Human Development Index vs Unemployment Rate

05017513 CHEUNG Siu Kit Everest06008593 YIU On Pui Patrick06014038 YIP Ning Yan06014356 LEUNG Cheuk Man06016340 TANG Shirley

Introduction

What is HDI?

The Human Development Index (HDI) is a summary composite index that measures a country's average achievements in three basic aspects of human development: health, knowledge, and a decent standard of living.

It is a standard means of measuring well-being. It is used to determine and indicate whether a country is a developed, developing or underdeveloped country.

It is also used to measure the impact of economic policies on quality of life.

Background

The index was developed in 1990 by Indian Nobel price winner Amartya Sen, Pakistani economist Mahbub ul Hag and Sir Richard Jolly, with help from Gustav Ranis of Yale University and Lord Meghnad Desai of the London School of Economics.

It has been used since then by the United Nations Development Programme in its annual Human Development Report.

HDI components

HDI measures the average achievements in a country in three basic dimensions of human development:

A long and healthy life, as measured by life expectancy at birth Knowledge and education, as measured by the adult literacy rate (with two-thirds weighting) and the combined primary, secondary, and tertiary gross enrollment ratio (with one-third weighting) A decent standard of living, as measured by the natural logarithm of gross domestic product (GDP) per capita at purchasing power parity (PPP) in USD.

High██ 0.950 and over██ 0.900–0.949██ 0.850–0.899██ 0.800–0.849

Medium██ 0.750–0.799██ 0.700–0.749██ 0.650–0.699██ 0.600–0.649██ 0.550–0.599██ 0.500–0.549

Low██ 0.450–0.499██ 0.400–0.449██ 0.350–0.399██ under 0.350██ not available

██ over 80██ 77.5-80██ 75-77.5██ 72.5-75██ 70-72.5██ 67.5-70██ 65-67.5

██ 60-65██ 55-60██ 50-55██ 45-50██ 40-45██ under 40██ not available

Life Expectancy at birth (years)

Literacy Rate

High██ 0.950 and over██ 0.900–0.949██ 0.850–0.899██ 0.800–0.849

Medium██ 0.750–0.799██ 0.700–0.749██ 0.650–0.699██ 0.600–0.649██ 0.550–0.599██ 0.500–0.549

Low██ 0.450–0.499██ 0.400–0.449██ 0.350–0.399██ under 0.350██ not available

Income Distribution

Past top countries

Methodology of HDI

Leading a long and healthy life – Expectancy index Is represented in the HDI by life

expectancy at birth The upper goalpost 85 years gives

a life expectancy of 1 and a value of 25 gives a value of 0.

The life expectancy index is one-third of the overall HDI.

E.g. Life expectancy index= 78 – 25 = 0.883

85 - 25

Having knowledge – Education index Measures a country’s relative

achievement in both adult literacy and combined primary, secondary and tertiary gross enrolment.

These two indices are combined to create the education index, with 2/3 weight given to adult literacy and 1/3 weight to combined gross enrolment.

E.g. Adult literacy index = 95.8-0 = 0.958 100-0 Gross enrolment index = 69-0 = 0.69 100-0 Education index = 2/3(0.958) + 1/3(0.69) = 0.869

Calculating the GDP index

Is calculated using adjusted GDP per capita (PPP US$).

Income serves as a surrogate for all the dimensions of human development not reflected in a long and healthy life and in knowledge.

It is adjusted because achieving a respectable level of human development does not require unlimited income.

E.g. GDP index = log(8,840)-log(100) = 0.748 log(40,000)-log(100)

Calculating HDI

Once the dimension indices have been calculated…

E.g. HDI = 1/3(life expectancy index) + 1/3(education index) + 1/3(GDP index) = 1/3(0.883) + 1/3 (0.869) + 1/3(0.748) = 0.833

Human Development Classification HDI of 0.800 or above

high human development HDI of 0.500-0.799

medium human development HDI of less than 0.500

low human development

The Relationship between Unemployment rate and HDI

Samples

Unemployment rate from IFS

Samples only include countries both have unemployment rate and HDI value

Total: 81 observations

Regression Result

^ Unemployment rate = 26.9397***- 22.1318***HDI se (4.5251) (5.3595) R2 =0.1775 N=81 SER= 4.6606

Negative relationship

When the HDI value reduce to zero, the unemployment rate will be 26.9397

When the HDI value increase 1 unit, the unemployment rate will decrease 22.1318

Cross-sectional data

The R squared shows that only 17% of the total variation in unemployment rate can be explained by the variations in HDI

P-value is 0.0001 of the coefficient of HDI, smaller than any level of significance

The coefficient of HDI is significantly different from zero

Human Development Report 2007/2008

HDI Trend

Hong Kong VS Asian Countries

Hong Kong Japan Singapore

HDI 0.937

(21)

0.953

(8)

0.922

(25)

Life expectancy index

0.949

(2)

0.964

(1)

0.907

(14)

Education Index

0.885

(73)

0.946

(42)

0.908

(47)

GDP Index 0.977

(7)

0.959

(17)

0.950

(19)

HK may have to improve the education index Improve the degree of adult’s literacy Enrolment ratio for primary, secondary and

tertiary education Total public expenditure on education Primary: Japan(38%), HK(26%) Secondary and post secondary: Japan(40%),

HK(36%),Singapore(43%)

Limitations of HDI

A simple single index cannot show everything The HDI only reflects average achievements in thre

e basic aspects of human development – leading a long and healthy life, being knowledgeable, and enjoying a decent standard of living.

A fuller picture of a country's level of human development requires analysis of other human development indicators and information, for example gender-related development index, gender empowerment measure, and human poverty index.

Still, not enough to understand a country's level of human development

Abstract concept of Human Development Human development can refer to anthropological, sociological,

economic and psychological approaches to examining human development in context

is about creating an environment in which people can develop their full potential and lead productive, creative lives in accord with their needs and interests.

is about “enlarging people’s choices”

HDI only includes three aspects

HDI does not include all countries in the world Not all countries have sufficient data available to cal

culate the HDI or other indices

They have many data gaps in basic areas of human development

Mostly relative backward countries are not included

HDI cannot reveal a fuller picture of a backward country’s level of human development

Data for HDI come from… The primary source of data is regarded an essential element to value an index’s accuracy

HDRO does not collect data directly from countries or make estimates to fill these data gaps in the Report

Data are mostly provided from the relevant international data agencies (the United Nations Population Division for life expectancy at birth, the UNESCO Institute for Statistics for the adult literacy rate and combined gross enrolment ratio for primary, secondary and tertiary schools and the World Bank for GDP per capita [PPP US$])

But a significant number of countries data are missing for one or more of these components, for example countries ranked no.1-19 miss adult literacy rate so the rate is assumed to be 99.0%.

HDRO may use outdated data in estimation, for example the adult literacy rate of Hong Kong(94.6%) using in the calculation is estimated from UNESCO (United Nations Educational, Scientific and Cultural Organization) Institute for Statistics in 2003 (already outdated)

HDRO attempts to make an estimate in consultation with regional and national statistical offices or other experts subjective data