Research Paper No. 2004/63 Composite Indices of Human Well-being. Mark McGillivray 1 and Farhad Noorbakhsh 2

Transcription

1 Research Paper No. 2004/63 Composte Indces of Human Well-beng Past, Present, and Future Mark McGllvray 1 and Farhad Noorbakhsh 2 November 2004 Abstract Ths paper surveys the varous composte well-beng ndces that have been nter-country assessments over the last 40 or so years, ncludng the well known Human Development Index (HDI). A number of ssues are consdered, ncludng the choce of components, component weghts, scale equvalence, non-lnearty, correlatons among components and the polcy relevance of such measures. A number of these ssues are examned n the context of a crtcal revew of the many crtcsms of the HDI and the Unted Natons Development Programme s responses to these crtcsms (some nvolvng changes to the desgn of the ndex). A basc premse of the paper s that ndces used for nternatonal well-beng comparsons should be relevant to the polces and ndvdual prortes of countres. Possble drectons for the future desgn and applcaton of composte well beng ndcators are dentfed, ncludng adopton of country-specfc varables, partcpatory, country and tme varant component weghtng schemes and the ncluson of human securty measures. Keywords: human well-beng, composte well-beng ndces, ncome per capta, Human Development Index, Physcal Qualty of Lfe Index JEL classfcaton: I31, D63, C43, C21 Copyrght UNU-WIDER UNU-WIDER, Helsnk, Fnland and 2 Centre for Development Studes, Unversty of Glasgow, UK Ths study has been prepared wthn the UNU-WIDER project on Socal Development Indcators (Measurng Human Well-beng) drected by Professor Mark McGllvray. UNU-WIDER acknowledges the fnancal contrbutons to the research programme by the governments of Denmark (Royal Mnstry of Foregn Affars), Fnland (Mnstry for Foregn Affars), Norway (Royal Mnstry of Foregn Affars), Sweden (Swedsh Internatonal Development Cooperaton Agency Sda) and the Unted Kngdom (Department for Internatonal Development). ISSN ISBN (nternet verson)

2 Acknowledgements The authors are grateful to meetng partcpants, especally Des Gasper, Stephan Klasen and Mozaffar Qzlbash, for helpful comments. The usual dsclamer apples. The World Insttute for Development Economcs Research (WIDER) was establshed by the Unted Natons Unversty (UNU) as ts frst research and tranng centre and started work n Helsnk, Fnland n The Insttute undertakes appled research and polcy analyss on structural changes affectng the developng and transtonal economes, provdes a forum for the advocacy of polces leadng to robust, equtable and envronmentally sustanable growth, and promotes capacty strengthenng and tranng n the feld of economc and socal polcy makng. Work s carred out by staff researchers and vstng scholars n Helsnk and through networks of collaboratng scholars and nsttutons around the world. publcatons@wder.unu.edu UNU World Insttute for Development Economcs Research (UNU-WIDER) Katajanokanlatur 6 B, Helsnk, Fnland Camera-ready typescrpt prepared by Anne Ruohonen at UNU-WIDER Prnted at UNU-WIDER, Helsnk The vews expressed n ths publcaton are those of the author(s). Publcaton does not mply endorsement by the Insttute or the Unted Natons Unversty, nor by the programme/project sponsors, of any of the vews expressed.

3 1 Introducton Human well-beng s often treated as a multdmensonal concept, consstng of a number of dstnct, separable dmensons. Theoretcal research has dentfed an array of dmensons. Often specfc to a partcular conceptualzaton of well-beng, these dmensons can be socal, physcal, psychologcal or materal n nature (Alkre 2002).1 Emprcal research has proposed a number of composte ndces ntended to measure mult-dmensonal well-beng, especally at the level of countres. At least 20 composte ndces have receved nternatonal attenton n the last four decades (Booysen 2002). The best known, and that whch has receved the most attenton, s the UNDP s Human Development Index (HDI) (UNDP ). Others nclude the Physcal Qualty of Lfe Index (PQLI) (Morrs 1979), the Combned Qualty of Lfe Indces (CQLI) (Dener 1995), and the Human Sufferng Index (HSI) (Camp and Spedel 1987, Hess 1989, Tlak 1992). Also ncluded n these ndces are Unted Natons Research Insttute for Socal Development (UNRISD) Level of Lvng Index (LLI) (Drewnowsk and Scott 1966), General Index of Development (GID) (McGranahan et al. 1972), and Socoeconomc Development Index (SID) (UNRISD 1970). The desgners of these ndces typcally emphasze that there s more to well-beng enhancement than materal enrchment, and therefore often combne what mght be loosely termed economc and non-economc well-beng ndcators. In some nstances the ndces are ntended to serve as alternatve or competng ndces, to tradtonal ncome-based measures, and therefore nclude non-economc varables only. Ths paper crtcally revews composte well-beng ndces. Its focus s on ndces of overall natonal well-beng achevement, as opposed to more specfc ndces of poverty, gender bas, sustanablty or sngle well-beng dmensons. Indces such as the UNDP s Gender-related Development Index, Gender Empowerment Measure, Capablty Poverty Measure, and Human Poverty Index (UNDP ), or the Combned Consumpton Level Index (Bennett 1951), Real Index of Consumpton (Beckerman and Bacon 1966), Index of Economc Well-beng (Osberg and Sharpe 2002), and Human Freedom Index (Humana 1992) are not consdered, therefore. A number of ssues are examned, ncludng the general structure of the ndex, the choce of components, unversalsm, component weghts, scale equvalence, component transformatons, the treatment of ncome, correlatons among components and polcy relevance. Most of these ssues are examned n the context of a crtcal revew of the many crtcsms of the HDI and the UNDP s responses to these crtcsms, some nvolvng changes to the desgn of the ndex. Possble drectons for the future desgn and applcaton of composte well-beng ndcators are dentfed, ncludng adopton of partcpatory, country and tme varant component weghtng schemes. It should be stressed that there s a huge lterature on the HDI that ncludes studes by Acharya and Wall (1994), Cahll (2002, 2004), Gormely (1995), Hcks (1997), Ivanova et al. (1998), Lüchters and Menkhoff (1996, 2000), McGllvray (1991), McGllvray and Whte (1993, 1994), Morse (2003), Murray (1991), Neumayer (2001), Noorbakhsh (1998a, 1998b, 2002) and Sagar and Najam (1998). The current paper does not do justce to ths lterature as t does not look at the full ranges of ssues rased n t or at the many useful revsons to 1 For the purposes of ths paper notons such as human well-beng, qualty of human lfe, human development, basc human needs fulflment are treated as synonymous. 1

