Lane Community College

ECON 204 - Introduction to
INTERNATIONAL ECONOMICS

 




UNDP - HDR 06 - HDI
What is the human development index (HDI)?
The HDI – human development index – is a summary composite index that measures a country's average achievements in three basic aspects of human development: health, knowledge, and a decent standard of living. Health is measured by life expectancy at birth; knowledge is measured by a combination of the adult literacy rate and the combined primary, secondary, and tertiary gross enrolment ratio; and standard of living by GDP per capita (PPP US$).

For further details on how to calculate the HDI, see UNDP, HDR 2006 : HDI Calculator

How is the HDI used?
• To capture the attention of policy makers, media and NGOs and to draw their attention away from the more usual economic statistics to focus instead on human outcomes. The HDI was created to re-emphasize that people and their capabilities should be the ultimate criteria for assessing the development of a country, not economic growth.
• To question national policy choices - asking how two countries with the same level of income per person can end up with such different human development outcomes (HDI levels). For example, Viet Nam and Pakistan have similar levels of income per person, but life expectancy and literacy differ greatly between the two countries, with Viet Nam having a much higher HDI value than Pakistan. These striking contrasts immediately stimulate debate on government policies on health and education, asking why what is achieved in one country is far from the reach of another.
• To highlight wide differences within countries, between provinces or states, across gender, ethnicity, and other socioeconomic groupings. Highlighting internal disparities along these lines has raised national debate in many countries.

Is the HDI enough to measure a country's level of development?
Not at all. The concept of human development is much broader than what can be captured in the HDI, or any other of the composite indices in this Report (see gender-related development index, gender empowerment measure, and human poverty index). The HDI, for example, does not reflect political participation or gender inequalities. HDI and the other composite indices can only offer a broad proxy on the issues of human development, gender disparity, and human poverty. A fuller picture of a country's level of human development requires analysis of other human development indicators and information. See human development indicators - pdf not currently available.

Can GDP be used to measure human development instead of the HDI?
No. GDP per capita only reflects average national income. It tells nothing of how that income is distributed or how that income is spent - whether on universal health, education or military expenditure. Comparing rankings on GDP per capita and the HDI can reveal much about the results of national policy choices. For example, a country with a very high GDP per capita such as Kuwait, who has a relatively low level of education attainment, can have a lower HDI rank than, say, Uruguay, who has roughly half the GDP per capita of Kuwait. See: How HDI relates to GDP.

Why is GDP per capita (PPP US$) used over GDP per capita (US$) in the HDI?
The human development index (HDI) attempts to make an assessment of 175 very diverse countries and areas, with very different price levels. To compare economic statistics across countries, the data must first be converted into a common currency. Unlike conventional exchange rates, PPP (Purchasing Power Parity) rates of exchange allow this conversion to take account of price differences between countries. GDP per capita (PPP US$) accounts for price differences between countries and therefore better reflects people's living standards. In theory, at the PPP rate, 1 PPP dollar has the same purchasing power in the domestic economy of a country as 1 US dollar has in the US economy.

The 2004 HDI

HDI Trends