Milorad Kovacevic - PowerPoint Presentation

Slide1

Milorad KovacevicHuman Development Report Office, UNDPWorkshop on Measuring Human Development, June 14,2013GIZ, Eschborn, Germany

1

Human Development Index: Challanges and a way forward

United Nations Development

Programme

Human Development Report OfficeSlide2

2Human DevelopmentA standard definition of human development (1990 HDR):

“[…] a process of enlarging people’s choices to live lives they have reason to value… The most critical ones are to lead

a long and healthy life, to be knowledgeable and to enjoy a decent standard of living.”A broader definition

(2010 HDR):“Human development is the expansion of people’s freedoms to live long, healthy and creative lives; to advance other goals they have reason to value; and to engage actively in shaping development equitably and sustainably

on a shared planet”Slide3

3

Measuring is as more relevant than ever

Quantifying and describing our changing world

Finding ways of improving people’s well-being:

Informed policy making and advocacy

Human development is an

evolving idea

As the world changes – analytical tools change

But there is a persistent importance of the

chain

:

Concepts

Measurements

ImpactsSlide4

4Human Development IndexEmphasizes that outcomes for people and their capabilities should be the ultimate criteria for assessing the progress of a country, not economic growth alone.

Accounts for average achievements in l

ife expectancy (proxy for leading a long and healthy life), education (proxy for being knowledgeable) and income per capita (proxy for command over resources to have a decent standard of living). Slide5

5Human Development Index (Contd.)A simple index (non-comprehensive)

with the purpose of initiating discussions

attracting attention to issues that prevent countries from performing at a higher levelinternational comparison and benchmarking

temporal comparisonSlide6

General criteria for a good HDI (Foster, 2013)(I) Corresponds to strong policy and advocacy needsUnderstandable and easy to describe

Understandable at a deeper level including goalposts and group-cutoffs

Measuring absolute “size of HD” - independent from other countriesConforms

to a notion of what is being measuredAnchored in underlying

variablesNumbers mean something

(II) Concerns the intended purpose of the index

It must fit the purpose for which it is being developed Complements GDP or/and GNI

Compares

HD achievements across countries

- Monitors

progress across time for a given country

- Analytical utility (subgroups

or dimensions)

6Slide7

General criteria for a good HDI (contd.)(III) Theoretically justifiedTechnically solid Axioms to make sure that index’s properties conforms to purpose

Theoretical framework (within human capabilities

approach and/or welfare economics)(IV) PracticalityOperationally

viable and easily replicable - Works with existing

data for all the countries and all the years- It can be updated in time

7Slide8

How to anchor HDI values?Through normalized variables- Necessary for comparability on the same scale.- Only after rescaling they can be combined into a single scalar – a composite index.

Enable each dimension index to range between 0 and 1

-

net variable

-

reference level (range)

Cardinal interpretation

:

“

Distance”

travelled or

Achievement in % of the reference level

8Slide9

How to decide about goalposts

?

Purely data driven goalposts cause confusionOught to have firm

normative basisDifferent purpose of goalposts:

Upper (aspiration level) may

change periodically but infrequently, 5 – 10 years, normative targets

- In a constrained way (or proportionate)- All past inconsistencies will then be caused by data

revisions

Lower

(natural

zeros) should

stay

fixed

Properties of the index should not be compromised

- Equal implicit weights (by making the range of variation very similar)

9Slide10

How to decide about demarcation cut-offs for categorizing countries into different levels of HD?Fix absolute demarcation cut-offs for categorizing countriesChoose relatively, then fix absolutely, orLook

within variables for natural cut-offs

Cut-offs are always arbitrary- Like poverty lines, like middle class ranges

But if fixed over time, countries can progress

- Consistent cut-offs can be maintained over time

10Slide11

Changes in the HDI introduced in 201011Goal posts

Minima:

Fixed at “natural zeros”

Maxima:Observed maxima since 1980Comments: A possible change of maxima every year;

HDI level of Congo depends on LE of Japan, education in USA and GNI of Qatar (!?) Group cut-offs (relative)

Cut-offs:Quartiles of HDI distribution Groups:Quartile groups of equal sizeComments:

Little movement mostly within the group To move to the higher quartile, another country has to move to the lowerP

rogress against other countries, rather than against arbitrary numerical cut-offs

F

uzzy incentives, less practical value for the country

HDI value and rank: change between two years

Due to:

Real change

in performance

Data revision

Change in goalposts (maxima)Slide12

12

Logarithmic

transformation of income

•

Diminishing marginal utility of incomeSlide13

HDRO

13

Logarithmic transformation in other

dimensions

There

are arguments for and against transforming the health and education variables to account for diminishing returns.

Health

and education are not only of intrinsic value; they, like income, are instrumental to other dimensions of human development not included in the

HDI.

Their

ability to be converted into other ends may likewise incur diminishing returns. Slide14

Alternative transformations for variables?Simplicity is always betterBy transforming variables it is harder to interpret change on the ground with change in the index – it is a function of the normalized transformed variables!No possibility for subgroup

decompositionChakravarty

(2003) with all variables transformed by a common concave function

14Slide15

15

Aggregation: Geometric

mean

No perfect

substitutability -

reduced

substitutability

Awards well-rounded performance

Encourages improvements in the weakest dimension

Changing of maxima does not impact ranking by

HDI

Higher discriminatory power

(0.6, 0.6, 0.6)

HDI=0.600,

(0.5, 0.6, 0.7)

HDI=0.594,

(0.4, 0.6, 0.8) HDI=0.577

Accounts for inequality across dimensions

 Slide16

16

Aggregation: Geometric

mean

Critiques:

A well rounded performance across dimensions is not a requirement within the human development approach

Development/government policies should not be focused on maximizing the HDI

Changing

of

aspiration levels should be done infrequently and if it is done proportionally (a slope-invariant linear transformation), maxima do not

impact ranking by

the arithmetic mean based HDI

High discrimination power is based on the accounted inequality across dimensions which is not as important as the inequality within dimension and across population

No decomposition by dimension nor by subpopulationSlide17

17

Aggregation: Arithmetic

mean

Easy interpretation

Decomposability by dimension

Perfect substitutability:

- a

low achievement in one dimension is linearly compensated for by

a high

achievement in another dimension.

Ex.

HDI=0.6:

(0.6, 0.6, 0.6), (0.5, 0.6, 0.7),

(0.4, 0.6, 0.8

)

-

Constant tradeoffs between non-income dimension

Low

discriminatory

power

 Slide18

18

Changing the functional form may cause big changes in the HDI values and ranks especially in the lower end of distribution.

Example:

LE

EDU

GNI

Stdev

HDI

(geometric)

HDI (arithmetic)

Mali

.496

.270

.346

.115

.359 (175)

.371 (176)

Liberia

.580.439

.140.225.329 (182).386 (175)Slide19

19

Summary of recommendations

1

Revert to the original

arithmetic

formula

With

fixed

minima (zeroes)

With aspirational cut-offs

constrained and updated

infrequently

With log of income component

With fixed cut-offs between groups

__________

1

2nd

Conference on measuring human progress, March 4-5, New York Slide20

20

Thanks

Milorad.kovacevic@undp.org