Measuring development requires more than just income—it includes health, education, and living standards to reflect the broader quality of life in each country.
Human Development Index (HDI)
The Human Development Index (HDI) is a composite statistic created by the United Nations Development Programme (UNDP). It was developed as an alternative to purely income-based measures of development, like Gross Domestic Product (GDP) or Gross National Income (GNI). The HDI recognises that people and their capabilities should be the ultimate criteria for assessing the development of a country, not just economic growth.
The HDI combines three fundamental dimensions of human development:
A long and healthy life, measured by life expectancy at birth.
Access to knowledge, measured by mean and expected years of schooling.
A decent standard of living, measured by GNI per capita adjusted for Purchasing Power Parity (PPP).
Each of these dimensions reflects a key aspect of well-being and together they provide a more comprehensive view of human progress.
The education dimension
This dimension captures both the current level of education in the adult population and future prospects. It is measured using:
Mean years of schooling: the average number of completed years of education received by people aged 25 and older.
Expected years of schooling: the number of years a child of school-entry age can expect to receive, assuming age-specific enrolment ratios remain the same throughout the child’s life.
These indicators reflect both the quantity and potential quality of education in a society. Countries with higher educational attainment often experience greater productivity, technological advancement, and social stability.
The health dimension
Health is represented by life expectancy at birth, which indicates the average number of years a newborn is expected to live if current mortality rates continue to apply. It reflects a country’s investment in:
Public health systems,
Medical services,
Sanitation and nutrition,
Safety and disease prevention.
Life expectancy is often correlated with broader social conditions such as conflict, environmental quality, and poverty levels.
The standard of living dimension
This component is assessed using:
Gross National Income (GNI) per capita, adjusted for Purchasing Power Parity (PPP).
PPP adjustments are crucial as they account for differences in the cost of living across countries. This gives a more accurate picture of what people can actually afford in their own countries. GNI includes income from abroad (unlike GDP), which is particularly relevant for countries with significant remittance inflows or overseas investments.
Calculating the HDI
Each dimension is first normalised using a minimum and maximum value set by the UNDP. The formula for each dimension index is:
Dimension Index = (Actual value – Minimum value) / (Maximum value – Minimum value)
For example:
If the minimum life expectancy is set at 20 years and the maximum at 85 years, then a country with 70 years will have a health index of:
(70 - 20) / (85 - 20) = 50 / 65 = 0.769
Once each of the three indices is calculated, the overall HDI is determined by taking the geometric mean (as opposed to the arithmetic mean, which was used before 2010):
HDI = (Health Index × Education Index × Income Index)^(1/3)
Using the geometric mean ensures that poor performance in one dimension cannot be completely offset by good performance in another, encouraging balanced development.
The HDI is expressed as a value between 0 and 1:
0.800 and above: very high human development
0.700–0.799: high human development
0.550–0.699: medium human development
Below 0.550: low human development
This standardised scale enables clear international comparisons and allows countries to monitor their progress over time.
Advantages of the HDI
Multidimensional measure
Unlike GDP or GNI per capita, which focus solely on income, the HDI captures multiple facets of human well-being. By incorporating education and health, it paints a more holistic picture of development and quality of life.
Comparability and clarity
The HDI provides a single index figure, allowing for easy comparisons:
Across different countries,
Between regions within a country,
Over different periods.
This makes it a useful tool for both policymakers and researchers to track progress and identify areas in need of improvement.
Balances qualitative and quantitative data
Though the HDI is based on quantitative indicators, it reflects qualitative aspects of life such as health status and educational opportunity. These are harder to capture with income alone but are crucial for overall development.
Highlights global inequality
Through its rankings, the HDI draws attention to inequality in development levels, which helps in targeting development assistance, shaping international policy, and raising awareness about global disparities.
Limitations of the HDI
Ignores income inequality
While HDI measures average income, it does not account for how income is distributed. Two countries with the same HDI can have vastly different levels of inequality, meaning that large sections of the population may not experience the benefits of development.
Excludes environmental and sustainability factors
There is no consideration of carbon emissions, resource depletion, or climate change impacts. A country may have a high HDI while engaging in practices that are environmentally unsustainable, undermining long-term development.