4 the HDI t proposes. Nor does t do justce to a number of nnovatve, but less known, measures proposed n studes such as Maasoum and Nckelsburg (1988), Majumdar and Subramanan (2001), Slottje (1991) and Zam et al. (2001). The paper s nstead concerned wth selected core ssues. The paper conssts of a further seven more sectons. Secton 2 provdes a crtcal overvew of the structure of composte ndces and addresses some key ssues n the selecton of component varables. It pays specal attenton to the ssue of unversalsm. Secton 3 looks at methods used to acheve scale equvalence n component varables. Secton 4 examnes transformng values to reflect perceved non-lnear relatonshps, hghlghtng the case of the HDI ncome component. Secton 5 looks at correlatons between components and wth other well-beng measures and the weghtng of components. Secton 6 dscusses, manly n the context of the HDI, the polcy relevance of composte ndces used n nternatonal well-beng assessments. Secton 7 concludes, provdng remarks on the future desgn and applcaton of composte well-beng ndces. 2 Structure and components The general structure of most composte well-beng ndces s: W w = k j = 1 C, j = 1,..., n (1) j where w j s a weght and C,j s the jth component for country. Each component s usually ntended to measure achevement n some well-beng dmenson. Most ndces have common components capturng achevement n terms of health, educaton and ncomes, although there s some varaton among them. The PQLI, for example, contaned years of lfe expectancy, the adult lteracy rate and the nfant mortalty rate (Morrs 1979). The HDI currently contans years of lfe expectancy, the adult lteracy rate, the combned gross school enrolment rato and the logarthm of PPP GDP per capta (UNDP 2004).2 Early versons of the ndex contaned mean years of schoolng nstead of the thrd of these varables and an adjusted PPP GDP per capta based on varous thresholds (UNDP 1993). The HSI combned the followng ten varables: GNP per capta, nflaton rate, labour force growth, urban populaton growth, nfant mortalty, daly per capta calore supply, adult lteracy and an ndex of personal freedom (Tlak 1992, Camp and Spedel 1987). The UNRISD SID contans 16 components, whch nclude health and educaton status ndcators but also newspaper crculaton and a range of economc ndcators such as electrcty consumpton, foregn trade per capta, 2 The second and thrd of these varables are actually formed nto educatonal attanment ndex, whch s the second HDI component. In essence, they are sub-components, therefore. Ths ndex cab be wrtten as follows: C = α C + α C, 2 1,2,1 2,2,2 where α 1 and α 2 are weghts set at two-thrds and one-thrd respectvely, C,2,1 s country s adult lteracy rate and C,2,2 s that county s gross combned prmary, secondary and tertary enrolment rato. These varables are scaled wth a range of zero and 100. The scalng procedure s dscussed later. 2

5 economcally actve populaton wth electrcty, gas and water, agrcultural producton and GDP derved from manufacturng (UNRISD 1970). The choce of component varables has promoted much dscusson. Early ndces, ncludng the GID and SID, were crtczed as measures of structural change or actvty rather than measures of well-beng achevement (Morrs 1979, Thanawala 1990, Tlak 1992). The UNDP has, n many of ts Human Development Reports sought to provde a sold conceptual bass for the HDI by lnkng the ndex to Amartya Sen s noton of capabltes (Sen 1985, 1990, 1993, among many other works). The Human Development Report 1995, for nstance, noted that: The bass for selecton of crtcal dmensons, and the ndcators that make up the human development ndex, s dentfyng basc capabltes that must have to partcpate n and contrbute to socety. These nclude the ablty to lead a long and healthy lfe, the ablty to be knowledgeable and the ablty to have access to the resources needed for a descent standard of lvng. (UNDP 1995: 18) The three components of the HDI are ntended to reflect these three (cap)abltes. The UNDP has also sought to provde a precse defnton of human development, whch s analogous to human well-beng, lnkng t to the desgn of the HDI. The frst Human Development Report noted: Human development s a process of enlargng people s choces. The most crtcal ones are to lead a long and healthy lfe, to be educated and to enjoy a decent standard of lvng. (UNDP 1990: 10) The selecton of component measures s subject to a number of crtcsms. Irrespectve of how elegantly and emphatcally the justfcatons for components choces mght be artculated, n the fnal analyss the selecton s ad hoc. Hcks and Streeten (1979: 576) noted that n the case of the PQLI most serous scholars fnd t dffcult to accept the results of a composte development ndex wthout stronger theoretcal foundaton. What s ultmately requred, t would seem, s the known functonal form of a well-beng producton functon. Ths s acknowledged n Human Development Report 1993, whch observed that n an deal world the HDI s desgn would be guded by a meta producton functon for human development (UNDP 1993: 109). Unfortunately the precse form of ths functon s not known. A related ssue concerns the concept of unversalsm. As Anand and Sen (2000a) observe, unversalsm s the recognton of a shared clam of every person to the elementary or basc capabltes requred to lead a worthwhle lfe.3 Ths s n tself a defence of many composte ndces, ncludng the HDI, as few would deny that health, educaton and purchasng power are not unversal elementary capabltes, and as such essental elements of a well-beng vector. If so then t s approprate to measure wellbeng achevement among countres on the bass of these varables. But whle unversalsm offers a justfcaton for ncluson of certan varables n composte ndces, t also provdes a tellng crtcsm for the excluson of others as there are ndeed many other elementary, unversal capabltes or values that ought n prncple be ncluded n 3 Strctly speakng, Anand and Sen refer to ethcal unversalsm and not unversalsm per se. 3

