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Human Development Index

Updated on April 22, 2024
Article byAswathi Jayachandran
Reviewed byDheeraj Vaidya, CFA, FRM

What Is Human Development Index (HDI)?

The Human Development Index shows average performance in three important areas of human development: living a long and healthy life, having access to education, and having an acceptable standard of living. It is a statistical method for assessing a nation’s overall success in terms of its social and economic components.

Human Development Index

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HDI is one of the greatest instruments for monitoring a nation’s level of progress, as it can incorporate key social and economic factors that influence economic growth. Moreover, it works with the notion that the most important factor in determining a nation’s level of development should be its citizens and their capabilities.

Key Takeaways

  • The Human Development Index shows a country’s average performance in three important areas of human development:
    • Living a long and healthy life
    • Having access to education
    • Having an acceptable standard of living
  • The HDI highlight that instead of relying solely on economic growth to gauge a nation’s development, consideration should be given to its citizens and their potential.
  • HDI is one of the greatest instruments for monitoring a nation’s level of progress, as it can incorporate key social and economic factors that influence economic growth despite its limitations.

Human Development Index Explained

A Human Development Index is a statistical method that shows how countries have fared in the areas of human development, namely, living a long and healthy life, having access to education, and having an acceptable standard of living. The normalized indices for each development dimension are averaged to get the HDI. Each year, the UNDP ranks the nations based on the HDI report. Given that it incorporates significant social and economic factors that influence economic growth, the HDI is one of the greatest tools for monitoring a nation’s level of progress.

In 1990, the United Nations Development Programme (UNDP) published its first Human Development Report (HDR). The Pakistani Economist Mahbub Ul Haq and the Indian Nobel laureate Amartya Sen introduced the first HDR in 1990. The Pakistani economist, Mahbub ul Haq’s approach to human development was grounded in Amartya Sen’s research on human capabilities.

The HDI calculates a minimum and maximum value for each dimension referred to as “goalposts” and then displays where each nation sits regarding these goals. The value of the index is calculated for each dimension on a scale from 0 to 1, with 0 denoting the least value and 1 denoting the highest value allocated to the associated indicator. A country’s HDI value increases with its level of human development.

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HDI Indicators

Three indicators of HDI:

  • Life expectancy at birth: long and healthy life is determined through the life expectancy index. For example, when the life expectancy at birth is 85 years, the LEI is 1, and when it is 20 years, it is 0.
  • Expected years of schooling & Mean years of schooling: It comes under the knowledge dimension of the HDI index. Acquired knowledge through mean and predicted years of education is measured through the education index. The two Knowledge indicator values are first normalized using a minimum value of 0 and a maximum value of 15 for the mean years spent in school and 18 for the expected number of years.
  • GNI per capita (PPP $): The technique measures a decent standard of living through the GNI index. The low minimum value of PPP is taken as $100. PPP $75,000 is the maximum value allowed.

A good performance on the UN Human Development Index would necessitate a good performance on all dimensions since a poor performance on any index would be instantly reflected in the entire HDI. (Values mentioned are according to the 2014 goal post).

HDI Formula

The Human Development Index calculation involves multiple steps and formulas. It starts with calculating the index values: Life Expectancy Index (LEI), Education Index (EI), and Income Index (II). Finally, HDI is the geometric mean of the three normalized indices.

Human Development Index (HDI)

Examples

Let’s look into some of the examples of the Human Development Index:

Example #1

Suppose the life given below are the values of county “ABC” expectancy at birth is 75 years, mean years of schooling is 10 years, expected years of schooling is 15, and GNI per capita (PPP US$) is 17,000.

HDI calculation will be done through two major steps, as shown in the image below:

Example #2

Given below is the data of the United States regarding its performance in the Human Development Index ranking:

The United State’s Human Development Index ranking is 17 out of 189 nations and territories in terms of HDI value for 2019, with a value of 0.926, placing it in the very high human development category. The HDI score in the United States increased by 7.1 percent, from 0.865 to 0.926, between 1990 and 2019. At the same time, the 2019 HDI of 0.926 of the United States is higher than the average of 0.898 belonging to nations in the very high human development group and higher than the average of 0.900 for nations in the OECD.

From the above data, it is clear that a country like the US has high development ranking and indicates that the population residing has better living standards and choices than the rest of the low-ranking countries.

Importance

The HDI is used to draw the attention of policymakers, the media, and nongovernmental organizations and to shift the focus from the usual standard economic statistics that determine human development outcomes. It was developed to give importance to the most critical factor in determining a nation’s level of development—its citizens and their capacities—rather than economic growth.

The HDI is also used to examine national policy decisions and see how two nations with similar per capita income can have such varied levels of human development. For example, the HDI of one country may be significantly higher than that of the other even if two nations have similar income structure due to their vastly different life expectancies and literacy rates. The studies are done to understand why such disparities exist in the first place and do what is possible to bridge the gap. An analysis of why certain methods are successful in some countries but not others are needed for the same reason. 

These conclusions help organize specialized health and educational policies by the respective governments. The HDI also draws attention to variations across nations, provinces, states, genders, ethnicities, and other socioeconomic categories. It further helps draw the required focus on the existing internal disparities.

Limitations

The HDI captures only a part of human development. Other factors, such as inequalities, empowerment, poverty, and human security, are equally vital for measuring the overall growth prospects of a population. However, there are separate indices by UN Human Development Report Office (HDRO) that measure key issues such as income inequality, poverty, and gender disparity that do not fall under the HDI. Data from these indices are needed to form a complete picture of a nation’s actual level of human development and quality of life.

The factors mentioned above, like gender disparity, poverty, inequalities, and human security, significantly impact their economic opportunities, affecting health, living, and education. The index also disregards technological development’s contribution to civilization. Furthermore, when large amounts of data are gathered across countries, there can be a large sampling error. Errors can render the whole data useless.

HDI vs GDP vs Human Capital Index

Let us look at the major differences between HDI, GDP, and HCI:

ParticularsHDIGDPHuman Capital Index
Reporting BodyUnited Nations Development Programme (UNDP)’s HDRO (Human Development Report Office) publishes HDI.Respective countries publish GDP.The World Bank publishes the Human Capital Index.    
PurposeThe Human Development Index (HDI) is a statistical composite index combining per capita income, education, and life expectancy indicators.
Gross domestic product (GDP) is a monetary indicator of the market worth of all finished products produced by nations over a certain period.
The index evaluates which nations best mobilize their citizens’ economic and professional potential. In addition, the Index calculates the amount of money lost by each nation due to poor health and education.

Frequently Asked Questions (FAQs)

What are the components of the Human Development Index?

The HDI dimensions are long and healthy life, knowledge, and standard of living. The dimension indexes for a long and healthy life, knowledge, and standard of living are life expectancy, education, and GNI, respectively.

What does the Human Development Index measure?

A country’s average progress in the three fundamental areas of human development—health, knowledge, and standard of living—is measured by the HDI. Since the measurement of the Human Development Index is based on many factors, it is referred to as a composite summary index.

Who invented the Human Development Index?

HDI is a measure of human development. Pakistani economist Mahbub ul Haq developed the Human Development Index based on the study of human potential conducted by Indian economist Amartya Sen. the Index was developed to emphasize that citizen well-being and capabilities also play a major role in the development of a country.

This article has been a guide to what is Human Development Index. We explain its indicators, formula, examples, importance, limitations, and comparison with GDP. You may also find some useful articles here –

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