the developedcountries. progress Theyall are close to the maximumvalues in literacy and lifeexpectancy, and mostexceed the "Northminimum purchasing power." The HDI values forthe developedcountries .96 to 1.00. As a result, the HDI has varyfrom countries. operational meaning onlyforthedeveloping (The HDI values for those countries feature that varyfrom.12 to .95.) This is a disappointing in thefuture be overcome might ofhuman bytheuse ofimproved indicators For example,surely the attainment of educationbeyondthe development. levelhas a favorable on "enlarging literacy impact people'schoices."Possibly or a proxythereof yearsofeducational attainment, (e.g., enrollment rates), would better the benefits of capture expandededucationon humanchoice.2 Third, the variousindicators of human development are givenequal Whilea priori it is difficult to justify weight. the any set of weights, testing of the HDI to alternative sensitivity weightswould have been useful.The occurswiththe relatively low weightaccordedto GDP/N greatest problem

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in moderateto high-income countries sincethe variablemeasuredby this particular indicator (income) can be used to acquire and/or produceeither oftheother twoindicators (improved healthoreducation).Possibly a weight roughlyreflecting the acquisition/production-transformation would have been appropriate underthepremise thatin some countries individuals may well have electedto use their incometo expandchoicesin ways thatdo not result in,say,improved educationor health.Indeed,itmight be arguedthat the capacityto choose among many dimensionsof human development accordedby expandedincomein particular merits giving a relatively higher weightto thisindicator. theproduction-transformation Alternatively, betweenincomepercapita and otherhuman development indicators may be nonlinear, and thus might justify unequalor evenvariable weights byincomelevel.Forexample, relatively small expenditures on immunization of childrenlikelyconvey much greater impacton lifeexpectancy at birth(and thus human devela' la HDI) thanrelatively opment on life-support largeexpenditures systems in old age. The HDR neither to sustainindividuals the use of logajustifies rithms to transform incomeper capitaon thesegrounds, nor providesany empirical evidenceto revealthe natureof thisproduction-transformation. Indeed,theHDR effectively treats thethree indicators as independent ofone another.Giventhe likelihoodof strong dependenceas notedin the above biases (e.g.,unintended example,unintended accordedto thethree weights indicators) can be introduced that meritdetailed scrutiny in subsequent revisions ofthe HDI. in thechoiceoftheGDP/N Fourth, there is asymmetry value endpoint (the developedcountries' forliteracy poverty line) and the endpoints and life expectancy (health), takenas thehighest country valueworldwide. Comthisimplicitly to literacy putationally, provides and longevity greater weight thantoGDP/N. infact, If, thelogarithmic transformation ofGDP/N adequately captures ofincome,thenwhynotuse themaxdiminishing marginal utility imumvalue forthisindicator, or alternatively, the "average" GDP/N of the high-income countries? Even thisproceduredoes not equally weightthe threeindicators in a welfaresense because thereis plausiblydiminishing tohealth and education marginal utility as well.A consideration expenditures ofthe complexity ofthesefundamental conceptualissues,and the arbitrarinessofanysetofweights, likely accounts forthelackofanydefense offered in the HDR forthe equal-weight assumption. To testthe sensitivity of the HDI to the specific transforlogarithmic I recalculated mationof GDP/N, the HDI using $12,952 as the adequate/ desirable to theaverageofthedeveloped endpoint value,whichcorresponds countries' GDP/N. This twofold increasein incomeper capita had a much smallerimpactthan expected.For example,only fourcountries were reclassifiedfrom"medium" to "low"; and only fivecountrieswere reclassified

