XV. Composite Indicators of Development

Comparing countries’ GNP (or GDP) per capita is the most common approach to assessing their level of development. But higher per capita income in a country does not always mean that its people are better off than those in a country with lower income, because there are many aspects of human well-being that these indicators do not capture. (Can you give some examples? See Chapter 2.) Seeking a better measure of development success, experts use different methods of integrating data on average incomes with data on average health and education levels. These methods make it possible to assess a country’s achievements in both economic development and human development (see Chapter 1).

Development "Diamonds"

Experts at the World Bank use so-called development diamonds to portray relationships among four socioeconomic indicators for a given country relative to the averages for that country’s income group (low-income, lower-middle-income, upper-middle-income, or high-income). Life expectancy at birth, gross primary (or secondary) enrollment, access to safe water, and GNP per capita are presented, one on each axis, then connected with bold lines to form a polygon. The shape of this “diamond” can easily be compared to the reference diamond (see colored diamonds), which represents the average indicators for the country’s income group, each indexed to 100 percent. Any point outside the reference diamond shows a value better than the group average, while any point inside signals below-average achievement.

Botswana’s development diamond has a triangular shape because data on the percentage of its population with access to safe water were unavailable in the World Bank (Figure 15.1). Think of another indicator, possibly even more important for Botswana’s development, that you would use to compare it China. Use an indicator from the data tables at the back of this book to complete the development diamond for Botswana and one or two other countries of your choice.

Note that the development diamonds for India and Ethiopia, and Botswana and China were constructed using indexes based on average indicators for two different groups of countries: low-income and middle-income (see Figure 15.1). This approach makes it impossible to visually compare the development achievements of these two pairs of countries.

Human Development Index

United Nations experts prefer to use the human development index to measure a country’s development. This composite index is a simple average of three indexes reflecting a country’s achievements in health and longevity (as measured by life expectancy at birth), education (measured by adult literacy and combined primary, secondary, and tertiary enrollments), and living standard (measured by GDP per capita in purchasing power parity terms). Achievement in each area is measured by how far a country has gone in attaining the following goal: life expectancy of 85 years, adult literacy and enrollments of 100 percent, and real GDP per capita of $40,000 in purchasing power parity terms. Although highly desirable, these goals have not yet been fully attained by any country, so the actual indicators are expressed as decimal shares of the ideal.

The advantage of the human development index relative to the development diamond method is that it allows countries to be ranked in order of their achievements in human development. In the ranking, based on 1998 data, the top five countries were Canada, Norway, the United States, Australia, and Iceland. The bottom five countries were Sierra Leone, Niger, Burkina Faso, Ethiopia, and Guinea-Bissau. The top five developing economies were Singapore, Hong Kong (China), Brunei, Cyprus, and the Republic of Korea. (See Data Table 5)

The disadvantage of the human development index is that, as any aggregate index, it does not allow us to see the relative importance of its different components or to understand why a country’s index changes over time—whether, for example, it happens because of a change in GNP per capita or because of a change in adult literacy.

The human development index ranking of some countries differs significantly from their ranking by real GNP (or GDP) per capita. For example, Sweden ranks only 28th in real GNP per capita but 6th in human development—a difference of 22 points (Table 15.1). The difference between a country’s human development ranking and its per capita income ranking shows how successful it is (or isn’t), compared with other countries in translating the benefits of economic growth into quality of life for its population (see Data Table 5). A positive difference means that a country is doing relatively better in terms of human development than in terms of per capita income. This outcome is often seen in former socialist countries and in the developed countries of Europe. A negative difference means the opposite. The most striking examples are Botswana and South Africa (see Table 15.1).

Table 15.1 Differences between rankings by GNP per capita and by the human development index