Refining the Human Development Index: JRC suggestions · 2016. 6. 3. · Human Development Index: JRC suggestions Michaela Saisana [email protected] European Commission

Michaela Saisana Second Conference on Measuring Human Progress

New York, 4-5 March 2013

1

Refining the

Human Development Index:

JRC suggestions

Michaela Saisana

[email protected]

European Commission

Joint Research Centre

Econometrics and Applied Statistics Unit

Ispra, Italy



2

Introduction

• Achievements • The challenge • The measure • Popularity

It is exactly the “unobserved” nature of

composite indicators that is their main

limitation and their raison d'être.

180

4,460

7,730

12,600

16,200

17,80018,600

21,300

0

5,000

10,000

15,000

20,000

25,000

1985 1990 1995 2000 2005 2010 2015

Year

Sc

ho

lar

Go

og

le h

its

on

"H

um

an

de

ve

lop

me

nt

ind

ex

"

~5-fold increase

since 2000

180

4,460

7,730

12,600

18,600

21,300

77,100

115,000

0

5,000

10,000

15,000

20,000

25,000

1985 1990 1995 2000 2005 2010 2015

Year

Sc

ho

lar

Go

og

le h

its

on

"H

um

an

de

ve

lop

me

nt

ind

ex

"

0

50,000

100,000

150,000

200,000

250,000

Sc

ho

lar

Go

og

le h

its

on

"G

ros

s

do

me

sti

c p

rod

uc

t"

“Yet the dimensions of the HDI do not

easily meld into one. And without a

systematic method […prices…] the index

could prove difficult to explain and defend”

(J. Foster, 2013)



3

• Calibration • Goalposts • Gaterories • Cobb-Douglas HDI

Main points



4

• Calibration • Goalposts • Categories • Cobb-Douglas HDI

Main points “Frequent recalibration gives the strong suggestion that HDI values are

contingent and temporary and depend importantly on arbitrary constructs”

Foster’s suggestion:

1) ~ 10 year recalibration (as for poverty)

2) Crossover between calibration periods:

process outlined explicitly and transparently

Source: Global Innovation Index



5

Source: Global Innovation Index



6


Main points “The HDI is typically cast and interpreted as a multidimensional measure of

size and hence is seen to be an absolute measure. […] Yet in actual

implementation, this is not necessarily the way the HDI behaves.”

Life expectancy at birth

Bounds in the HDI

After 2010: 20y – observed (83.2 y, JN)

Before : 25y – 85y

Source: Wikipedia



7

34.632.8

39.844.0

47.8

76.779.0

82.3 83.4

30

35

40

45

50

55

60

65

70

75

80

85

90

1970 1980 1990 2000 2010 2020

Lif

e e

xp

ecta

ncy a

t b

irth

(years

)


Main points Minimum and Maximum across 194 countries

85.6

Life expectancy at birth

Suggestion: Fixed bounds

30y (Early 20th Century) – 87 years

Similarly for the other indicators



8


Main points

Categories of Human Development

Relative (since 2010) versus Absolute (before 2010)

+ progress against other countries, rather than arbitrary numerical

cutoffs whose meaning may vary with each new calibration.

- fuzzy incentives, less practical value for the country

- many factors enter into the determination of progress (e.g. different

calibrations, performance of other countries, policies of the country,

or inclusion of new countries).

- a country can not set a meaningful numerical target to achieve over

time.

Foster’s suggestion:

1) A staggered recalibration schedule &

2) Fixed numerical cutoffs for the four HD categories

(e.g. WB grouping by income)



9

Main points

HDI Life

expectancy at

birth (years)

Mean

years of

schooling

Expected

years of

schooling

GNI per

capita

(PPP$)

…

0.6 58.2 7.9 10.8 6,487

0.8 …

Further recommendation:

To present the fixed cutoffs for the HDI

with respect to the raw data (assuming an

even performance) • Calibration • Goalposts • Categories • Cobb-Douglas HDI



10

Main points

•Calibration •Goalposts •Categories • Cobb-Douglas HDI

“[…] attempt to view the HDI more as a social evaluation function that

aggregates across dimensional variables directly”

3/13/13/1 YELW

L= life expectancy - 20 years

E =1/2 (mean years of schooling + expected years of schooling)

Y= ln (GNI per capita) – ln (100)

*/WWH W*= target social evaluation level



11

Advantages of the geometric mean versus the arithmetic mean for the HDI

1) implies only partial compensability, i.e. poor performance in one HD dimension cannot be fully

compensated by good performance in another,

2) rewards balance by penalizing uneven performance between dimensions,

3) encourages improvements in the weak dimensions, i.e. the lower the performance in a particular

HD dimension, the more urgent it becomes to improve in that dimension.

