m.

a economics 2 semester ND

Ecopg – 201
Economic growth and development
Module – 3
SOCIAL AND INSTITUTIONAL ASPECTS OF DEVELOPMENT

CONTENT:
1. Economic Development and Economic Growth

2. Difference between Economic Growth and Economic Development

3. PHYSICAL QUALITY OF LIFE INDEX (PQLI)

a. INDICATORS OF PQLI
b. CALCULATION OF PQLI
c. LIMITATIONS
d. CONCLUSION

4. HUMAN DEVELOPMENT INDEX ( HDI )

a. Introduction
b. Measurement of HDI [ Based on old calculation, 1990-2009]
c. Limitations

5. HUMAN DEVELOPMENT INDEX ( HDI ) [ Based on new calculation 2010

onwards ]

6. Differences in the old and new concept of HDI

7. Sample Questions

1
Economic Development and Economic Growth

By a “developed” economy, people roughly mean ones with a high,

persistently-growing per- capita income which is not simply based on resource
extraction (i.e., oil) or remittances or rentierism — an industrial (or, if there is
such a thing, post-industrial) economy which makes most of its participants
reasonably and increasingly prosperous. While there are of course differences
among them — the United States is not New Zealand, which is not Belgium,
which is not Finland, which is not Japan — they are all more similar to each other
than they are to the vast variety of “undeveloped”, “under-developed”, or (most
optimistically) “developing” economies across the world. (Some people refer
to the developed countries as “the North” and the others as “the South”; this
drives me up the wall, if only from looking at where China and Australia are
on the map.) Economies in the first category tend to stay there; so, sadly, do
countries in the second. Development economics is the sub-discipline of
economics which attempts to study how economies which have not attained
this happy condition can be made to do so, and the factors which hold others
back.

Normally in economic textbooks, growth and development are used

synonymously, and this usage is widely acceptable. However, in particular, the
two terms have been distinguished by different economists as follows:
1. To some economists, economic development refers to the process of
expansion of backward economies, while economic growth relates to
that of advanced economies.
2. Schumpeter, however, uses the term “economic development” as a
spontaneous and discontinuous change in the stationary state which
disturbs the equilibrium state previously existing. And the term
“economic growth” is used to denote a steady and gradual change in the
long run which comes through a general increase in the rate of saving
and population in a dynamic economy.
3. Prof. Kindleberger has given the differences between growth and
development as; “Growth may well imply not only more output and
also more inputs and more efficiency, i.e., an increase in output per unit
of input. Development goes beyond these to imply changes in the
structure of outputs and in the allocation of inputs by sectors. By

2
 analogy with human beings to stress growth involves focusing on
height and weight, while to emphasize development, draws attention
to the change in functional capacity in physical coordination. For
example, growth without development-more and more steel in the
Soviet Union or more and more coffee in Brazil-leads nowhere. It is
virtually impossible to contemplate development without growth
because change in function requires a change in size. Until an economy
can produce a margin above its food, through growth, it will be unable
to allocate a portion of its resources to other types of activity”.
4. To some, economic development is the outcome of conscious and
deliberate efforts involved in planning. Economic growth, on the other
hand, signifies the progress of an economy under the stimulus of certain
favourable circumstances, e.g., the progress achieved by the United
Kingdom during the Industrial Revolution.
5. In his simple words, A. Maddison says, “The raising of income levels is
generally called economic growth in rich countries and in poor ones it is
called economic development”. Mrs. Hicks has also expressed almost the
same views and said that economic development refers to the problems
of underdeveloped countries and economic growth to those of advanced
countries she points out that the problems of underdeveloped countries
are concerned with development of unused resources, even though their
uses are well-known; while those of advanced countries are related to
growth, most of their resources being already known and developed to
a considerable extent.
6. According to Prof. Mehta, however, the term “growth” has quantitative
significance. Growth suggests an increase in the quantity or volume of
something. An increase in a country’s population, national income; per
capita income, consumption, saving, investment, foreign trade etc. over
a period, all imply growth. In economics, however, growth strictly means
an increase in real income, trade etc. over a period, all imply growth. In
economics, however, growth strictly means an increase in real income,
gross and per capita. On the other hand, development is a process of
expansion, fulfilling the desire to have an increase in national income.
From the above will be clear, the distinction and interface of growth and
development.