6 them. One such value s basc human securty. Whle human securty can be varously defned, not beng the vctm of volence of physcal or other ntmdaton would appear to be a unversal value. Yet t s one whch has receved lttle attenton n dscussons centred on the HDI and other composte ndces. Another possble unversal value s poltcal freedoms or rghts. Dasgupta (1990) crtczed the HDI on these grounds, clamng that t s qute ncomplete; as t s oblvous to what s commonplace to call human rghts (UNDP 1993: 105). On a smlar ven, Hopkns (1991: 1471), n a crtque of the HDI, observes that the ndex value would be hgh for someone lvng a long tme wth access to lbrary n a prson. Streeten (1995), however, argues aganst the ncluson of human rghts varables on a number of grounds, ncludng the volatlty of such varables, whch f ncluded n an ndex could cause ts values to drop from one year to the next even though the other component varables mght not have changed, and subjectvty n the measurement of these varables. One can queston the frst of these grounds; f the value of a varable drops, and t s a vald measure of well-beng, then t s entrely approprate that the ndex value, ceters parbus, drops. That s exactly what should happen. The UNDP also used the same argument to defend the choce of components n the frst Human Development Report, publshed n 1990, and repeated ths argument n the 1993 Report. One suspects, however, that one mportant reason why human rghts and many other varables are not ncluded n composte ndces s ther lmted cross-country avalablty, and the related desre to report ndex values for as many countres as possble. Indeed, ths would appear to have heavly guded the general choce of varables ncluded n composte ndces. Whle not challengng the unversal nature of the HDI, Anand and Sen (1992) float the dea of dfferent ndcators for the capabltes that the ndex attempts to capture. Specfcally, Anand and Sen consder dfferent ndcators for the low, medum, and hgh human development categores reported n the Human Development Reports. They propose, for example, combng chld mortalty and lfe expectancy as the long and healthy lfe component of the HDI for mddle human development group countres. For hgh human development countres, they propose usng a gn-corrected mean natonal ncome nstead of PPP GDP per capta (UNDP 1993). Smlarly, the CQLI conssts of two man components, whch n turn contan sub-component varables: a basc qualty of lfe ndex and an advanced qualty of lfe ndex. Both contan seven varables, chosen to dscrmnate between developng and ndustral countres n terms of the same general well-beng domans (Dener 1995). Crucal here s the dstncton between the choce of components and the choce of varables used to represent these components. We return to ths crucal ssue below when dscussng the polcy relevance of ndces. Another common crtcsm of the choce of varables n composte ndces s that measures of the means by whch well-beng s acheved are combned wth measures of well-beng ends. In the cases of the PQLI and HDI, for example, lfe expectancy mght be consdered as an end whereas adult lteracy, school enrolment as means. Morrs (1979), n defence of the PQLI, argued that ndces based on ends alone lack relevance on the grounds that polcy nterventons are desgned on the bass of means (Booysen 2002). Veenhoven (1996) argues aganst the use of means varables, as ends varables are better suted to evaluate goals or outcomes of polcy, and aganst the combnaton of means and ends varables as ths lacks theoretcal justfcaton (Booysen 2002). 4

7 Ideology and poltcs can, not surprsngly, play an mportant role n the selecton of varables and ndces have been crtczed accordngly. For example, t has been asserted, possbly unfarly, that the choce of the components of the HDI was ntended to elevate, n country rankngs, those countres whch perform better n terms of noneconomc well-beng ndcators, thus provdng greater justfcatons for actvtes, projects and programmes sponsored by the UNDP. A related asserton was that the HDI was an attempt by the UNDP to dfferentate ts actvtes and polcy stances, especally vs-a-vs the World Bank. 3 Scale equvalence Most component ndces combne varables that are measured n dfferent scales. Consder the HDI. Two of ts varables, as mentoned, are adult lteracy and PPP GDP per capta. Adult lteracy s percentage and as such has a maxmum value of 100. PPP GDP has no such upper lmt, and current values range from 580 to 61,190 dollars (UNDP 2004). Scale equvalence s thus an ssue. Ths equvalence s usually acheved by ensurng that the C,j range from zero to one or zero to 100. A value of zero was often assgned f c,j (the actual value of C,j, pror to rescalng) s the lowest observed among n countres (c,j = c mn, j ). Ether one or 100 s assgned f c,j s the hghest observed among these countres (c,j = c max, j ). The formula used for ths purpose (wth the maxmum beng set at one) s: C, j, j max, j mn, j mn, j c c = (2) c c Ths formula assumes that c,j / W s postve. Alternatvely, n the event of c j, / W beng negatve, a value of zero s assgned f c,j = c mn, j, or ether one or 100 f c,j = c max, j, and one mnus the value of (2) can nstead be used. Ths approach, employed by the PQLI and the 1990 HDI, attracted crtcsm on the grounds that a country could over tme acheve mprovements n each ndex component but experence a declne n the aggregate value of ts ndex (McGllvray and Whte 1992). The underlyng concern was that HDI values were not comparable over tme. The reason for ths s qute smple, as a closer look at (2) reveals. C,j could ncrease, but f mn c, j ncreases by a suffcently greater margn C,j wll decrease and ceters parbus so too would W. The reverse can also happen, wth C,j ncreasng even though c,j mght have fallen. The UNDP responded to ths crtcsm, n the Human Development Report 1994, by fxng the maxmum and mnmum values above and below the actual maxma and mnma, respectvely. These fxed values are descrbed as goal posts. The upper goal posts have been set at lmts of what can be expected wthn the next 30 years and the lower goal posts correspond to values observed hstorcally, gong back about 30 years (UNDP 1994: 92). The lower goal posts for lfe expectancy, adult lteracy, educatonal attanment and PPP GDP per capta are 25 years, zero per cent, zero per cent, and $100, respectvely. The correspondng upper goal posts are 85 years, 100 per cent, 100 per cent, and $40,000, respectvely (UNDP ). These values have been used to 5