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from"high" to "medium." The HDI does not appear to be particularly to finding. It is difficult cutoff, a disquieting to the poverty-line sensitive to from $4,861 in income per capita, increase believe that such a large people's choices." $12,952, would have onlya smallimpacton "enlarging is advanced not onlyby improveFifth, overallhuman development more butalso bytheir indicators, ments in thevarioushumandevelopment indexesbased on of welfare This is a commonproperty equal distribution. is useful.SierraLeone's life An example of thisproperty criteria. relative between1960 and 1987-by some atbirth increased significantly expectancy would no humandevelopment from 32 to 42 years.Surprisingly, 31 percent, bytheHDI sinceSierraLeone's relative be attributed to thisaccomplishment to did not change.Apparently, livingmuchlongeris not sufficient position in humandevelopment. an improvement register the strong weightaccordedto the disThese examplesexpose vividly inby human development ranking of countries and the relative tribution detailed in HDI. This justification, the requires weighting dicators specific led theWorld silent. Suchconsiderations aboutwhichtheHDI is substantially since Bank (WDR-1990) to selectan absolutemeasureof "poverty," one . . At maximum inequality is notthesameas inequality. [p]overty Butminimum is high. inequality has everything and,clearly, poverty person no oneis poor)as with zeropoverty all areequal)is possible (where (where all arepoor).(p. 26) maximum wellas with (where poverty to LabourOrganization And such considerations have led the International emphasizean absolutemeasureof "basic human needs." Of course,even using an absolute measure does not sidestepthe conceptualproblemof in absoluteand relative changeson theimpactofimprovements reconciling reprechangesdo not count at all-an assumption welfare unless relative the HDI. However,since the conceptof from the oppositeextreme senting the essence of the HDR's framework-constitutes relative deprivation-the thepoverty/human-development feature oftheHDR vis-'a-vis distinguishing and LabourOrganization, oftheWorldBank,theInternational assessments much more detailedand thisconceptmerits most nationalgovernments, thanis provided. defense convincing ofthe HDI can be made,but theabove shouldbe Otherqualifications index.The HDR idento recommend cautionin usingthepresent sufficient most notablyby tifies severalareas in which the index can be improved, and by taking and human rights, of politicalfreedom indicators including within of human development of indicators into account the distribution theUNDP plansto introduce data collection, countries. Based on additional in subsequent issuesofthe HDR. ofhuman deprivation modified indicators

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of the index as in otherdimensions therewill be improvements Hopefully than adult proxyforeducationalattainments well-for example,a better (a rathercrude measure) and a betterproxyforhealth than life literacy theywill not can be useful, at birth. Whilethesemodifications expectancy of approto the selection relating conceptualdifficulties resolvethe thorny of indiforeach index,the combining standards priateadequate/desirable ina meaningful and defendable arebothinterpretable that with weights cators based of human development the assessment sense,and especially welfare deprivation. on the conceptofrelative of the Havingsaid this,one should not downplaythe bold attempt beyond UNDP, withitsproposedHDI, to broadenour view ofdevelopment measure.However, giventhehighcostsand monumental theusual GNP/N itwould indevising measure ofhumandevelopment, an improved difficulties ofsuchan effort. In particular, toassessthebenefits atthis stage be appropriate use oftheHDI? have we obtainedfrom modified whatnew and/or insights insights II: New or modified Assessment the HDI is thatfollowsfrom The main and likelythe mostrobustinsight hereas Figure1 (based on Figure1.2 in theHDR), whichcompares displayed a ranking of countries by the HDI and the usual measureof economicdeinto US converted nationalproductper capita (GNP/N), velopment-gross disparity dollarsusingexchangerates.As notedby the UNDP, substantial
FIGURE 1 Ranking of countries by HDI and GNP/N
20 -18 - 16 HDI GNP/N - 14 - 12 z
1 m

0.9 0.8 0.70.6 0.5 0.40.3 -4 0.2 -2 0.1 0 10 20 30 40 50 60 70 80 I 90 100 110 120 130
01l

8 6

Countryrank

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existsbetweenthe two measures, especially at low rankings where GNP/N risesonlyslowlywhiletheHDI traces out a strong upwardtrend. Thisleads to the majorconclusionthat"Thereis no automatic linkbetweenthe level ofper capitaincomein a country and thelevel ofitshumandevelopment" Rephrasing thisconclusionin a dynamic context, and based on other data presented in the report, we may say that human development has progressed much more rapidly in the developing countries than economic development, as proxiedby the growthof GNP/N. While this is a useful insight, it is notparticularly novel,at leastto specialists in thefield. Indeed, it is a stylized factof recenthistory (sunumarized in the HDR, but standard in development textbooks as well) thatimprovements in educationand life have faroutstripped expectancy the growth in the thirdworld, of GNP/N and thatimprovements in thesesocial indicators have proceededfaster and at an earlier stageof development thanin the now-developed world. Possibly more interesting to our appraisalof the HDI is the frequent allegationthatthe "trickle down" of GNP/N growthto the masses of the third worldhas been disappointing. Thus,notonlyis thepreoccupation with GNP/N as a measureof economicdevelopment but we also inappropriate, need a broadermeasureof human development (like the HDI?) to rectify thisdeficiency. while the HDI-GNP/N Ironically, comparisons seem to cast doubton GNP/N as a measureof humandevelopment, it now appearsthat trickle down is dramatically iftheHDI is takenas the understated by GNP/N norm.Improvement in humandevelopment, to theHDI, is much according better thanGNP/N would suggest. Or is it? growth Another way of evaluating the contribution of the HDI to measuring welfareand human development is to compare it with the logarithm of GNP/N. After of diminishing all, the hypothesis of income marginal utility is widelyacceptedby all economists. While nonspecialists mightwell use GNP/N as a linearapproximation to welfare, teachers of development and development textbooks wouldcautionstudents against interpreting the"welfare"or "happiness"ofthe Swiss,witha 1987 GNP/N of $21,330, as being 165 timesthatofthe averageEthiopian, witha GNP/N of $130. In Figure2, therefore, I compareHDI withthe logarithm of GNP/N. The notabledisparity betweenHDI and GNP/N, as highlighted in the HDR, vanishes.Indeed,log GNP/N a reasonableoverallapappearsto represent proximation to the HDI.3 Of course,thereare conspicuousexceptions for specific theoil-exporters withhighGNP/N countries-mainly whose HDI is some socialist countries withhighliteracy overstated, and/or low mortality rateswhose HDI is understated, and a few others.However,in the develand inmostresearch opment basedon cross-country textbooks, comparisons, thesecountries are almostalways viewed as outliers or special cases. The HDI mainly thisclassification. confirms
(p. 15).