3
Difference between Economic Growth and Economic Development:-

The difference between economic growth and economic development are:

1. Economic Growth is quantitative while economic development is

qualitative.
2. Economic growth is comparatively a narrow concept and development is
much more comprehensive.
3. Economic growth refers to increase in the total output of final goods and
services in a country over a long period of time. In contrast, economic
development refers to progressive change in the socio-economic structure of
the country. It includes gender equality, change in composition of output,
shift of labour force from agriculture to other sectors.
4. Economic growth is easy to realize as only monetary aspect is involved. But,
it is very difficult to attain the goal of development as it involves many
socio-economic-political aspects.
5. Economic growth can easily be estimated by real GDP or Real Per Capita
income. But it is very difficult to measure development as it has some aspects
that can’t be quantified. Economic development however is indicated by
Human Development Index.
6. Economic growth can take place without Economic development;
however, economic development can’t take place without economic
growth.

Economic Development Economic Growth

Concept: Normative concept Narrowed concept than economic
development
Scope: Concerned with structural changes Growth is concerned with increases
in the economy in the economy’s output
Growth: Development relates to growth of Growth relates to a gradual increase
human capital indexes, a decrease in in one of the components of Gross
inequality figures, and structural Domestic Product: consumption,
changes that improve the general government spending, investment,
population’s quality of life net exports

4
 Implication: It implies changes in income, It refers to an increase in the real
saving and investment along output of goods and services in the
with progressive changes in country like increase the income in
socio-economic structure of savings, in investment etc.
country (institutional and
technological changes)
Measurement: Qualitative. HDI (Human Quantitative Increase in real GDP.
Development Index),
gender-related index (GDI),
Human poverty index (HPI), infant
mortality, literacy rate etc.
Effect: Brings qualitative and quantitative Brings quantitative changes the
changes in the economy economy

HUMAN DEVELOPMENT INDICES

Economists have tried to measure social indicators of basic needs by taking
one, two or more indicators for constructing composite indices of human
development. We study below the Physical Quality of Life Index (PQLI) of Morris
and the Human Development Index (HDI) as developed by the United Nations
Development Programme (UNDP).

1. PHYSICAL QUALITYOF LIFE INDEX (PQLI)

The Physical Quality of Life Index was the most serious challenge to GNP per
capita as the index of development. It was invented by M.D. Morris in 1979. He
constructed a composite Physical Quality of Life Index (PQLI) relating to 23
developing countries for a comparative study. He combined three component
indicators to measure performance in meeting the most basic needs of the people.
These are:

 Infant Mortality Rate

 Life Expectancy at Age One
 Basic Literacy Rate

This index represents a wide range of indicators such as health, education,

5
drinking water, nutrition and sanitation. The PQLI shows improvement in the
quality of life when people enjoy the fruits of economic progress with increase in
life expectancy (LE), fall in infant mortality rate (IMR) and rise in basic literacy
rate (BLR).

Each indicator of the three components is placed on a scale of zero to 100

where zero represents an absolutely defined worst performance and 100
represents an absolutely defined best performance. The PQLI index is calculated
by averaging the three indicators giving equal weight to each and the index is also
scaled from 0 to 100.

If the indicators of life expectancy and basic literacy rate are positive, the best
performance is shown as the maximum and the worst as the minimum. Infant
mortality rate being a negative indicator, for this the best indicator is shown as the
minimum and the worst as the maximum. To find out the achievement level of the
positive variable, its minimum value is deducted from its actual value and the
balance is divided by the difference (range) between maximum value and
minimum value i.e.

To find out the achievement level for a negative indicator, its actual value is
deducted from its maximum value and the balance is divided by the difference
(range) between maximum value and minimum value i.e.

For life expectancy and infant mortality rate, there is no natural maximum and
minimum value. But there is need to select the right values.