8 obtan HDI values n every year snce 1994, despte a number of countres havng gross school enrolment ratos exceedng 100 per cent and Luxemburg s PPP GDP wellexceedng $40,000. The UNDP s response to ths s to smply cap the values of these varables at the upper goal posts. Settng what are essentally arbtrary, but reasonable values for the upper and lower values mght on the surface appear to be justfable. It certanly does not matter as far as ndvdual components are concerned, to the extent that the rankng of countres for ndvdual components wll not change. Yet t wll matter for the rankng of countres accordng to the composte ndex f that ndex s constructed by ether summng or averagng the rescaled varables, as s the case wth the PQLI and HDI. Ths s due to the change n component means and varances that result from the rescalng. Consder the case of the HDI. Settng the lower value for lfe expectancy at 30 years would appear to be defensble, or at least no less defensble than the value of 25 years adopted by the UNDP. Yet the former results n a larger mean, standard devaton and coeffcent of varaton for the correspondng rescaled value of lfe expectancy (see Table 1). Hgher lower values for the educaton varables, compared to those used by the UNDP, results n a lower mean but hgher standard devaton and coeffcent of varaton for the educaton attanment component on the HDI, and hgher lower and upper values for PPP GDP per capta gves the same results (see Table 1).4 In each case, therefore, these equally defensble fxed values wll result n dfferent country HDI rankngs. Table 1 Mean and standard devaton of rescaled varables Standard Coeffcent HDI component Range Mean devaton of varaton Lfe expectancy 25 to 85 years Lfe expectancy 30 to 85 years Educatonal attanment Lteracy: 0 to 100% Enrolment: 0 to 100% Educatonal attanment Lteracy: 10 to 100% Enrolment: 15 to 100% PPP GDP per capta $100 to $40, PPP GDP per capta $400 to $60, Note: Logarthmc values of PPP GDP per capta are used, as n the HDI. The use of the fxed lower and upper values ensures that country HDI values wll not fall over tme even though the component varables, pror to rescalng, mght ncrease. 4 Furthermore, averagng three varables that are spread around dfferent means wth dfferent varances s also questonable. The gap between the lower and upper values also has sgnfcant mplcatons for component weghts, as outlned below. 6

9 But s ths necessarly a bad thng? The HDI and smlar ndces, ncludng the PQLI, measure relatve well-beng achevement. For the HDI, ths s a country s achevement relatve to the goal posts, as defned. A more meanngful comparson mght be achevement defned n terms of the benchmark set by the lowest and hghest actual observed values of the component varables pror to rescalng. Indeed, f a country cannot match mprovements acheved by the country or countres wth the lowest values of each varable, then t mght be especally approprate that ts HDI value falls over tme. 4 Non-lnearty Well-beng s usually treated as a lnear functon of ndex components. The prncpal excepton to ths s ncome per capta, as t s generally accepted that there are dmnshng returns to the converson of ncome nto well-beng. In the frst verson of the HDI ncome was treated as follows: c, 3 = ln = ln y y for for 0 < y y > y * y * (3) where c,3 s the ncome component pror to rescalng, y s PPP GDP per capta, y * s the average offcal poverty lne ncome n nne ndustral countres adjusted for purchasng power partes of $4861 (UNDP 1990). It follows that the ncome component ncreases logarthmcally wth PPP GDP per capta up to the poverty, but s capped at ths pont. The UNDP expressed a change of vew n the desgn of the second and many subsequent versons of the HDI, concedng that the cappng of the ncome component was too drastc an adjustment (UNDP 1991: 15). Accordngly, the 1991 to 1998 versons of the ndex the adjustment was as follows: c,3 = y = y * + 2 = y * + 2 = y * + 2 1/ 2 [( y y *) ] 1/ 2 ( y y *) 1/ 2 ( y y *) for 0 < y y * < y 2 y * 1/ 3 [ ] + 3[ ( y 2 y *) ] for 2 y* < y 3 y * 1/ 3 1/ 4 [ ] + ( y 2 y *) ] + 4[ ( y 3 y *) ] for 3 y* < y 4 y * for y * (4) and so on (UNDP 1991). McGllvray and Whte (1992) demonstrated that the two precedng treatments of ncome were almost ndstngushable for ncomes equal to or greater than y *. For example, accordng to second equaton n (4), an ncome per capta of $9658, twce the 1991 poverty lne of $4829, s adjusted downwards to $4968, a dfference of only $139 or three per cent as compared to the poverty lne ncome of $4829. The UNDP clamed otherwse, however, assertng that (4) sgnfcantly dfferentated the adjusted ncomes of countres for whch y > y * (UNDP 1993: 100). McGllvray and Whte (1992) and Ravallon (1997), among others, argue that the dscountng due to (4) s excessve, wth the former recommendng the use of the logarthm of ncome, for all ncomes, nstead of (4). The UNDP further softened ts lne on the treatment on ncome n the Human Development Report 1999, acknowledgng (4) also too heavly penalzed countres wth ncomes above the poverty lne. Followng Anand and Sen (1999, 2000b), the UNDP wanted to put the treatment of ncome on a more sold analytcal foundaton (UNDP 7

