The Human Development Index (HDI) is a composite statistics of life expectancy, education, and income indices to rank countries into four tiers of human development. It was created by economist Mahbub-ul-Haq, followed by economist Amartya Sen in 1990, and published by the United Nations Development Programme (UNDP).
In its 2010 Human Development Report, the UNDP began using a new method of calculating the HDI. The following three indices are used:
1. Life Expectancy Index
2. Education Index: It includes
a. Mean Years of Schooling Index
b. Expected Years of Schooling Index
3. Income Index
Finally, the HDI is the geometric mean of the above three normalized indices
Computing the HDI:
To construct the Index, fixed minimum and maximum values have been established for each of the indicators:
i. Life expectancy at birth: 25 years and 85 years.
ii. General literacy rate: 0 per cent and 100 per cent.
iii. Real GDP per capita (PPP$); PPP$ 100 and PPP$ 40,000.
Individual indices are computed first on the basis of a given formula. HDI is a simple average of these three indices and is derived by dividing the sum of these three indices by 3.
With normalization of the values of the variables that make up the HDI, its value ranges from 0 to 1. The HDI value for a country or a region shows the distance that it has to travel to reach the maximum possible value of 1 and also allows inter-country comparisons.
The 2010 Human Development Report was the first to calculate an Inequality-adjusted Human Development Index (IHDI). The HDI represents a national average of human development achievements in the three basic dimensions making up the HDI: Health, education and income. Like all averages, it conceals disparities in human development across the population within the same country. Two countries with different distributions of achievements can have the same average HDI value. The HDI takes into account not only the average achievements of a country on health, education and income, but also how those achievements are distributed among its citizens by “discounting” each dimension’s average value according to its level of inequality.