According to Morris, each of the three indicators measures results and not
inputs such as income. Each is sensitive to distribution effects. It means that an
improvement in these indicators signifies an increase in the proportion of people
benefiting from them. But none of the indicators depends on any particular level

6
of development. Each indicator lends itself to international comparison.

Taking Gabon’s infant mortality rate of 229 per thousand live births as the
worst rate in 1950, Morris sets it at 0. At the upper end, the best achievement is
set at 9 per thousand for the year 2000. Again, taking Vietnam’s life expectancy at
age one as 38 years in 1950, Morris sets it at 0 of the life expectancy index. The
upper limit is set at 77 years for men and women combined for the year 2000.
Lastly, the basic literacy rate at 15 years is taken as the literacy index. This set of
values is presented in Table 1.

Table 1: Maximum and Minimum Values of Component Indicators

Dimension Maximum Minimum Range

Infant Mortality Rate 229 9 220
Life Expectancy at Age One 77 38 39
Basic Literacy Rate 180 0 100
One this basis, Morris presents the following correlation:
(N = 150) Infant Mortality Rate Life
Expectancy
Life Expectancy at Age One –0.919 –+
Literacy Rate –0.919 0.897

The coefficient of correlation between life expectancy at age one and infant
mortality is of a high degree and negative. Similar is the correlation between
literacy and infant mortality rate i.e., with literacy the infant mortality rate
declines. The coefficient between literacy and life expectancy shows a high degree
of positive correlation i.e., with literacy, the life expectancy also increases. Morris
regards life expectancy at age one and infant mortality rate as very good
indicators of the physical quality of life. So are literacy and life expectancy. In fact,
the literacy indicator reflects the potential for development. We present in Table
2 the PQLI performance and GNP per capita of two LDCs and two developed
countries.

7
Table 2 : PQLI Performance and GNP Per Capita Growth Rate

Country PQLI Average annual GNP

1950 1960 1970 Per capita Growth Rate
India 14 30 40 1.8
Sri Lanka 65 75 80 1.9
Italy 80 87 92 5.0
USA 89 91 93 2.4
Source : Morris D. Morris and M.B. McAlpin, Measuring the Conditions of India’s Poor, 1982.

The above table reveals that India which Morris calls a “basket case”
exhibited slow but not insignificant improvement in its PQLI from 14 to 40 over a
period of two decades from, 1950 to 1970, despite its low growth in average GNP
per capita of 1.8. On the other hand, Sri Lanka’s PQLI was much higher than India’s
during this period, though its average GNP per capita was almost the same. Of the
two developed countries, both Italy and USA had very high PQLI. But Italy’s
average GNP per capita was more than double the USA. In this connection, Morris
observes that here is no automatic link between GNP per capita and PQLI. In fact,
the presence or absence of social relations, nutritional status, public health,
education and family environment determine a society’s PQLI. Further, it takes
considerable time to build institutional arrangements that can generate and
sustain a high PQLI.

Limitations:

The PQLI tries to measure “quality of life” directly rather than indirectly. But
it has its limitations.

1. Morris admits that PQLI is a limited measure of basic needs.

2. It supplements but does not supplant the GNP. It fails to dislodge GNP from
its lofty perch.

3. It does not explain the changing structure of economic and social organization.
It, therefore, does not measure economic development.

8
 4. Similarly, it does not measure total welfare.

5. Morris has been criticized for using equal weights for the three variables of
his PQLI which undermine the value of the index in a comparative analysis of
different countries.

According to Meier, “Non-income factors captured by the PQLI are

important, but so are income and consumption statistics and distribution-
sensitive methods of aggregation that are ignored by it.”
Conclusion:
Despite these limitations, the PQLI can be used to identify particular regions
of underdevelopment and groups of society suffering from the neglect or failure
of social policy. It points towards that indicator where immediate action is
required. The state can take up such policies which increase the PQLI rapidly
along with economic growth.

CONSTRUCTION OF PQLI:

On the basis of the values of the component indicators given in Table 1, we can
construct the PQLI on the basis of the three indices in the following manner :

We calculate the PQLI for India on the basis of 2001 Census data for these
variables: IMR = 67, LE = 65 years, and BL = 65%.