10 1999: 159). Anand and Sen refer to the well-known and frequently appled Atknson formulaton: 1 1-ε W ( y ) = y (5) 1-ε where W(y ) s the utlty or well-beng derved from ncome and ε s the elastcty of the margnal utlty of ncome wth respect to ncome and measures the extent of dmnshng returns. If ε=0 there are no dmnshng returns and W(y ) reduces to y.asε approaches one W(y ) becomes the logarthm of y.in(4),ε ncreases wth ncome. For example, for ncomes less than y *, between y * and 2y * and 2y * and 3y *, ε=0, 1/2 and 2/3, respectvely. In acknowledgng that (4) too heavly dscounted ncomes above the poverty lne, the UNDP smply elected to transform all ncomes nto ther logarthmc values, hence electng for a value of ε whch approaches one. Ths transformaton has been used n all Human Development Reports snce Whle ths would seem a better treatment than the transformatons provded by (4), there remans profound ambguty over precsely what the value of ε should be. In partcular, one and zero can be consdered extremes, wth the approprate value beng some n between. Precsely what the value ought to be remans a matter of speculaton. If there s a case for dscountng ncome due to dmnshng returns there mght be also be case for dscountng other well-beng ndex components on the same grounds. Noorbakhsh (1998a) consdered ths ssue wth respect to the educatonal attanment component of the HDI. A set of weghts was devsed to reflect constant rate of dmnshng returns to the converson of educatonal attanment to human development. These weghts were appled to the ndvdual sub-components of the educatonal attanment component as follows: K k= 1 x c, 2, p, ke p = 1, 2 (6) where k denotes a fracton of the pth sub-component and the exponent e x s a decreasng functon of ths component gven that x decreases accordng to successve ranges of the sub-component.5 5 Correlatons and weghts Most composte ndces are a response to the perceved nadequaces of ncome per capta as a measure of well-beng; they are an attempt to more fully capture emprcally the assumed vtalty or complexty of the human well-beng concept. Ths s not to say that ncome mght not be an mportant determnant of well-beng, but smply there s 5 For c,2,1 (adult lteracy), for example, the followng apples: x =0f0<c,2,1 40, x =-0.1f40<c,2,1 50, x =-0.2f50<c,2,1 60, and so on, through to x =-0.6f90<c,2, For a country wth a lteracy rate of 50 per cent, for example, the dscounted rate s calculated as =

11 more to well-beng than ncome alone. The HDI s such a response, beng an attempt to shed more lght on other aspects of human development than ncome per capta alone (Noorbakhsh 1998a). The UNDP made much of ths pont n early Human Development Reports. For nstance, n the 1990 report t s noted that: Human development s a process of enlargng people s choces. In prncple, these choces can be nfnte and change over tme. ncome s clearly one opton that people would lke to have, albet an mportant one. But t s not the sum total of ther lves. (UNDP 1990: 10, Box 1.1) Correspondngly, the UNDP went on to clam that the HDI ranks countres very dfferently to GNP per capta and that the reason s that GNP per capta s only one of lfe s many dmensons. (UNDP 1990: 14) A number of studes have looked at correlatons between composte ndces, reportng zero- and rank-order correlaton coeffcents. Larson and Wlford (1979) looked at the correlaton between the PQLI and GNP per capta for a sample of 150 countres, reportng zero- and rank-order coeffcents of and 0.766, respectvely. On the bass of these coeffcents t was concluded that the PQLI was redundant, on the grounds that t does not provde any essental nformaton for rankng countres other than that already provded by GNP per capta (Larson and Wlford 1979: 583). McGllvray (1991) conducted a smlar exercse for the 1990 verson of the HDI, reportng for a sample of 119 countres wth zero- and rank-order correlaton coeffcents between the HDI and the logarthm of GNP per capta of and McGllvray (1991: 1467) also concluded that the HDI for many country groups was emprcally redundant, n that t largely provdes us wth lttle more nformaton regardng nter-country well-beng levels than the tradtonal ndcator, GNP per capta, alone can provde. A fundamental weakness wth these studes s that t s not entrely clear what extent of statstcal assocaton deems a new ndcator emprcally redundant wth respect to a preexstng one. McGllvray and Whte (1992, 1993) and Cahll (2004) address ths pont. The former study specfes explct thresholds to dfferentate between redundancy and non-redundancy. Two thresholds are specfed correlaton coeffcent of 0.90 and 0.70 and hence tests were performed to determne whether the coeffcents between the HDI and ncome per capta are sgnfcantly less than these thresholds. The concluson was that both the 1990 and 1991 HDIs were redundant accordng to both thresholds. Cahll repeated ths exercse for the 2001 HDI, drawng the same concluson. Whle these two studes are emprcally superor to ther predecessors, the thresholds they specfy are of course arbtrary. Nor do they deny the non-emprcal contrbuton of the HDI, as outlned above. A related and arguably more mportant ssue, f one retans the sorts of ndcators used n ndces such as the HDI and PQLI, s the correlatons between the ndvdual components and also between ndvdual components and the ndces as a whole. Larson and Wlford (1979), McGllvray (1991) and McGllvray and Whte (1992, 1993) also consder ths ssue, showng that these correlatons are very hgh, wth zero- and rankorder coeffcents often beng above The consequence of ths s that basng ether the PQLI or the HDI on any one of ts component varables yelds very smlar nsghts to nter-country well-beng to the ndces as a whole. 9

