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

An overview of the functions, components and calculation of the HDI, with examples.

The expression Human Development Index is often heard in the media, especially when talking about extremely rich European countries, such as Norway and Switzerland, or very poor countries, mostly in Africa.

This may lead us to think that this is an indicator of a country's wealth, but this idea is not entirely correct.

The Human Development Index takes into account different factors that are considered necessary for people to live a full life in the country in which they live. We will now take a closer look at this concept, what it is based on, how it is calculated and what criticism it has received.

What is the Human Development Index?

The Human Development Index (HDI) is an indicator developed by the United Nations Development Programme (UNDP). an indicator developed by the United Nations Development Programme (UNDP) to assess how developed a society is. that serves to evaluate how developed a society is. It consists of an arithmetic measure that summarizes the progress and milestones of each country that lead to a better society, analyzed on the basis of three main dimensions: hope, education and economic wealth.

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 detect possible deficiencies and direct future programs, to detect possible shortcomings and to direct future international aid programs to address them.. This aid can 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 date back to 1990, when Mahbub ul Haq launched the United Nations Development Program (UNDP). This program was not only intended to take into account purely economic factors corresponding to a country's wealth, but also to determine which policies are implemented by the state that are people-centered, especially in terms of the wealth of the country, what policies are implemented by the state that are people-centered, especially in terms of quality of life and education..

What is meant by human development?

Human development is understood as the process that a society undergoes when there are improvements in the living conditions of its citizens.. These improvements do not only imply an increase in the goods available to them, which will undoubtedly help them to satisfy their basic needs such as food, housing and transportation.

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 dignified life.their right to education and to have a dignified life. Thus, greater human development can be understood as synonymous with a high degree of freedom and number of options available to be or do what you want.

The dimensions of the human development index

As we have already mentioned, 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 basically based on the average number of years a person is expected to live as a result of being born and living in his or her country.. This measure also includes having access to adequate health services that facilitate the ability to live a long and healthy life.

2. Education

The education dimension 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 compulsory education.

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 done by taking into account various measures corresponding to life expectancy, education and wealth. This is why UNDP collects data from different UN programs each year to compile this indicator..

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

Once the UNDP has the data for each country, it is first necessary to prepare the dimension indices, values from which it will be possible to obtain the data for each country.These are the 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), average years of schooling 0 years (min) and 15 (max).
• Income. Gross domestic product per capita (2011 PPP $) 100 (min) and 75.000 (max)

Steps to follow

The following formula is used to calculate the dimension index for each specific case:

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 1which means that it has a very high level of development. On the other hand, if it has a minimum in everything, its HDI will be 0.

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

In education, both the minimum and average years of schooling expectancy is 0. Years of schooling expectancy peaks at 18 years, which is equivalent to having obtained a university degree in most countries of the world. On the other hand, average schooling peaks at 15 years, which is the maximum projected for this indicator in the coming years.

Finally, we have GDP per capita, setting its minimum figure at 100 constant dollars under purchasing power parity (PPP), and its maximum at 75,000,000 constant dollars under purchasing power parity (PPP).and its maximum at $75,000 PPP. The minimum is at $100 because, even in countries where reliable income data could not be collected, that amount of income is needed to subsist. On the other hand, 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 that figure.

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

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

As we have already mentioned, the Education Index is based on two measures, the expected years of schooling and the average number of years of schooling. To calculate it, the arithmetic mean of the two components is used. As for the income index, the variables in logarithm are taken into account, the variables in base 10 logarithms are taken into account to adjust the calculations..

Example of HDI calculation

Let us imagine an imaginary country with the following data:

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

First we calculate the dimension indexes for each of the three dimensions.

Health Index

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

Education Index

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

Income index

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

Once the dimension indices have been calculated, the only remaining step is the final oneThe final step is to calculate the human development index.

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 scores

After researching and studying the characteristics of each sovereign state, the Human Development Index gives values to each one of them. These values range from 0 to 1, and are organized in lists that go from the highest to the 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 0.95.with a score of 0.954, while the country with the lowest is Niger, with a score of 0.377.

Criticism of the index

Although it has served to raise awareness that it is not only wealth that determines how developed a country is, the Human Development Index has not been without controversy. More than a few people consider this indicator to be an unreliable measure of development..

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

Although the agencies on which the UNDP relies for its information are quite reliable, they are not infallible.. The UNDP compares data from different institutions, providing a combined final figure, which may be a combination of very accurate data or, coincidentally, may be wrong.

Another important area where the human development index failed until recently was the issue of inequality. To understand this, let us imagine a country where half of the population has a life expectancy of 80 years, while the other half has a life expectancy of 20. However, taking the average life expectancy, we would obtain that in this country, on average, people live about 50 years.

Finally, one of the criticisms made against him has been his conception of education.. This index gives the idea that the more years, the better education one has received. This idea turns out to be fallacious, since one can have been in school for many years and have received a bad education or have studied for a few years and have received good quality knowledge.

Bibliographical references:

• A. 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). Guía para calcular e interpretar el IDH. España: economipedia. Extraído de https://economipedia.com/guia/guia-para-calcular-e-interpretar-el-idh.html