9
Thus the Physical Quality of Life Index for India in 2001 was 0.69.

HUMAN DEVELOPMENT INDEX (HDI)

HUMAN DEVELOPMENT INDEX (OLD), 1990-2009:

Mahbub-Ul-Haq invented the Human Development Index and UNDP incorporated

it into its first Human Development Report in 1990. Since then, the UNDP has been
presenting the measurement of human development* in its annual report. The HDI is a
composite index of three social indicators : life expectancy, adult literacy and years of
schooling. It also takes into account real GDP per capita. Thus, the HDI is a composite
index of achievements in three fundamental dimensions : living a long and healthy life,
being educated and having decent standard of living.

The HDI value of a country is calculated by taking three indicators :

1. Longevity, as measured by life expectancy at birth.

2. Educational attainment, as measured by a combination of adult literacy (two-thirds

weight) and combined primary, secondary and tertiary enrolment ratio (one-third weight).

3. Decent standard of living, as measured by real GDP per capita based on purchasing
power parity in terms of dollar (PPP$).

Before the HDI is calculated, an index is created for each of these dimensions: Life
Expectancy Index, Education Index and GDP Index. To calculate these indices, minimum
and maximum values or goal posts are chosen for each indicator as shown in Table 3.

Table 3: Goalposts for Calculating the HDI ( OLD, 1990-2009)

Indicator Max. Value Min Value

Life Expectancy at Birth (yrs) 85 25
Adult Literary Rate (%) 100 0
Combined Gross Enrolment Ratio (%) 100 0
GDP Per Capita (PPP US$) 40,000 100

Performance in each dimension is expressed as a value between 0 and 1 by applying

10
the following formula :

The HDI is then calculated as a simple average of the three dimension indices.

The HDI value for each country indicates the distance it has travelled towards the
maximum possible value of 1 and how far it has to go to attain certain defined goals : an
average life span of 85 years, access to education for all and a decz. The HDI ranks
countries in relation to each other. A country’s HDI rank is within the world distribution
i.e., it is based on its HDI value in relation to each developed and developing country for
which the particular country has travelled from the minimum HDI value of 0 towards the
maximum HDI value of 1. Countries with an HDI value below 0.5 are considered to have
a low level of human development, those between 0.5 to 0.8 a medium level, and those
above 0.8 a high level. In the HDI, countries are also ranked by their GDP per capita.

The Human Development Report, 2004 presented the HDI values, HDI rank, and
real GDP per capita ranks for the year 2002 relating to 177 developed and developing
countries. Table 4 shows HDI values and HDI ranks for some of the countries.

11
Table : Human Development Index for Selected Countries, 2002 ( Based on OLD calculation )
-----------------------------------------------------------------------------------------------------------
COUNTRY HDI HDI GDP per capita
Value Rank Rank - HDI rank
1. High Human Development
Norway 0.956 1 1
Australia 0.946 3 9
USA 0.939 8 -4
Japan 0.938 9 6
United Kingdom 0.936 12 8
France 0.932 16 0
Costa Rica 0.834 45 14
2. Medium Human Development
Russian Federation 0.795 57 3
Malaysia 0.793 59 -2
Mauritius 0.785 64 -15
China 0.745 94 5
Sri Lanka 0.740 96 16
India 0.595 127 -10
Bhutan 0.536 134 0
Nepal 0.504 140 11
3. Low Human Development
Pakistan 0.497 142 -7
Uganda 0.493 146 4
Zimbabwe 0.491 147 -25
Kenya 0.488 148 11
Nigeria 0.466 151 ?
Tanzania 0.407 162 15
Zambia 0.389 164 3

Of the 177 countries for which the HDI was calculated, 55 were in the high
development category (with an HDI value of 0.80 or more); 86 in medium category (0.5 to
0.79); and 36 in the low category (less than 0.50), Norway, Australia and USA led the HDI

12
rankings in the high HD category. In the medium category, Bulgaria led with HDI rank of
56, Sri Lanka 96, India, 127, Bhutan 134, Bangladesh 138, and Nepal 140. In the Low
category, Pakistan led with 142 rank, Uganda 146, Zimbabwe 147, Nigeria 151, Tanzania
162 and Zambia 164. Thus the DHI reveals wide disparities in global human development.
For instance, Norway’s HDI value of 0.956 was more than three times of Sierra Leone’s
of 0.273 which was at the bottom.