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FIGURE 2
0.9 0.8 0.7 -3.6
-

Ranking of countries by HDI and log GNP/N

4.2 4 HDI 3.8

0.6 t
0.5 -3 0.4 -2.8 0.30.2

Log GNP/N

3.4 3.2Z

2.6 2.4 2.2 10 20 30

i

0 .1 r
0.0

40

50

60

70

80

90 100 110 120 130

Countryrank

The bottomline
new or modified insights to providing only modestly The HDI contributes ifthe withtheusual measureofeconomicdevelopment (GNP/N) compared into logarithms to capture,forwelfarepurposes,the latter is transformed of income. (The marginal utility widelyembracedconceptof diminishing whenmaking theimportance ofthishypothesis HDI does indeedunderscore
welfare assessments.) Moreover, most of the "exceptional" countries (e.g.,

without theuse ofthe HDI. as outliers the OPEC states)are usuallytreated it mustdo so by if the HDI is to make a major contribution, As a result, a usefulquantitative assessment of absolutechangesin human providing caution must be exercisedin interHowever,considerable development. foundation conceptual giventhequestionable changes, preting suchabsolute the used to establish of a relative welfare assumptions index,the arbitrary inwhichthey and thespecific manner areproxied, oftheindicators endpoints to combine and thelack of an analytical basis forselecting weights specific inforthe present indexprovidesonlylimited the indicators. Additionally, and fails to include within countries of indicators on distribution mation the and human freedoms of,political information on, and an analysis systematic two areas wherenotableimprovements it is in theselatter Plausibly rights.4 and very ofhumandevelopment (e.g.,log overtheexisting simplemeasures I at the to made. therefore conclude that are be present time,5 likely GDP/N) indexcontributes little to theassessment ofhuman thehumandevelopment

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development, and maywell distract from thenewlylaunchedand otherwise valuable HumanDevelopment which represent a usefuladditionto Reports, the growing listof annual monitoring on the statusof worlddeexercises velopment. Notes
1 Usingthe purchasing-power-parity in- tively. The logtransform yields a substantially dex rather than official exchangeratescan improved and reasonablestatistical fit. havea sizableimpact on theranking ofspecific 4 The UNDP plans to incorporate these countries. For example,based on official ex- additions in future modifications ofthe HDI. is $130 and $150 (in change rates,GNP/N 5 As an interim measure,I recommend 1987) for Zaire and Ethiopia,respectively; in purchasing-powereither using (1) GDP/N based on thepurchasing-power-parity index, with parity dollars, countries classified into is $454 and $220, respectively. GDP/N high to low human development levels by 2 This is recognized by the WorldBank income cutoffs that provideless weightto in its measurements of "poverty."For ex- higher incomes, or (2) GDP/N in purchasingample, WDR-1990(p. 29) uses enrollment power-parity into logadollars,transformed rates, lifeexpectancy, and under-five mortal- rithms. This singlemeasureshould thenbe ityas social indicators qualifying the simple qualified by measuresof intra-country absomeasuresbased on GDP/Nin lute poverty, poverty-line plus a few selectedindicators 1986 purchasing-power-parity dollars. relating to health, education, lifeexpectancy, 3 To evaluate this assessment and the like. The World quantita- politicalfreedom, HDI was takenas a linearfunction in itsanalysis tively, of Bankuses thefirst of procedure in the WDR-1990. and log GNP/N, for thesampleof 130 poverty GNP/N, r2sof .40 and .71, respeccountries, yielding

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