Human Development Index and Inequality
Postgraduate Degree in Business Analytics - Universidad ICESI, Colombia
José Ospina & Carlos Morales
8/7/2020
The Human Development Index (HDI) is a summary measure of achievements in three key dimensions of human development:
- A long and healthy life.
- Access to knowledge.
- A decent standard of living.
The HDI is the geometric mean of normalized indices for each of the three dimensions.
“Inequality in human development – deep imbalances in the opportunities and choices people have – goes beyond income recognizing the dynamic and complex interactions between inequalities in education, health, voice, access to technology, and exposure to risk among many other dimensions that affect individual well-being.”UNITED NATIONS DEVELOPMENT PROGRAMME.
There are four categories for the HDI:
| Categories | HDI Range |
|---|---|
| Very high human development | 0.800 and Above |
| High human development | 0.700–0.799 |
| Medium human development | 0.550–0.699 |
| Low human development | Below 0.550 |
“The Inequality-adjusted Human Development Index (IHDI) adjusts the Human Development Index (HDI) for inequality in the distribution of each dimension across the population…”
"The IHDI equals the HDI when there is no inequality across people but falls below the HDI as inequality rises. In this sense, the IHDI measures the level of human development when inequality is accounted for."
A general view of IHDI for an specific year is a good way to start the analysis and identify possible groups of interest or patterns.
We now go from the most specific level (individual countries) to a more general analysis. A hystorical view by continent may reveal some interesting information.
Visualizing the evolution of IHDI by continent shows clear differences:
- During the period from 2010 to 2017 the are little changes in IHDI except for Oceania were there may be pertinent o explore data integrity.
- As expected by general knowledge Africa and Europe are on the extremes.
- South America shows a slight improvement.
Altough analyzing data by continent shows some trends, it is useful to generate some different groups of interest based on economic, cultural or geographic traits.
Four groups of interest are generated:
- G7: comprised of the 7 of major developed countries: Canada, France, Germany, Italy, Japan, the United Kingdom and the United States.
- BRICS: association of five major emerging national economies: Brazil, Russia, India, China and South Africa.
- Scandinavian countries: by general and personal knowledge these countries are regarded as some with the highest life standards in the world. The group includes Denmark, Finlad, Norway and Sweden.
- Rest of the world.
By looking at the previous chart (density distributions) and the box plots below, we can clearly identify differences among the groups of interest. We can see how G7 and the Scandinavian countries, not only have the highest median levels of IHDI but the lowest variability within their population. This is true for all the years in the dataset.
BRICS on the other hand, although they have “powerful economies”, show a timid progress in IHDI year to year with a better behaviour from 2016 to 2017. This improvement was also accompanied by a slight increase in variability.
For the “Rest of the World” group, there is a small improvement in median IHDI over the years but the inequality among countries has not improved much during this period of time.
The group of Scandinavian countries have the best historical behaviour and the the best 2017 value in IHDI. A closer look at this group could prove useful.
It’s notable how IHDI in Scandinavian countries for the year 2017 is very similar and well beyond the standard to be regarded as “very high human development”.
Let’s now consider how Colombia compares to the Scandinavian group in all 3 dimensions that build up IHDI and the inequality index itself.
| Indicator | Gap |
|---|---|
| Inequality adjusted education index | 0.330 |
| Inequality adjusted income index | 0.332 |
| Inequality adjusted life expectancy index | 0.197 |
Given the above chart and table two good questions could be proposed:
- How to reduce inequality in education?
- How to reduce inequality in income?
These questions could be explored regarding only the countries in the Scandinavian group or at a global level. Following, we explore how are these two aspects related at a global level.
The scatter plot shows an evident positive relationship between knowledge, represented by the Inequality-adjusted education index and a decent (or above) standard of living represented by the Inequality-adjusted income index.
Scandinavian countries have the highest correlation between these variables so a valid conclusion might be that in those countries education is very well rewarded in economic terms.
In order to reduce the gap between Colombia and the Scandinavians, Colombia could:
- Increase expected years of schooling.
- Analyze quality in education since number of years of schooling is only one aspect, i.e. analyze student-teacher ratio.
- Analyze aspetcs such as gender inequality or standard of living (water, electricity, housing, assets).
Decreasing inequality in education could lead to reduced inequality in income and a better standard of living and an improved IHDI.
Data Sources: Life expectancy at birth: UNDESA (2017). Expected years of schooling: UNESCO Institute for Statistics (2018), ICF Macro Demographic and Health Surveys, United Nations Children’s Fund (UNICEF) Multiple Indicator Cluster Surveys and OECD (2017). Mean years of schooling: UNESCO Institute for Statistics (2018), Barro and Lee (2016), ICF Macro Demographic and Health Surveys, UNICEF Multiple Indicator Cluster Surveys and OECD (2017). GNI per capita: World Bank (2018), IMF (2018) and United Nations Statistics Division (2018).