The HDI reveals that countries can have similar GDP per capita levels but different
HDI values or similar HDI values but very different GDP per capita levels. Thus the HDI
ranking of countries differ significantly from their ranking by GDP per capita. Countries
whose GDP rank is higher than their HDI rank have considerable potential for distributing
the benefits of higher incomes more equitably. But they have been less successful in
channelising economic prosperity into better lives from their people. Of the 177 counties
in 2002, there were 71 such countries whose HDI rank was lower than their GDP per capita
rank. Prominent among them were Algeria (–103), India (–10), USA (–4), Pakistan (–7) and
Zimbabwe (– 25). On the other hand, countries whose HDI rank is higher than their GDP
rank, suggest that they have effectively made use of their incomes to improve the lives of
their people. There were 106 such countries in 2002. Prominent among them were Cuba
(39) and Tajikistan (45).

It is said that the DHI led to the dethronement of GDP per capita. As a matter of fact,
these two concepts do not measure the same thing. The HDI tries to measure the level of
human capabilities, the set of choices available to people. On the other hand, GNP per
capita is an indicator of well being, utility or welfare, the subjective enjoyment people get
from consumption. Thus the HDI is an alternative measure of development. It supplements
rather than supplants GNP per capita measure of development and provides different
information from GNP per capita.

Limitations:
The HDI is not free from certain limitations.
1. It is a crude index which attempts to catch in one simple number a complex
reality about human development and deprivation, according to Prof. Amartya
Sen.

2. The three indicators are not the only indicators of human development. There
can be others like infant mortality, nutrition, etc.

13
 3. The HDI measures relative rather than absolute human development so that
if all countries improve their HDI value at the same weighted rate. The low human
countries will not get recognition for their improvement.

4. The weighting scheme for calculating the four components of HDI seems
arbitrary.

5. Even giving equal (1/3rd) weight to each of the very different three indices for
calculating the HDI is arbitrary. To the extent one component index has a different
variance than another, equal weights seem unsatisfactory and unjustify.

6. A country having high HDI may shift the focus from the high inequality,
unemployment and poverty found within it.

Conclusion:
Despite these weaknesses, by measuring average achievements in health,
education and income, the HDI provides a better picture of the state of a country’s
development than its income alone.

CONSTRUCTION OF HUMAN DEVELOPMENT INDEX ( Based on OLD calculation )

The HDI is based on three indicators : longevity, as measured by life expectancy

at birth; educational attainment, as measured by a combination of adult literacy
(two-thirds weight) and combined primary, secondary and tertiary enrolment
ratios (one-third weight); and standard of living, as measured by real per capita
(PPP$).
For the construction of the index, fixed minimum and maximum values have been
set for each of these indicators :

(i) Life expectancy at birth : 25 years and 85 years for calculating the Life
expectancy Index.

(ii) Adult literacy : 0% and 100% for calculating the education Index.

(iii) Combined gross enrolment ratio (0% and 100%)

14
(iv) Real GDP per capita (PPP$): $100 and $40,000 (PPP US$) for calculating GDP
Index.

For any component of the HDI, individual indices can be computed by applying
the formula:

1. Life Expectancy Index. It the life expectancy at birth of a country is 78 years,

then the life expectancy index for that country would be

2. Education Index. The education Index is the combination of adult literacy

index and gross enrolment index. If the adult literacy rate of this country is 92, then
its adult literacy index would be

If the combined gross enrolment in this country is 60, then its gross enrolment
index would be

3. GDP Index. The GDP per capita (PPPUS$) of this country is $8,840, then the GDP
index would be

15
4. Human Development Index. The HDI is a simple average of the Life
Expectancy Index, Education Index and adjusted GDP per capita (PPP$) Index. It
is derived by dividing the sum of these three indices by 3,

This country comes under the category of high human development.