12 Table 2 contans correlaton coeffcents between the HDI appearng n UNDP (2002) and ts components.6 The coeffcents between the HDI and ts components (shown n column 2) are all hgh, and typcal of those reported n the lterature. Of course, one would expect some level of correlaton between the HDI and ts components by smple vrtue of the components beng just that, part of the ndex. McGllvray and Whte (1992) show, however, that for large samples of countres, even after removng one of the components from the ndex and correlatng t wth what remans, (that s, the restrcted ndex) the coeffcents reman very hgh.7 The reason for ths s the hgh correlatons between each ndvdual component, as Table 2 demonstrates. Table 2 Pearson correlaton coeffcents between HDI 2002 and ts components Sample HDI Lfe expectancy Educatonal attanment PPP GDP per capta All Countres HDI Lfe expectancy 0.925** Educatonal attanment 0.916** 0.763** PPP GDP per capta 0.924** 0.794** 0.765** Hgh HDI countres HDI Lfe expectancy 0.819** Educatonal attanment 0.743** 0.395** PPP GDP per capta 0.869** 0.688** 0.388** Medum HDI countres HDI Lfe expectancy 0.771** Educatonal attanment 0.692** 0.258* PPP GDP per capta 0.663** 0.264* 0.264* Low HDI countres HDI Lfe expectancy 0.747** Educatonal attanment 0.611** PPP GDP per capta 0.567** 0.386* Notes: ** and *: sgnfcant at the one and fve per cent levels, respectvely. All component varables are scaled and GDP per capta s logged pror to scalng, as n the HDI. 6 Spearman (rank-order) coeffcents were also calculated, but were very smlar n value to those shown n Table 2. Both Pearson and Spearman coeffcents were calculated usng HDI data for earler years, wth the results also beng very smlar to those n Table 2. Full results are avalable from the authors. 7 More precsely, McGllvray and Whte (1992) restrct the HDI by, for example, assgnng a weght of zero to the lfe expectancy component and correlate t aganst the restrcted HDI. The resultng coeffcent was found to be very smlar n magntude to that between the lfe expectancy component and the unrestrcted HDI. Ths result held for each component. 10

13 Noorbakhsh (1998b) demonstrates, however, that whle the correlaton coeffcents are hgh for the data for all countres they can be much lower, sometmes statstcally nsgnfcant, for the sub-samples of countres. Ths s also demonstrated by Table 2, whch reports coeffcents for countres that are classfed by the UNDP as ether hgh, medum or low human development. The coeffcents between the HDI and ts components for these sub-samples, whle remanng statstcally sgnfcant, are much lower than those for the full sample of countres. The correlatons between ndvdual components are lower stll and often nsgnfcant. The coeffcent between the educatonal attanment and ncome components s negatve. It follows that, for these sub-samples of countres, basng the ndex on any one component wll yeld very dfferent nformaton on well-beng achevement among countres than the HDI as a whole. We return to ths ssue later n the paper, when dscussng polcy relevance of composte ndces. Observng correlaton coeffcents between composte ndces and other well-beng ndcators s an nterestng and nformatve exercse. It s also reasonable to ask whether a new ndex mght be redundant wth respect to pre-exstng ndcators, despte ambguty over the extent of correlaton requred to deem an ndcator redundant. But ths queston needs to be consdered n ts proper context. If the purpose of the composte ndex under queston s prmarly statstcal, to rank countres n terms of well-beng achevement, then the hgh correlatons reported n many studes, combned wth some of the techncal problems outlned above and n the relevant lterature, do make dfferences n ths achevement hard to nterpret. As such, the conclusons drawn by Larson and Wlford (1979), McGllvray (1991) and others mght have valdty.8 However, f the prme use of the ndex s polcy or advocacy-orented wth the purpose of hghlghtng the mportance of socal ssues to human development, or shftng attenton away from a possbly excessve focus on narrower well-beng measure, then the statstcal redundancy ssue has much less relevance. Component weghtng s an especally dffcult ssue, and related n part to the hgh correlatons between component varables. Ideally, as Hcks and Streeten (1979) among others pont out, weghts should be guded by theory. Anand and Sen (1992) note wth respect to the HDI that a meta producton functon for human development would be specfed, and the contrbuton of each varable to human development would be ts weght (UNDP 1993). But the form of such a functon s unknown, so weghts must be assgned va another method. Most ndces smply take the sum or the average of the components, hence gvng the appearance of equal weghts. The three components of the HDI, for example, are assgned weghts of one-thrd each. Ths n prncple s almost certanly ncorrect, as t mples that each component s equally mportant, n terms of well-beng achevement, at all ponts of tme and levels of achevement, and n all regons, countres, cultures, levels of development, and so on. The UNDP recognzes ths but justfes the HDI weghtng scheme on the bass of Occam s razor; that s, snce t s probably mpossble to acheve agreement on what the weghts should be, the smplest response s the best, that beng to assgn an equal weght to each component. 8 It s worth notng that these studes do not argue that well-beng achevement should be measured or assessed usng ncome per capta alone, contrary to what has been attrbuted to them. McGllvray (1991: 1467), for nstance, concludes that hs research does not mply that socal or human condtons are rrelevant to the assessment of development levels. 11

14 The UNRISD LLI (Drewnowsk and Scott 1966) and GID (McGranahan et al. 1972) attempt a more sophstcated weghtng system. The LLI employed a system of sldng weghts under whch devatons from the normal were gven more weght than varables close to the normal (Hcks and Streeten 1979) The GID gave greater weght to components whch had the greatest nter-correlaton wth other components. These weghtng systems have been crtczed heavly, largely because of ther arbtrary nature. Hcks and Streeten (1979), for example, crtczed the GID weghtng scheme, suggestng that the absence of a correlaton wth other components would be an equally vald reason for gvng a component a hgh weght. A number of studes address ths ssue by proposng the use of prncpal components analyss (Adelman and Morrs 1967, Ram 1982, Desa 1993, Ogwang 1994, Srnvasan 1994, La 2000, and Noorbakhsh 1998b, 2002).9 The weghts are typcally those assgned to the frst prncpal component extracted from the data. Whle an accepted statstcal method, t s purely data-drven and the weghts have no conceptual nterpretaton. As Hcks and Streeten (1979: 576) note, none of these attempts ndcates that much effort was expended n developng a theoretcally sound ratonale for the weghtng system. One such ratonale, consstent wth economc theory, would be to apply a dfferental weghtng system, n whch the weghts would be a decreasng functon of the level of well-beng achevement accordng to the partcular component. Ths s broadly consstent wth Veenhoven (1996), who suggested that some varables wll be culturally less promnent n partcular socetes whch have hgh achevement n them (Booysen 2002). Hgh correlatons between components are relevant to weghtng schemes. Even f we had suffcent nformaton or an accepted procedure to assgn dfferental weghts the exercse may be frutless f these correlatons are hgh. Table 3 renforces ths pont. It reports correlaton coeffcents between the 2002 HDI and 12 versons of that ndex wth dfferent component weghts. The weghts of the frst ndex verson have been obtaned by the prncpal components method. The weghts are smlar n value, reflectng the hgh correlatons between components reported above n Table 2. The remanng 11 HDI versons have been obtaned from varous arbtrary combnatons of weghts. The weghts vary from zero to 0.8 and as such are very dfferent to those used by the UNDP to calculate the HDI. Each combnaton sums to one, as s the case wth the UNDP HDI. Yet the correlaton coeffcents are all close to one.10 As mentoned above, the UNDP assgns weghts of one-thrd to each of the HDI components. Seemngly overlooked by the UNDP and others, there s, however, an mplct HDI weghtng scheme that operates pror to the applcaton of these explct weghts. It results from the rescalng procedure outlned above, where a gap between the upper and lower goal posts operates as an mplct recprocal weght. The hgher ths gap relatve to the mean value of the varable under consderaton, the lower s the mplct weght (or hgher the recprocal weght) attached to the varable under consderaton. In essence, ths gap operates as a recprocal weght. In the case of the HDI, ncome has the hghest recprocal weght and ts nfluence on the ndex s reduced 9 It s worth notng that the varant of prncpal component analyss used by a number of these studes reles on the hgh correlaton among the components (Noorbakhsh 1998b, 2002). 10 See Cahll (2004) for a more detaled elaboraton of ths pont. 12

