Human Development Index (HDI): what it is and how it is calculated

In the media you hear, very frequently, the expression of the Human Development Index, about all when talking about extremely rich European countries, such as Norway and Switzerland, or very poor countries, mostly in Africa.

This may make us think that this is an indicator of the wealth of a country, but this idea is not entirely correct.

The Human Development Index takes into account different factors that are considered necessary for people to live fully in the country where they live. Below we will see in more depth this concept, what it is based on, how it is calculated and what criticism it has received.

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What is the Human Development Index?

The Human Development Index (HDI) is an indicator born from the hand of the United Nations Development Program (UNDP) that serves to evaluate how developed a society is. It consists of an arithmetic measure that synthesizes the progress and milestones of each country that lead it to have a better society, analyzed based on three main dimensions: hope, education and wealth economical.

The main objective of this indicator is to obtain objective data on the standard of living in each country of the world, in order to, in this way, detect possible deficiencies and direct future international aid programs in solving them. These aids may include offering monetary resources to activate the economy, in addition to helping the country in the provision of educational and health structures to improve the cultural and health level of the population.

The origins of the concept are in 1990, the year in which Mahbub ul Haq launched the United Nations Development Program (UNDP). This program not only intended to take into account purely economic factors corresponding to the wealth of a country, but also what policies the state applies that are people-centered, especially in terms of quality of life and education..

What is meant by human development?

Human development is understood as process that a society goes through when there are improvements in the living conditions of its citizens. These improvements not only imply an increase in the assets available to them, which, undoubtedly, they will help them meet their basic needs such as food, housing and transport.

It also implies the creation of an environment in which the human rights of each and every citizen residing in the country are respected, their right to education and to have a decent life. Thus, greater human development can be understood as synonymous with a high degree of freedom and a number of options available to be or do what you want.

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The dimensions of the human development index

As we have already commented, this index is based on three dimensions, considered as factors that determine whether a society is fully developed or not.

1. Life expectancy

This measure is based, basically, on the average number of years a person is expected to live because they were born and lived in their country. This measure also includes having access to adequate health services that facilitate living a long and healthy life.

2. Education

The dimension of education evaluated in the human development index is based on the country's adult literacy rate, the gross rate combined with enrollment in education at different levels (primary, secondary and higher), as well as the years of education duration mandatory.

3. Economic wealth

Economic wealth is measured on the basis of gross domestic product (GDP) per capita.

How is the HDI calculated?

The calculation of the human development index is made taking into account several measures corresponding to life expectancy, education and wealth. That is why Every year UNDP collects data from different UN programs to prepare this indicator.

Among the sources consulted we have UNDESA, which measures life expectancy at birth, UNESCO, ICF Macro Demographic and Health Surveys, UNICEF and OECD surveys, which measure expectancy and mean years of schooling, and the World Bank, the IMF and the United Nations Statistics Division, whose data indicate the gross domestic product per capita.

When UNDP has the data for each country, the dimension indices must first be developed, values ​​with which it will be possible to obtain the human development index itself. Each country can obtain the following scores for each dimension index:

• Health. Life expectancy in years, 20 years (minimum) and 85 years (maximum)
• Education. Expected years of schooling 0 years (min) and 18 (max), mean years of schooling 0 years (min) and 15 (max)
• Entry. Gross domestic product per capita (2011 PPP $) 100 (min) and 75,000 (max)

Steps to follow

To calculate the dimension index of each specific case, the following formula is used:

Dimension index = (current value - minimum value) / (maximum value - minimum value)

The values ​​of each dimension index seen above are not arbitrary. If a country has the maximum in everything, its HDI is 1, which means that it has a very high level of development. Instead, if you have minimums in everything, your HDI will be 0.

The minimum value set for life expectancy is 20, because, since the twentieth century, there is evidence that no country on Earth has a life expectancy lower than that age. As for its maximum of 85 years, it is considered a realistic measure according to the UNDP itself.

In education, both for the expected years of schooling and for the average, the minimum is 0. The expectation of years of schooling sets its maximum limit at 18 years, which is equivalent to having obtained a university degree in most countries of the world. On the other hand, average schooling sets its maximum at 15 years, which is the maximum projected for this indicator for the next few years.