Human Development of Index (New HDI, 2010 onwards ) :

In October 2010, the United Nations Development Program (UNDP)

disseminated the revised methodology of the Human Development Index (HDI) and
added three indices, namely, Inequality in Human Development Index (IHDI), the
Gender Inequality Index (GII) and the Multi-dimensional Poverty Index (MPI) to
the family of human development indices. These changes were justified on grounds
of measuring deprivation, poverty and inequality in the state of human development
within and across countries. Here a comparison is made in the estimated HDI using
the old and new (revised) methodology.

Introduction :
In last six decades, there has been significant advancement in theoretical understanding
and methodological innovation in the field of development studies. The theoretical
understanding has shifted from growth-oriented approach (by rapid industrialisation) in 1950s
and 1960s to the basic minimum need approach (eradication of poverty and hunger) in 1970s,
formation and expansion of human capital in 1980s, and human development paradigm in
1990s. The human development report, a milestone of human development paradigm, is a
regular annual feature since its first publication in 1990 and most widely used.

Since the launch of first human development report by UNDP in 1990, the human
development indices, namely the Human Development Index (HDI), the Gender
Development Index (GDI) and the Human Poverty Index (HPI-1, HPI-2) were popular

16
cutting across the disciplines: among academia, researchers, planners and program
managers. The concept of human development and the composite indices of human
development were integrated into the standard texts of many disciplines and widely used
in planning and programme implementation at the sub-national level. A unique feature of
these composite indices is the simplicity in measuring the multi-dimensionality of
development. Many of the federal and state governments took active interest and prepared
the human development report at the national and sub-national levels.

Despite its popularity, the HDI has been criticized for its narrow focus and non-inclusion
of critical dimensions such as employment, environment, arbitrary weighting of components,
possibility of substitution between the dimensions and inability to measure inequality in the
distribution of human development within a country (Kelley 1991, Srinivasan 1994, Ranis,
Stewart and Samman 2006). The non-inclusion of key variables such as political freedom,
human rights, environmental sustainability and people’s self respect have been listed as the
missing dimensions of human development. The possibility of substitution among the three
dimensional indices (for example, a decline in life expectancy can be offset by the increase in
GDP per capita) has been emphasized. It was also outlined that the components and indicators
are not responsive to short-term policy changes. The HDR, 2006 stated the need for measuring
the inequalities in the HDI for evidence-based planning (UNDP 2006).
Some of these criticisms of the HDI were addressed in the Human Development
Report 2010 that brought about major changes in the variables and methodology in the
construction of HDI. While applauding the progress in human development during the
last two decades, the Report outlines the increasing inequality across and within the
countries. To capture the growing inequality in human development, it added following
three indices, to the family of Human Development Indices.

 Inequality in Human Development Index (IHDI),

 the Gender Inequality Index (GII) and
 the Multi-dimensional Poverty Index (MPI)

Changes in methodology and addition of new indices were justified to capture the
distribution of well-being for inequality, gender equity and poverty (UNDP 2010).

The objectives of this paper are: (1) to outline the merits and limitations of the variables
and data constraints in the construction of human development indices; (2) to compare
the HDI using both the old and new methodologies.

17
Measurement of the Human Development Index – A Theoretical Perspective

In this section we present the indicators and methodology used in the construction of the
old and new human development indices and the data constraints in measuring the IHDI and
GDI.

Dimensions of the Human Development Indices: Old and New

The old and new HDI used only three dimensions of development, namely, health,
knowledge and income. There was no addition to the existing dimensions in the revised HDI.
The latter has often been criticized for its narrow focus and for missing critical dimensions like
employment and environment.
We classify the differences in the old and new indices into three categories:
i) Change of variables.
ii) Change of lower and upper limit of the variables.
iii) Change in methodology.

For the purpose of comparison, the variables and the methodology used in the
computation of HDI are presented in a tabular form (Table 1).