Life Edu GNI stdev

HDI

(arithmetic)

HDI 2011

(geometric)

Liberia’s

improvement

Mali .496 .270 .346 .115 .371 (176) .359 (175)

Liberia .580 .439 .140 .225 .386 (175) .329 (182)

Option A .680 .439 .140 .419 .347 5.5%

Option B .580 .439 .240 .419 .394 19.8%

More on the geometric mean in the case of the HDI…



12

More on the “quality” of the HDI… (Implicit Weights)

We suggest to use as a measure of importance

of a variable in an index what is known as:

‐ Pearson’s correlation ratio

‐ First order effect

‐ Top marginal variance

- Main effect

…

Source: Paruolo, Saisana, Saltelli, 2013, J.Royal Stat. Society A

Using these points we can compute a statistics that tells us:

How much (on average) would the variance of the HDI scores be reduced if one could

fix “Life expectancy”?

HDI

Life Expectancy



13

More on the “quality” of the HDI… (Implicit Weights)

HDI

Life Expectancy

HDI 2011 Nominal

Weights (wi)

Implicit

Weights (Si)

Life expectancy .333 .83 [.81 .85]

Education .333 .88 [.83 .87]

GNI .333 .90 [.88 .91]

We could reduce the variation of the

HDI scores by 83% by fixing ‘Life

expectancy”.

Quality check:

The HDI is balanced in its three underlying dimensions (Si values are very similar)



14

More on the “quality” of the HDI… (Marginal weights)

Recommendation: To plot Change in HDI

versus life expectancy instead to evidence

that countries with low life expectancy are

more encouraged to improve

Marginal Weights=



15

Some recent criticism…

Source: M. Ravallion (2012) Troubling

tradeoffs in the HDI, J. Dev. Economics,

99:201-209

Tradeoffs = marginal rate of

substitution, i.e. how much of one

dimension must be given up for an

extra unit of another, keeping the

index constant.

Previous HDI

The new HDI has devalued

longevity, especially in poor

countries.



16

Final considerations

Simply take the log of GNI just once (now logged twice) Take the arithmetic average the two education indicators (now geometric) Use the generalized mean of the three dimensions (a compromise solution between arithmetic-geometric averaging)

/1

)(3

1

YELHDI

mean arithmetic ,1

mean geometric ,0

5.0



17

Assess any new calibration formula in terms of:

Implicit weights (reduction in the HDI variance by fixing one dimension at a time)

Marginal weights (impact on HDI of 1% increase in one of the dimensions)

Marginal rate of substitution (how much of one component must be given up for an extra unit of another, keeping the index constant)

More reading at:

http://composite-indicators.jrc.ec.europa.eu

(first Google hit on “composite indicators” over the last 10 years!)



18

1. Paruolo P., Saisana M., Saltelli A., 2013, Ratings and Rankings: voodoo or science?. J

Royal Statistical Society A 176(2).

2. Saisana M., Saltelli A., 2012, JRC audit on the 2012 WJP Rule of Law Index, In Agrast, M.,

Botero, J., Martinez, J., Ponce, A., & Pratt, C. WJP Rule of Law Index® 2012.

Washington, D.C.: The World Justice Project.

3. Saisana M., Philippas D., 2012, Sustainable Society Index (SSI): Taking societies’ pulse along

social, environmental and economic issues, EUR 25578, Joint Research Centre, Publications

Office of the European Union, Italy.

4. Saisana M., D’Hombres B., Saltelli A., 2011, Rickety Numbers: Volatility of university

rankings and policy implications. Research Policy 40, 165–177.

5. Saisana M., Saltelli A., Tarantola S., 2005, Uncertainty and sensitivity analysis

techniques as tools for the analysis and validation of composite indicators. J Royal

Statistical Society A 168(2), 307-323.

6. OECD/JRC, 2008, Handbook on Constructing Composite Indicators. Methodology and user

Guide, OECD Publishing, ISBN 978-92-64-04345-9.

References and Related Reading

Documents

Refining the Human Development Index: JRC suggestions · 2016. 6. 3. · Human Development Index: JRC suggestions Michaela Saisana [email protected] European Commission