Finally we have the GDP per capita, setting its minimum figure at constant $ 100 under purchasing power parity (PPP), and its maximum at $ 75,000 PPP. The minimum is $ 100 because, even in countries where reliable data on income have not been collected, that amount of income is needed to survive. On the contrary, the maximum is set at $ 75,000 because, based on studies by Kahneman and Deaton (2010), there are no significantly different gains in human development and well-being when GDP exceeds such figure.

Finally, once the indices of each dimension have been calculated, the calculation of the Human Development Index itself is performed, using the following formula:

HDI = (Health Index X Education Index X Income Index) ^ ⅓

As we have already commented, the Education Index is based on two measures, the expectation of years of schooling and the average years of schooling. To calculate it, the arithmetic mean of the two components is carried out. Regarding the Index on income, variables in logarithms base 10 are taken into account to adjust the calculations.

Example of HDI calculation

Let's imagine an imaginary country with the following data:

• Life expectancy in years: 70 years
• Expected years of schooling: 12 years
• Average years of schooling: 8 years
• Gross domestic product per capita: $ 10,300

First we calculate the dimension indices of each of the three dimensions.

1. Health Index

Health Index = (70 - 20) / (85 - 20) = 0.77

2. Education Index

• Expected years of schooling = (12 - 0) / (18 - 0) = 0.67
• Average years of schooling = (8 - 0) / (15 - 0) = 0.53
• Education Index = 0.67 + 0.53 / 2 = 0.93

3. Income index

Income Index = log (10,300) - log (100) / log (75,000) - log (100) = 0.70

Once the dimension indices have been calculated, only the final step remains: calculate the human development index.

4. Human development Index

HDI = (Health Index X Education Index X Income Index) ^ ⅓

We substitute in the formula:

Human Development Index = (0.77 0.93 0.70) raised to 1/3 = 0.8

Human Development Index Ratings

After researching and studying the characteristics of each sovereign state, the Human Development Index gives values ​​to each of them. These values ​​are between 0 and 1, and are organized in lists that go from highest to lowest degree of human development. The categories given to the country based on its score are as follows.

• Very high human development: scores above 0.80.
• High human development: scores between 0.700 and 0.799.
• Medium human development: scores between 0.550 and 0.699.
• Low human development: scores below 0.550.

Currently, the country with the highest human development index is Norway, with a score of 0.954, while the country with the lowest is Niger, with a score of 0.377.

Criticisms of this index

Although it has served a lot, especially to raise awareness that not only wealth determines how developed a country is, the Human Development Index has not been without controversy. There are not a few people who consider that this indicator is not a totally reliable magnitude.

To begin with, the HDI is only an indicator, it cannot encompass the entire reality that constitutes a society, leaving aside variables that can reflect a delicate situation in a country, no matter how good the educational, health and wealth system may to have. For example, if a country with an HDI of 1 suddenly suffered a sharp drop in its GDP and people began to starve, the HDI would not reflect it, since life expectancy would gradually fall. Thus, the HDI is an indicator of how developed the society is in the long term.

Although the agencies that UNDP relies on for its information are quite reliable, they are not infallible.. The UNDP compares the data from different institutions, offering a final combined data, which can be the combination of very precise data or, coincidentally, that could be wrong.

Another important area where the Human Development Index failed until recently was the issue of inequality. So that we understand, let's imagine a country in which half of the population has a life expectancy of 80 years, while the other half has a life expectancy of 20. Basically, half of the population lives four times longer than the other half, showing great inequality. However, taking the average life expectancy we would obtain that in that country we live, on average, about 50 years

By last, one of the criticisms that has been made has been his conception of education. This index shows the idea that the more years the better education has been received. This idea turns out to be fallacious, given that you may have been in school for many years and received a bad education or having studied for a few years and having received knowledge of good quality.

Bibliographic references:

• TO. Stanton, E. ( 2007). The Human Development Index: A History. PERI Working Papers: 14–15.
• Kahneman, D.; Deaton, A. (2010). "High income improves evaluation of life but not emotional well-being". Proceedings of the National Academy of Sciences. 107 (38): 16489–16493.
• López, F. J. (2019). Guide to calculate and interpret the HDI. Spain: economipedia. Taken from https://economipedia.com/guia/guia-para-calcular-e-interpretar-el-idh.html