Dimensional Index of Health

In the dimension of health, both the indices (old and new HDI) used the life
expectancy at birth, the summary measure of health. The justification for it is the
intrinsic value of longevity, association of long life with adequate nutrition, good
health, and education and its linkages with other valued goals (UNDP 1990). In the
new index, the lower limit of life expectancy at birth was 25 compared to 20 years in
ol index. Similarly, the upper limit in new index has been fixed at 85 years
compdared to 82.5 years in old index. The lower limit of life expectancy (new) was
based on long-run historical trends and the upper limit on the observed values of
Japan (2010). This was essentially changed to integrate the observed values of life
expectancy at birth across the globe. Methodology in the construction of dimensional
index of health remained the same.

In the Indian context, life expectancy at birth at the state level is usually
provided by the Sample Registration System (SRS) and is used in compiling the state
level human development report. Some researchers used indirect methods (from the
children ever born and children surviving using the UN MORTPACK) or the
regression method (Mohanty and Ram 2010) to estimate life expectancy at birth in

18
districts of India.
Table : Methodology Used to Construct the Old and New Human Development
Index Dimensions / HDI
Dimensions / HDI Indicator (Old HDI, 1990-2009) Methodology (Old HDI, 1990-
2009)
Health 0 0
Life expectancy at birth (e 0) I Health= e 0,i -25/(85-25)
Income GDP Per capita in purchasing Dimension index of income =
power parity (US $) Log( GDPi)−log (100)Log
(40,000)− Log (100)
Knowledge 1. Adult Literacy Rate Step 1:
2. Gross Enrolment Ratio (GER) i) Adult literacy Index= (ALRi-
0) /100
ii) GER index= (GERi-0) /100

Step 2:
Index of knowledge (I Knowledge) = 2/3 (Adult literacy index) + 1/3 (GER index)

Human Development Index (HDI) = 1/3 (I Health +I Knowledge + I Income)

19
Dimensional Index of Income
In the income domain, while the old HDI used the GDP per capita, the new HDI used
the GNI per capita. The replacement of GNI per capita to GDP per capita may be considered
an improvement at the national level. However, the differences in GDP per capita and GNP
per capita are small in the Indian context (2753 Vs. 2870 US$ in 2007) and may not affect the
index value of income. The methodology to quantify the income dimension did not change.
The new HDI used the natural logarithm (ln) of GNIPCI, while the old HDI used the log of
GDPPCI. The logarithm of income, which gives lower weightage to a higher value and higher
weightage to a lower value, is used on the basic premise that a minimum income is needed for
a decent standard of living and that income is not the sum total of human existence. However,
there may be some problems in estimating the State National Product Per capita in India. At
the state level, the variable published is the State Domestic Product Per capita (SDPP), usually
compiled by the respective state offices. The adjustments to the net factor income are usually
not done to the state estimates on SDPP. Hence, the variable may have limited utility at the
state level unless data are provided by adjusting the net factor income.

With respect to the lower and upper limits, the lower limit in the income domain
increased from $100 to $163 (Zimbabwe 2008), while the upper limit increased from $40,000
to $108,211 (UAE 1980). Changes in the variables, upper and lower limits and the
methodology reduced the dimensional index value of income by an order of 0.10-0.13 for
India, but the overall ranking of the states was unchanged.

Dimensional Index of Knowledge

There were fundamental changes with respect to the methodology used in the
construction of the dimensional index of knowledge. In the old HDI, the knowledge index was
created by assigning two-third weight to adult literacy and one-third weight to the Gross
Enrolment Ratio (GER). In the new index, the variables are replaced by “mean years of
schooling” and “the expected years of schooling”. The mean years of schooling were
calculated for adults aged 25 years and older who received some education in their life time.
The change of this variable has implication for census and surveys in India. It is required that
the census and surveys may need to modify the instrument to capture the years of schooling
by age.

The second variable used in the construction of the new HDI is the “expected years of
schooling”. Expected years of schooling is defined as “the number of years of schooling that
a child of school entrance age can expect to receive if prevailing patterns of age-specific
enrolment rates were to stay the same throughout the child’s life”. The latter are calculated for
children in the age group of 6 to 18 who are currently enrolled in school age at all levels of
education. The main objective of this indicator is to know the overall level of development of

20
an educational system in terms of the average number of years of schooling that it offers to the
eligible population, including those who never enter school (UNESCO 2009).

