Chapter 82: Measuring development – composite indicators(4.2)

"Scandinavia comes out on top according to the HDI because the HDI is basically a measure of how Scandinavian your country is.” Bryan Caplan, American right-wing economist[1]

Simply put; there is no ‘best single indicator’ for standard of living or development. Economists have for years compiled aggregated data and compiled composite indicators – i.e. ‘mixed together’ several key indicators to give a wider reach of a measurement.

  • Composite indicator – HDI

It is published annually in the Human Development Report from the United Nations Development Programme (UNDP). The HDI uses four indicators to show health, education and standard of living:

1)Life expectancy at birth; measures health

2)a) Mean years of schooling for 25 year olds, and b) expected years of schooling for children entering school; measures education levels

3)GNI per capita adjusted for purchasing power; measures standard of living

Thescores are put together in a compositeindex where 1.00 is the highest attainable value. This is the value used in figure 82.1.

Figure 82.1 Overview of HDI values for the world

(Source: HDR 2011, table 2) (Hey Rory, where the hell is North America?!)

  • HDI figures for LDCs and MDCs

As shown in figure 82.1, the UNDP divides countries into groups; low, medium, high, very high and Scandinavian human development. No, kidding of course – checking to see if you read the footnotes. In any case, figure 82.2 shows a selection of countries and their respective rankings according to the HDI 2011. I have used the previous eight countries and added the highest and lowest HDI ranked countries.

Figure 82.2HDI and GNI per capita (PPP) for 187 countries (Rory, this chapter is bullshit and I’m keeping it short and sweet. If you feel something should be added, be my guest!)

HDI classification / HDI value / HDI rank / GNI per capita 2011 (PPP) / Income classification (see Chapter 81)
Very high human development
Norway / 0.943 / 1 / 47,557 / High
USA / 0.919 / 4 / 43,017 / High
Denmark / 0.895 / 16 / 34,347 / High
High human development
Mexico / 0.77 / 57 / 13,245 / Upper-middle
Medium human development
Algeria / 0.698 / 96 / 7,658 / Upper-middle
Indonesia / 0.617 / 124 / 3,716 / Lower-middle
Cambodia / 0.523 / 139 / 1,848 / Low
Low human development
Sudan / 0.408 / 169 / 1,894 / Lower-middle
Afghanistan / 0.398 / 172 / 1,416 / Low
D.R. of Congo / 0.286 / 187 / 280 / Low

(Source; HDR 2011, table 1)

  • Comparing GNI per capita and HDI values

Ploughing through the Human Development Report yields pretty much the results seen in figure 82.2, namely that there are considerable differences between pure income rankings and development as measured by the HDI. In the small sample of eight I have used consistently in this section, we see that:

  • The top HDI ranked countries retain their ranking from the income classification done earlier.
  • Two countries move down in the HDI rankings compared to income rankings; Algeria and Sudan both move down a notch.
  • One country, Cambodia, moves up a notch.

This is consistent with what the HDR has been pointing out for years now, namely that many of the resource rich countries – read ‘oil’, frequently – often have high GDP/GNI per capita figures but that this does not always translate into equitable distribution of wealth/income, services such as health care and education across a broad sector of society, nor government policies for taxing and redistributing the income. Two countries in our tiny sample have moved down in the rankings. It turns out that Algeria, the world’s 15th largest gas and oil producer, sees 45% of GDP and two thirds of government revenues coming from gas and oil and that 98% of all export revenues from natural gas and oil.[2]Sudan is in the middle of turmoil that might well lead to all out civil war over rich oil deposits in South Sudan, which broke away in July 2011.

  • Other composite indicators

A number of other indicators have been put together in order to measure how well off a country is and also how well off a country might be in the future. Here is a short list of some composite indicators being used by development organisations:

  • Human Sustainable Development Index (HSDI): Adds in a sustainability dimension to the HDI in order to see future living standards and consumption possibilities. The HSDI adds in a fourth metric, namely CO2 emissions.[3]
  • Human poverty index (HPI): This index uses three basic measurements of deprivation. The first relates to survival and measures by the probability of not surviving to the age of 40. The second deals with knowledge and measures the percentage of the adult population that is illiterate. The third measures standard of living
  • Multidimensional Poverty Index (MPI): Replaced the HPI in 2010. It is similar to the HDI in that it measures health, education and standard of living but instead of four metrics it relies on ten – including child mortality, malnutrition and access to electricity and potable water.
  • Inequality-adjusted Human Development Index (IHDI): The IHDI was introduced in the Human Development Report in 2010 to show discrepancies in distribution of the components of the HDI. Basically if there is perfect distribution (zero inequality) then the HDI will be the same as the IHDI. The higher the level of inequality, the more any given HDI value will be downgraded in the IHDI. For example, the US at HDI ranking number 4 winds up at 23 while Sweden at HDI ranking 10 winds up at number 5.[4]

[1]I have to admit that even though I am Scandinavian (Swedish) I simply cannot take offence to this statement. It’s too true.

[2]International Monetary Fund at

[3]See

[4] Suspiciously enough, all the Scandinavian countries (except number one Norway) go up in their rankings by between 4 and 7 places. It seems that the HDI is indeed a measure of how Scandinavian a country is!