No measurement of political or personal freedoms
The HDI does not consider the presence or absence of:
Democracy,
Freedom of speech,
Rule of law,
Corruption or human rights violations.
As such, countries with authoritarian regimes can score highly if they invest in health, education, and economic growth.
Ignores informal and unpaid work
Many developing economies have large informal sectors—economic activities not captured in GNI. Likewise, unpaid labour (e.g. domestic work, caregiving) is also excluded, which can undervalue the contribution of women and informal workers.
Cultural and social factors not included
Important aspects of development such as community engagement, cultural identity, and happiness are difficult to quantify and not included in the HDI, despite being central to many societies’ well-being.
Other indicators of development
To gain a fuller understanding of development, economists and policymakers use additional indicators alongside the HDI.
Multidimensional Poverty Index (MPI)
The MPI identifies multiple deprivations in the same three dimensions as the HDI—health, education, and living standards. It is based on 10 indicators, such as:
Nutrition,
Child mortality,
Years of schooling,
School attendance,
Access to electricity,
Sanitation,
Drinking water,
Housing,
Cooking fuel,
Asset ownership.
A person is considered multidimensionally poor if they are deprived in at least one-third of the indicators.
Strengths:
Reveals overlapping deprivations, not visible through income data alone.
Helps target policy towards the most vulnerable populations.
GNI per capita (PPP-adjusted)
This measure captures average income, accounting for:
Income earned by residents abroad,
Differences in cost of living (PPP adjustment).
Uses:
Useful for comparing material wealth,
Basis for classification by the World Bank (e.g. low-income vs high-income countries).
Limitations:
Hides income inequality,
Excludes informal and non-market production.
Literacy rates
Measured as the percentage of people aged 15 and above who can read and write.
Why it matters:
Indicates access to basic education,
Strongly linked to employment, civic participation, and health outcomes.
Limitations:
Does not assess quality of education,
May not reflect numeracy or digital literacy.
Access to clean water
Refers to the percentage of population using safely managed drinking water sources.
Importance:
Strongly linked to health outcomes,
Reduces exposure to waterborne diseases like cholera and dysentery,
Frees up time (especially for women and children) for education or employment.
Gender-related Development Index (GDI)
The GDI adjusts the HDI to account for gender disparities. It compares HDI values for males and females across the three dimensions:
Life expectancy,
Education,
Income.
Why it's important:
Highlights gender-based inequalities,
Encourages inclusive development policies.
Infant mortality rate
Defined as the number of infants dying before age one per 1,000 live births.
Significance:
Sensitive to changes in healthcare access, maternal health, and nutrition,
Often used as a key indicator of overall development.
Low infant mortality is typically associated with effective healthcare systems and high standards of living.
The importance of using multiple indicators
Development is complex, and no single measure can capture all its dimensions. Therefore, economists and governments use a wide range of indicators to assess progress more accurately.
Holistic understanding
Different indicators reveal different aspects of development. A country might score well on income but poorly on education or environmental quality. Using a range of indicators provides a richer picture of human welfare.
Tailored policymaking
Multiple indicators help governments identify specific weaknesses. For example:
High GNI but poor health outcomes may prompt healthcare investment,
Good schooling rates but low literacy may highlight a quality gap in education.
Visibility of inequality
Indicators like the Gini coefficient, GDI, or MPI expose inequalities that average figures obscure. This ensures that marginalised groups are not overlooked in policymaking.
Environmental and sustainability insights
Measures such as ecological footprint and CO2 emissions per capita highlight the environmental costs of development, encouraging more sustainable practices.
Respect for cultural and social diversity
Quantitative indicators can be complemented with qualitative assessments, including well-being surveys, community studies, and cultural participation data. These help ensure development policies align with local values and needs.
In conclusion, while the HDI is a valuable tool, it should be used alongside a broader set of indicators to fully understand the complexities and goals of human development.
FAQ
The geometric mean is used in the HDI to ensure balance among the three dimensions—health, education, and income—and to prevent any one dimension from compensating excessively for a low score in another. With an arithmetic mean, a country could achieve a high HDI despite performing poorly in one of the indicators, simply by scoring highly in the others. The geometric mean, however, punishes disparity: if one dimension has a very low value, it pulls down the overall HDI score more significantly. This promotes balanced development across all areas. For example, if a country has excellent income and education levels but very low life expectancy, the geometric mean will reduce the HDI to reflect the shortfall in health. It encourages governments to improve all aspects of human development, not just focus on economic growth. In essence, the geometric mean ensures that weaknesses are not hidden by strengths, making the HDI a more realistic measure.
