The human development index (HDI) assigns numerical values to different countries as a measure of human prosperity. These values are derived by measuring levels of education, standard of living, and life expectancy. Countries with higher scores on the index are said to be better developed than those with lower scores.

The system is designed to be used to help determine strategies for improving living conditions for people around the world. It can be used to assess why countries with a similar gross domestic product (GDP) have different HDI values and therefore can affect the fiscal and public policy of a nation. However, some critics argue that these measures are flawed and do not create an accurate picture of prosperity.

Critics argue that the HDI assigns weights to certain factors that are equal trade-offs, when these measurements may not always be equally valuable.

How the Human Development Index (HDI) Is Valued

The HDI was implemented in 1990 and the values it assesses are determined as follows:

  • The health factor is assessed by life expectancy at birth.
  • The standard of living factor is assessed by GNI (gross national income) per capita.
  • The education factor is assessed by both the literacy rate and the Gross Enrollment Index (GEI).

The GEI is part of the population that is enrolled in primary, secondary, and tertiary school.

Criticism of the Human Development Index (HDI)

Critics argue that the HDI assigns weights to certain factors that are equal trade-offs, when these measurements may not always be equally valuable. For example, countries could achieve the same HDI through different combinations of life expectancy and GNI per capita. This would imply that a person's life expectancy has an economic value.

An additional year of life would add to the GNI and would thus be different in countries with different GNI per capita.

It also correlates factors that are more common in developed economies. For example, a higher level of education would tend to lead to higher GNI per capita. Critics argue the benefit or lack thereof of including two highly correlated values when perhaps one would be a better indicator of a country's well-being.

The HDI also fails to take into account factors such as inequality, poverty, and gender disparity. A country with a high value for GNI per capita would indicate a developed country, but what if that GNI is reached by marginalizing certain genders or ethnic classes? And what if that GNI is achieved by a small percentage of the population that is wealthy and therefore ignores the poor?

Furthermore, the values of the factors that make up the HDI are bounded between 0 and 1. This means that certain countries that already have high GNIs, for example, have little room to improve in terms of GNI score even if their GNI continues to grow and improve. This same parameter affects the logic of the life expectancy score.

The Bottom Line

Though the HDI is designed to consider other factors besides wealth, allowing a multifaceted examination of global prosperity and emerging market nations, the weaknesses of this measurement lead some critics to challenge its practicality for use in establishing foreign policy. Other factors that influence prosperity are not sufficiently captured by this measurement either.