15 as a consequence.11 In contrast, the chosen upper and lower values for the educatonal attanment varables leaves the mpact of these varables unchanged.12 The general pont to be made here s that component transformatons n the case of the HDI ts rescalng procedure can ntroduce a form of mplct weghtng. Ths not only apples to the HDI but potentally to any ndex whch combnes transformed varables.13 Table 3 Human Development Index wth alternatve weghts Correlaton coeffcent HDI Re-weght Pearson (zero-order) Spearman (rank-order) HDI =0.93LE +0.91EA +0.93Y HDI =0.4LE +0.0EA +0.6Y HDI =0.2LE +0.8EA +0.0Y HDI =0.6LE +0.4EA +0.0Y HDI =0.4LE +0.6EA +0.0Y HDI =0.8LE +0.2EA +0.0Y HDI =0.2LE +0.6EA +0.2Y HDI =0.2LE +0.4EA +0.4Y HDI =0.2LE +0.2EA +0.6Y HDI =0.0LE +0.2EA +0.8Y HDI =0.0LE +0.8EA +0.2Y HDI =0.2LE +0.0EA +0.8Y Polcy relevance One of the greatest mpacts of composte ndces ntended to assess natonal well-beng achevement relates to the sgnals they send to polcymakers. Both the PQLI and the HDI, for nstance, were explctly ntended to send the message that there s more to well-beng achevement than mprovements n ncomes alone. The HDI has been partcularly successful n ths regard, remndng polcymakers n developng countres that achevng better levels of health, educaton and ncomes are partcularly desrable outcomes. Noorbakhsh (2002) observes, however, that the hstory of composte measures tells us that ther mpact s lmted and not sustaned over tme f they are not 11 It must be noted that the weght changes the magntude of the ndex for all countres though not the country ranks. 12 Consder the varables wthn the educatonal attanment component. An adult lteracy value 78 per cent, for example, accordng to the rescalng procedure outlned above becomes (78-0)/(100-0) = A combned gross school enrolment of 56 per cent becomes 0.56 as the same range s used. As a result the contrbuton of these varables to HDI values s purely determned by ther levels and weghts, and not the rescalng procedure. 13 The HDI rescalng procedure also reduces the varance of the lfe expectancy and ncome components, further reducng the mpact of dfferental explct weghts, and hence n part drvng the results shown n Table 3. 13

16 geared to polcy mplementaton at the natonal or sub-natonal levels. Ths observaton s not new. Three decades earler, Seers (1972: 32) and Drewnowsk (1972: 77) respectvely observed that the most mportant use of development ndcators s to provde the targets for plannng and welfare ndces are supposed to serve not only for assessng the results of development but also as targets for development plans. Consder the HDI. Polcymakers n developng countres readly accept the basc message of the HDI. Gven also that the lterature has now dentfed vast, nterrelated well-beng domans and correspondng ndcators, one s tempted to conclude that the UNDP s ndex mght be seen n the same lght as GNP per capta was when more than a decade ago, when the HDI frst appeared. That s, polcymakers mght smply attend to show nter-temporal mprovement n the HDI n ts present form at the cost of possbly more urgent prortes, n the same way many sought smply to ncrease ncome growth n the decades precedng the 1990s. That the country-specfc Human Development Reports tend to emphasze the unversal HDI, wth a lmted polcy orentaton, attests to ths. Alternatvely, attempts to ncrease HDI values mght be half-hearted f they were not drectly nvolved n the constructon of the ndex, n the selecton of components, the varables on whch these components are based and the weghts. The underlyng ssue here s one of country-level ownershp. A core ssue n makng composte ndces more polcy relevant would appear be to unversalsm. Consder agan the HDI. The ssue here s not so much the chosen components of the ndex as t would appear reasonable to dentfy a common set of measurable well-beng components, applcable to all people n all socetes. As Anand and Sen (2000a) noted not workng toward brngng the elementary capabltes [that the components are ntended to reflect] wthn the reach of the deprved would be outrageous. The ssue would nstead appear to turn on the selecton of a common set of varables that emprcally capture each component. Are the four varables on whch the HDI s based approprate for measurng well-beng n all countres, n terms of polcy relevance, or at least for the 170 or more countres for whch HDI values are reported? The answer to the precedng queston would appear to be a clear no, snce unversal ndces such as the HDI are currently more concerned wth a measurement for rankng countres and less concerned wth operatonal capablty of the ndex n terms of polcymakng at a more practcal level for dfferent countres. A smple response would be to smply drop a unversal ndex and adopt a set of country-specfc ones. But ths would be at the cost of no longer beng able to make nter-country well-beng achevement comparsons. Such a cost s sgnfcant. An possble ndex desgn that avods ths cost s to retan a unversal set of components, but wth varables on whch these components are based varyng across countres. It has already been ponted out that Anand and Sen (1992) proposed the use dfferent ndcators for the low, medum and hgh human development categores, wth, for example, the longevty component of the HDI beng based on a combnaton of chld mortalty and lfe expectancy nstead of lfe expectancy alone. Lkewse, the Dener CQLI uses dfferent varables for developng and ndustral countres, as was also mentoned above. A more radcal approach would be to allow polcymakers n each country, or possbly even ctzens, to select the varables for each component that are most approprate to ther own country. One could also do the same wth component weghts. Partcpatory technques could be used to select varables and assgn weghts, whch would need to be perodcally re-assessed as condtons wthn countres change. 14