The HDI uses fixed minimum and maximum values set by the UNDP for each indicator to mitigate the impact of extreme values or outliers. These boundaries ensure that unusually high or low data points do not distort the index or give misleading results. For example, for life expectancy, the minimum might be set at 20 years and the maximum at 85 years. Even if a country exceeds 85 years in life expectancy, its score is capped at 1 for that indicator. Similarly, a country with life expectancy below 20 will be scored at 0 for that dimension. This approach standardises scores across all countries, allowing fairer comparisons and preventing the index from being skewed by exceptional cases. It also maintains consistency over time. By using these cut-offs, the HDI remains a relative measure rather than an absolute one, focusing on a country’s development in relation to others, rather than just on raw figures.
Countries with similar HDI scores may face entirely different development challenges because the HDI is an average of three broad indicators and does not reflect deeper structural issues. For instance, two countries might both have an HDI of 0.750, but one may suffer from severe income inequality while the other has poor infrastructure or weak institutional governance. Additionally, one country’s education score might be high due to expected years of schooling, but the quality of education might be very low. Similarly, high life expectancy might not reflect good healthcare access across the entire population if it is regionally concentrated. The HDI also does not capture informal economies, levels of corruption, political freedoms, or environmental degradation. Therefore, the index can mask disparities within countries or the presence of unaddressed development needs. This is why complementary indicators such as the Gini coefficient or measures of governance are necessary to fully understand a country’s development profile.
Purchasing Power Parity (PPP) is vital in adjusting GNI per capita within the HDI because it accounts for differences in the cost of living between countries. Without PPP adjustments, income figures may be misleading. For example, a person earning $5,000 annually in a low-cost country may enjoy a higher standard of living than someone earning $10,000 in a more expensive country. PPP ensures that the income measure reflects what that income can actually purchase in terms of goods and services locally. This creates a more accurate basis for international comparison. In the HDI, using PPP-adjusted GNI per capita enables a better understanding of real income levels and living standards. It removes distortions caused by fluctuating exchange rates or inflation. By standardising income in this way, the HDI provides a more realistic portrayal of how well individuals in different countries can meet their basic needs and improve their quality of life.
The HDI can and is frequently used to measure progress within a country over time. Although it is often used for international comparison, it is also a powerful tool for tracking national development trends. Governments and development agencies use HDI data to observe changes in life expectancy, education, and income over multiple years. For example, a country implementing education reforms might see its expected years of schooling rise, leading to a gradual increase in its HDI score. Similarly, economic growth that raises GNI per capita can improve the income dimension. However, caution is needed because the HDI is recalculated annually using updated minimum and maximum values and occasionally revised methodologies. This means year-on-year comparisons must account for these changes. Some countries also compute subnational HDI statistics to assess regional disparities and inform local policy decisions. Thus, the HDI is both a snapshot for international benchmarking and a dynamic tool for evaluating long-term national development.
Practice Questions
Evaluate the usefulness of the Human Development Index (HDI) in measuring levels of development between countries.
The HDI is useful as it provides a composite measure of development, combining income, education, and health indicators. This gives a broader view than GDP alone, allowing for easier international comparisons. However, it has limitations. It does not account for income inequality, political freedom, or environmental sustainability. Two countries may have identical HDI scores but vastly different distributions of wealth or democratic conditions. It also omits informal economic activity, which is significant in developing economies. Therefore, while the HDI is a valuable starting point, it should be supplemented with other indicators to capture development more accurately.
Explain two reasons why using a range of indicators is important when measuring economic development.
Using a range of indicators is essential because development is multidimensional. Firstly, income-based measures such as GNI per capita may not reflect access to essential services like education or healthcare. Secondly, indicators like the Multidimensional Poverty Index or access to clean water provide insights into the quality of life and basic living standards, which income figures alone cannot show. These additional indicators help policymakers identify specific areas of deprivation, such as high infant mortality or low literacy, enabling targeted interventions. Thus, a range of indicators gives a more complete and nuanced understanding of development progress.
