Measuring Development

1. Growth captures how much a country produces but says little about how that output affects people's lives.
2. Development is wider, taking in progress in health, education and living conditions, not simply a larger economy.
   1. Because income alone cannot capture these wider gains, economists use composite indicators such as the Human Development Index.

The Human Development Index

1. The health dimension is measured by life expectancy at birth, treated as a sign of better nutrition, healthcare and sanitation.
2. The education dimension is measured by mean years of schooling and expected years of schooling.
   1. Mean years measures the schooling already received by adults, while expected years measures the schooling a child starting today can expect to receive.
3. The living standards dimension is measured by real GNI per capita at purchasing power parity (PPP).
   1. Using PPP adjusts for differences in the cost of living between countries, giving a fairer comparison of what incomes can actually buy.

Calculating the HDI

1. Each of the three dimensions is first turned into an index between 0 and 1, scaled against agreed minimum and maximum values so that 1 is the best outcome and 0 the worst.
2. The three dimension indices are then combined using a geometric mean to give an overall HDI score between 0 and 1.
   1. A geometric mean means weak performance in one dimension is not fully offset by strength in another, so a country needs progress across all three to score highly.
3. A score closer to 1 indicates a higher level of development, letting countries be ranked and tracked over time.

$$dimension\; index=\frac{actual-minimum}{maximum-minimum}$$ $$HDI=\sqrt[3]{I_{health}\times I_{education}\times I_{income}}$$

Advantages and Limitations of the HDI

1. The HDI is broader than GDP alone because it captures health and education as well as income.
   1. Two countries with similar incomes can have very different HDI scores if one has longer life expectancy and more schooling.
   2. At the extremes, Norway and Switzerland record the highest HDI values, close to 1, while low-HDI economies such as Niger and the Central African Republic sit near the bottom of the ranking.
2. It provides a single, standardised measure that allows comparison between countries and over time.
3. However, the HDI ignores income inequality and the distribution of income within a country, so a high average can hide gains shared very unevenly.
4. It says nothing about the environment, political freedom, human rights or cultural wellbeing.
5. It also measures the quantity rather than the quality of schooling and healthcare, since years of schooling and life expectancy do not reveal whether the teaching or medical care is good.

Other Indicators of Development

1. These composite indices complement the HDI by capturing dimensions it leaves out, such as inequality, gender gaps and the environment.
2. Single measures are also used, such as access to clean water, mobile phones or the internet.
3. Health indicators such as doctors per thousand people give a further, focused view of a country's development.

Is the HDI a good measure of development?

1. It is a strong headline measure because it goes beyond GDP to capture health and education, so two countries with similar incomes can score very differently, and it is standardised for comparison over time.
2. But it ignores the distribution of income, so a high average can mask deep inequality, which the Inequality-adjusted HDI tries to correct.
3. It also omits the environment, political freedom and human rights, and measures the quantity rather than the quality of schooling and healthcare.
4. On balance, the HDI is a useful and comparable indicator but is best used alongside others such as the MPI or GPI rather than on its own.