WHAT IS A COMPOSITE INDEX? UNIT 3.1 DEVELOPMENT WHAT IS A COMPOSITE INDEX?

Introduction A development index measures a country's performance according to specific development indicators. Some countries may appear to be developed according to some indices, but not according to others. To balance inaccuracies, composite indices are used as they tend to be an amalgamation of many different indicators.

Composite development index Such an index measures more than one variable or indicator. It does not only consider GDP per capita but will also consider, for example Education. Composite indices are considered to be more accurate than looking at a single factor because they can take into account a variety of socio-economic indicators and therefore no single factor can 'tip the scales'. 

Human Development Index (HDI) A tool developed by the United Nations in 1990 to measure and rank countries' levels of social and economic development. The HDI makes it possible to track changes in development levels over time and to compare development levels in different countries.

Human Development Index (HDI) It uses four development indicators to give each country in the world a score between 0 and 1. Countries with a score close to 1 are the most developed and those closer to zero are the least developed. The four criteria are: life expectancy at birth, mean years of schooling for adults aged 25, expected years of schooling for children of school-entering age and gross national income (GNI) per capita (PPP).

Human Development Index (HDI) It classifies countries into four broad bands/groups: Very high human development High human development Medium human development Low human development. http://hdr.undp.org/en/countries

HDI - Positives It includes more than one measurement making it more accurate. Development involves more than just economical factors, so the fact that the HDI includes education and standard of living, making it more reliable for measuring development. The HDI can also be used to question national policy choices, asking how two countries with the same level of GNI per capita can end up with such different human development outcomes.  For example, the Bahamas and New Zealand have similar levels of GNI per person, but life expectancy and years of schooling differ greatly between the countries, resulting in New Zealand having a much higher HDI than the Bahamas.

HDI - Negatives Doesn't take other important factors into consideration, such as gender equality, literacy rate, death rate, poverty and distribution of wealth. The Index has also been criticised as "redundant" and a "reinvention of the wheel", measuring aspects of development that have already been exhaustively studied.  Lacks year to year comparability as a large amount of countries do not release the data required to calculate HDI on a yearly basis, as they do for GDP, for example. Accused of assessing development differently in different groups of countries It is difficult to use the HDI to monitor changes in human development in the short-term because two of its components, namely life expectancy and mean years of schooling change slowly.

Limitations of the HDI The HDI notably fails to take account of qualitative factors, such as cultural identity and political freedoms (human security, gender opportunities and human rights for example) Many argue that the HDI should become more human-centred and expanded to include more dimensions, ranging from gender equity to environmental biodiversity The GNP per capita figure – and consequently the HDI figure – takes no account of income distribution. If income is unevenly distributed, then GNP per capita will be an inaccurate measure of the monetary well-being of the people. Inequitable development is not human development PPP values change very quickly and are likely to be inaccurate or misleading The 2010 edition of the Human Development Report marked the launch of a new Inequality-adjusted HDI and also a Gender Inequality Index and a Multidimensional Poverty Index Inequality HDI - The average loss in the HDI due to inequality is about 23 per cent—that is, adjusted for inequality, the global HDI of 0.682 in 2011 would fall to 0.525 Key point: the HDI is intended to allow economists to draw broad conclusions about which countries enjoy relatively high standards of living, and which are, by comparison, under-developed

Composite vs. Single Development Indicators Development is the process of social and economic advancements that leads to improvements in peoples quality of life and general wellbeing, as such when trying to measure it, it is important to not only consider the economic indicators. The HDI, for example, taking into account GNI (PPP), life expectancy at birth as well as educational opportunity and attainment, considers several aspects of development – not only the economic aspect. Therefore just because a country is rich, does not mean it scores highly on HDI; nor will it rank as high as its GNI suggests. For example, in 2011 Qatar had the highest GNI per Capita (PPP$) in world (123,124.4). However, it was ranked at 32. In comparison, Norway had a GNI per capita (PPP$) of 64,992.3 but was ranked at 1. This is because it lags behind many other countries in some of the other development indicators used in calculating the HDI.

Composite vs. Single Development Indicators The reverse is also true i.e. countries or areas within countries may have a low GNI but rank higher than areas with a similar or higher GNI because of differences in the other development indicators used. For example, in 2015 Kerala (a state in India) ranked 11th in terms of GDP per capita (PPP$) with $8,172.87. The highest ranked state (Goa) was over twice as much. However, Kerala ranked first at the HDI with a score of 0.825 (very high) while Goa was 4th.

Why is Kerala considered the most developed amongst all Indian states? It has: the highest literacy rate (93.91%), highest life expectancy (74 years) and lowest sex ratio (the ratio of the number of men to the number of women: 923 men per 1000 women) among Indian states. Note that although the sex ratio has nothing to do with the HDI directly, studies show that there is a direct correlation between increased literacy and decreased fertility. In Kerala, female literacy is the highest. And at 1.65 children/women, it has one of the lowest fertility rates.  The male- female literacy gap was 21.92% in 1951 has narrowed down to 4.04% in 2011. Literacy (especially female literacy) was responsible for high rate of utilization of public health care facilities. Social welfare programs hence got a wider effective area than many other states in India resulting in an increase in educational levels as well as development  of a social infrastructure which provided easy access to services (including health services). 

Problems and Limitations of using Development Indicators Although development indicators can be useful for governments, NGO's etc. to know where to target investment or where for industries to locate a new factory, or even for where an individual to move to, they do have their limitations. These limitations include: Countrywide statistics disguise intra-country variations. For example eastern China is a lot richer than the west, but if you looked at China's overall GDP you would not know this. In many countries data is inaccurate or incomplete. Some countries also refuse to release certain pieces of information or data. Most development indicators (with the exception of HDI) focus on only one aspect of development. Most indicators use averages and tend to neglect or highlight the sectors of the population that are marginalised. Indicators are always out of date. Once information has been collected, analysed, presented and published a lot of things can have changed either for the better or worse. Development indicators can be manipulated, used or ignored to suit peoples needs. One indicator may suggest an area is developed while another may suggest an area is undeveloped.

Composite vs. Single Development Indicators However, there is clearly often a positive correlation between GDP / GNI and the HDI as countries with a high HDI can distribute funds to health care and education, subsequently raising life expectancy and educational attainment. In spite of this, composite indicators make global comparisons a lot easier although some, like the Human Poverty Index, are subjective, meaning that it is actually a less accurate measure of development than solely using GDP.

Composite vs. Single Development Indicators A major advantage of using a single indicator is that they do not shroud individual measures and so, with regards to pinpointing what social and economic improvements are required for a country to develop, should also be taken into consideration when determining level of development.  Every measure of development has merits and limitations. No single measure can provide a complete picture of the differences in development between countries. This is why the United Nations combines four measures of different aspects of the quality of life to arrive at a figure of human development for each country.

Assignment Go to the web address given on the previous page. Find the following countries: Vietnam Pakistan Trinidad and Tobago Czech Republic Complete the worksheet provided.