17 The chosen varables should be better, more ncsve and more relevant measures of each component n each country.14 But because the same components are used across countres, a degree of nter-country comparablty s mantaned. The weghts would presumably reflect contemporary prortes, wth hgher weghts beng attached to components that are more promnent and mportant. For example, n sub-saharan Afrca the longevty component would probably at present receve a very hgh weght gven the enormty of the HIV/AIDS problem beng faced on those countres. Country specfc varables and weghts mght also mean that the ndex provdes more nformaton, better capturng the assumed vtalty of the well-beng concept. Such a scheme mght also address the redundancy of components and weghts ssue dscussed above. 7 Concluson Ths paper surveyed the varous composte well-beng ndces whch have been used over the last 40 or so years, lookng manly at the Physcal Qualty of Lfe Index and the very well-known Human Development Index of the Unted Natons Development Programme. A number of ssues are consdered, ncludng the choce of components, component weghts, scale equvalence, component transformatons, the treatment of ncome, correlatons among components, and correlatons wth other well-beng measures. Among the ssues hghlghted s the often very hgh correlaton between the PQLI and the HDI and ts components. It was argued that a man consequence of these correlatons s that assgnng dfferental component weghts, whch s approprate on conceptual grounds, s largely a frutless exercse. That s, such weghtng produces ndex values whch are generally ndstngushable from values of the equally weghted ndex. Also hghlghted was the ssue of the polcy relevance of composte ndces such as the HDI and PQLI. It was observed that the hstory of composte measures of development s such that ther mpact s lmted f they are not geared to polcy mplementaton at a practcal level. It was argued that one way of addressng ths ssue s to retan a unversal set of components, chosen on the bass of unversal elementary capabltes, but wth varables on whch these components are based and ther weghts varyng across countres. Thus the varables and weghts may well vary across countres and over tme. Theory tells us that well-beng components or dmensons wll assume dfferent prortes n dfferent countres, dependng on ther levels of acheved wellbeng, dfferent cultural prortes and so on. Emprcal observaton tells us that a standard set of varables, used across countres, wll not approprately measure the capabltes or other crtera ndces. Selecton would ether be based on the preferences of polcymakers or ctzens, gauged through partcpatory technques. Essentally, ths would nvolve surveys n whch polcymakers or ctzens determne ther own varable weghts. Ths would be no small task, but f we can devote suffcent resources, for example, to obtanng nformaton on purchasng power partes to adjust per capta ncomes, then we could also devote resources to the gatherng of such nformaton on component weghts and measures. Mght the UNDP consder ths for the HDI? Mght t 14 Streeten (2000: 26) argues n the case of the HDI that work along the lnes that mprove the ndex or apply t to regons or groups wthn a country s most welcome. For examples of the applcaton of the ndex to polcymakng at a country level (Iran and Inda) see Noorbakhsh (2002, 2003). 15

18 also consder addng a human securty varable to the HDI, as t s a fundamental, unversal well-beng component? Tme wll tell, or course, but as Amartya Sen observed, the nfant has now grown up and can take the rough wth the smooth (2000: 22). References Acharya, A. and H. J. Wall (1994). An Evaluaton of the Unted Natons Human Development Index. Journal of Economc and Socal Development, 20(1): Adelman I. and Morrs C. F. (1967). Socety, Poltcs and Economc Development: A Quanttatve Approach. Baltmore: John Hopkns Unversty Press. Alkre, S. (2002). Dmensons of Human Development. World Development, 30(2): Anand, S. and A. Sen (1992). Human Development Index: Methodology and Measurement, background paper prepared for the Human Development Report New York: Unted Natons Development Programme. Anand, S. and A. Sen (1999). The Income Component of the Human Development Index, background paper prepared for the Human Development Report New York: Unted Natons Development Programme. Anand, S. and A. Sen (2000a). Human Development and Economc Sustanablty. World Development, 28(12): Anand, S. and A. Sen (2000b). The Income Component of the Human Development Index. Journal of Human Development, 1(1): Bennett, M. K. (1951). Internatonal Dspartes n Consumpton Levels. Amercan Economc Revew, 41: Beckerman, W. and R. Bacon (1966). Internatonal Comparsons of Income Levels: A Suggested New Measure. Economc Journal, 76: Booysen, F. (2002). An Overvew and Evaluaton of Composte Indces of Development. Socal Indcators Research, 59(2): Cahll, M. (2002). Dmnshng Returns to GDP and the Human Development Index. Appled Economcs Letters, 9(13): Cahll, M (2004). Is the Human Development Index Redundant?. Eastern Economc Journal, forthcomng. Camp, S. L. and J. J. Spedel (1987). The Internatonal Human Sufferng Index, Washngton: Populaton Crss Commttee. Desa, M. (1993). Income and Alternatve Measures of Well-Beng, n D. G. Westendorff and D. Gha (eds), Montorng Socal Progress n the 1990s. Aldershot: Unted Natons Research Insttute for Socal Development, Avebury. Dasgupta, P. (1990). Well-beng n Poor Countres. Economc and Poltcal Weekly, 4 August: