Assignment # 01: The Human Development Index (HDI)

EC315: Development Economics (A)

Name: M Waheed

ID: s2022005080

Submission date: Nov 7,2024

(i) Define the Human Development Index.

The Human Development Index (HDI) is a measure that evaluates the overall well-
being and quality of life in a country. It combines three key dimensions: health,
education, and standard of living. These are measured by life expectancy, education
levels, and income, giving a more complete picture of development than just looking
at income.

(ii) Explain the purpose of the HDI and why it was developed as an
alternative to income-based measurements of development, such as Gross
Domestic Product (GDP) per capita or GNI per capita.

HDI was created because income measurements like GDP (Gross Domestic Product)
or GNI (Gross National Income) per capita don’t fully capture people’s quality of
life. For example, a high GDP might mean a country is rich, but it doesn’t tell us if
people have good health, education, or equal opportunities. HDI includes these
factors to better reflect real progress in human development.

(iii) Explain and compute the main dimensions of HDI.

Let's break down each dimension of HDI and see how it’s calculated.

1. Health Dimension: Explain how life expectancy at birth reflects the

health component of HDI.

 Life Expectancy at Birth shows how long people in a country are expected to live
on average. Longer life expectancy suggests better health care, nutrition, and
living conditions.
 In HDI, we calculate this by assigning a minimum and maximum value (like 20
years as the minimum and 85 years as the maximum). These values are used to
compare a country’s life expectancy against these limits.

2. Education Dimension: Describe how mean years of schooling for

adults and expected years of schooling for children contribute to the
education component.

 Mean Years of Schooling: This is the average number of years that adults (25
years and older) have attended school.
 Expected Years of Schooling: This represents the total number of years a child
entering school is expected to attend.
 Both measures are combined to show the education level of a population,
reflecting access to and quality of education.
 3. Standard of Living Dimension: Explain how Gross National Income
(GNI) per capita is used to assess living standards.

 Gross National Income (GNI) per Capita: This shows the average income per
person, adjusted for purchasing power. It represents material well-being and
access to goods and services.
 GNI is capped for HDI calculations (e.g., between $100 and $75,000), so extreme
values are balanced out.

(iv) Explain the steps used in calculating the HDI.

HDI calculation involves finding an "index" for each dimension, which is a score
between 0 and 1. Here’s the basic process:

 Health Index: (Country’s life expectancy - minimum life expectancy) /

(maximum life expectancy - minimum life expectancy)

 Education Index: Combine the mean and expected years of schooling:

 First, calculate the Mean Years of Schooling Index: (Mean years of schooling -
minimum) / (maximum - minimum).
 Then, calculate the Expected Years of Schooling Index similarly.
 Finally, average these two for the Education Index.

 Income Index: (Log of country’s GNI per capita - log of minimum GNI) / (log
of maximum GNI - log of minimum GNI).
 The HDI is the geometric mean of these three indices:
HDI=(Health Index×Education Index×Income Index)^1/3

(v) Include an example calculation for a hypothetical country (a country or

group of countries as per your choice) using estimated values for each
dimension.

Data for Pakistan (2022)

 Life Expectancy at Birth: 66.431 years

 Expected Years of Schooling: 7.895 years
 Mean Years of Schooling: 4.422 years
 GNI per Capita: $5,374.27 (PPP, 2017 constant dollars)

Step 1: Calculate Health Index

Using the UNDP's HDI calculation limits for life expectancy (minimum 20 years,
maximum 85 years):
Health Index = Life expectancy - Minimum life expectancy / Maximum life
expectancy- Minimum life expectancy

Health Index = 66.431-20 / 85-20 = 0.714

Step 2: Calculate Education Index

The education dimension is based on two indicators: mean years of schooling and
expected years of schooling. First, we’ll calculate each index, then average them for
the final Education Index.

 Mean Years of Schooling Index (using min 0 years, max 15 years):

Mean Year of Schooling - 0 / 15-0 = 4.422 / 15 = 0.295

 Expected Years of Schooling Index (using min 0 years, max 18 years):

Expected year of schooling - 0 / 18-0 = 7.895 / 18 = 0.438

 Education Index:

Education index = 0.295 + 0.438 / 2 = 0.386

Step 3: Calculate Income Index

Using the UNDP’s income limits for GNI per capita (minimum $100, maximum
$75,000), we calculate the Income Index with the log formula:

Income Index = log ( GNI per Capita) - log (Minimum GNI) / log (Maximum GNI) -
log (Minimum GNI)

 Log values:

 Log(5374.27) = 8.59
 Log(100) = 4.61
 Log(75000) = 11.23

 Income Index:

Income index = 8.59-4.61 / 11.23-4.61 = 3.98/6.62 = 0.601

Step 4: Calculate HDI

Now, we combine the three indices (Health, Education, and Income) to get the HDI.

HDI= (0.714*0.367*0.601)^1/3 = 0.54

Final Result
The Human Development Index (HDI) for Pakistan, based on the 2022 data provided,
is approximately 0.54. This places Pakistan in the "medium human development"
range as per HDI categories.