Sample Questions :
1. How do you distinguish between economic growth and economic
2. What is Human Development Index? Explain.
3. Describe the dimensions and claculation of HDI.
4. What is physical quality of life index? Discuss the steps to calculate physical quality of
life.

References

1.Alkire S. (2007), The Missing Dimensions of Poverty Data: Introduction to the Special Issue, Oxford
Development Studies, 35(4), 347-359.

Alkire, S. and J. Foster (2009), Counting and Multi-dimensional Poverty Measures, Oxford Poverty and
Human Development Initiative (OPHI) Working Paper 7.5, Oxford Department of International Development,
University of Oxford.

Alkire, S. and M. Santosh (2010), Acute Multi-dimensional Poverty: A New Index for Developing Countries,
Oxford Poverty and Human Development Initiative (OPHI), Working Paper 38, Oxford Department of
International Development, University of Oxford.

Atkinson, A. (1970), On Measurement of Inequality, Journal of Economic Theory, 2(3): 244-263.

Booysen, F., Michael Von Maltitz and Gideon Du Rand (2008), Using an Asset Index to Assess Trends
in Poverty in Seven Sub-Saharan African Countries, World Development, 36(6): 1113-1130.

Bourguignon, F. and S.R. Chakravarty (2003), The Measurement of Multi-dimensional Poverty, Journal of
Economic Inequality, 1(1): 25-49.

Calvo, Cesar (2008), Vulnerability to Multi-dimensional Poverty: Peru, 1998-2002, World

Development,36(6): 1011-1020.

Institute of Applied Manpower Research and Planning Commission, Government of India (2011), India
Human Development Report 2011: Towards Social Inclusion.

International Institute for Population Sciences (IIPS) and Macro International (2007), National Family Health
Survey (NFHS-3), 2005-2006; India, Volume I, Mumbai: IIPS.

International Institute for Population Sciences (IIPS) and Population Council (2010), Youth in India: Situation
and Needs 2006-2007, Mumbai: IIPS.

Jhingan, M.L, The Economics of Development and Planning, 40th Edition.

21
Kelley, A.C. (1991), The Human Development Index: Handle with Care, Population and Development
Review, 17(2): 315-324.

Michael Grimm, Kenneth Harttgen, Stephan Klasen and Mark Misselhorn (2006), A Human Development
Index by Income Groups, UNDP Occasional Paper.

Mohanty S.K. (2012), "Multiple Deprivation and Maternal Care in India", "International Perspectives on
Sexual and Reproductive Health", 38(1):6-14

Mohanty, S.K. (2011), Multi-dimensional Poverty and Child Survival in India, PLoS ONE 6(10): e26857,
doi:10.1371/journal.pone.0026857

Mohanty, S.K and Dehury (2012), Human Development Indices: Old and New, Artha Vijnana Vol. LIV, No.
1, March 2012, pp. 19-38

Mohanty, S.K. and F. Ram (2010), Life Expectancy at Birth among Social and Economic Groups in India,
IIPS Research Brief No. 13.

Ranis, G., F. Stewart and E. Samman (2006), Human Development: Beyond the HDI, QEH, Working Paper
Series- QEHWPS135.

Sahn, D.E. and D.C. Stifel (2000), Poverty Comparison Over-Time and Across Countries in Africa, World
Development, 28(12): 2123-2155.

Srinivasan, K. and S.K. Mohanty (2008), Household Deprivation and Its Linkages with Reproductive and
Child Health Care and Health Outcome, Economic and Political Weekly, 43(48): 67-76.

Srinivasan, T.N. (1994), Human Development: A New Paradigm or Reinvention of the Wheel?, American
Economic Review, 84(2): 238-243.

Srivastava, A. and S.K. Mohanty (2010), Economic Proxies, Consumption Expenditure and Health Estimates,
Economic and Political Weekly, 45(16): 55-63.

22