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ECONOMIC

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12 views4 pages

ECONOMIC

Uploaded by

rnmuddassar
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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NAME: WALEED SOHAIL

ID: S2022005046
SECTION:
COURSE: INTRODUCTION TO ECONOMIC
(i) Definition of the Human Development Index (HDI)
The Human Development Index (HDI) is a composite statistic of life expectancy, education, and
per capita income indicators, which are used to rank countries into four tiers of human
development. The HDI aims to provide a broader measure of development that goes beyond
purely economic indicators, capturing the essential dimensions of human well-being.
(ii) Purpose of the HDI
The purpose of the HDI is to provide a more comprehensive understanding of development by
incorporating health, education, and standard of living, rather than relying solely on income-
based measurements like Gross Domestic Product (GDP) per capita or Gross National Income
(GNI) per capita. The HDI was developed because:
1. Limitations of Income-Based Measures: GDP and GNI per capita focus primarily on
economic output and do not account for how that wealth is distributed or how it
translates into quality of life for individuals.
2. Holistic Approach: HDI reflects a multidimensional view of development, emphasizing
human well-being and capabilities. It recognizes that economic growth alone does not
guarantee improvements in health or education.
3. Policy Guidance: By including health and education, HDI helps policymakers understand
areas needing improvement and encourages investments in social sectors.
(iii) Main Dimensions of HDI

1. Health Dimension:

 Life Expectancy at Birth: This reflects the health component of HDI by measuring the
average number of years a newborn is expected to live if current mortality rates
continue. A higher life expectancy indicates better health care, nutrition, and overall
living conditions, contributing positively to the HDI.

2. Education Dimension:

 Mean Years of Schooling: This measures the average number of years of education
received by people aged 25 and older, reflecting the educational attainment of the adult
population.

 Expected Years of Schooling: This indicates the total number of years of schooling that a
child entering the education system can expect to receive, assuming that current
enrollment ratios remain the same throughout their life. Both indicators together
provide a comprehensive view of education access and quality.

3. Standard of Living Dimension:


 Gross National Income (GNI) per capita: This measures the average income earned by a
country's citizens, including income from abroad, adjusted for purchasing power parity
(PPP). It reflects the economic resources available to individuals and households, which
directly affects their living standards.

(iv) Steps Used in Calculating the HDI


1. Normalize Each Dimension: Each dimension is normalized to a scale between 0 and 1.
This is done using the formula: [ \text{Dimension Index} = \frac{\text{Actual Value} - \
text{Minimum Value}}{\text{Maximum Value} - \text{Minimum Value}} ]
2. Calculate the HDI: The HDI is calculated as the geometric mean of the three dimension
indices: [ \text{HDI} = \sqrt[3]{\text{Health Index} \times \text{Education Index} \times \
text{Living Standards Index}} ]
(v) Example Calculation for a Hypothetical Country
Let’s consider a hypothetical country, "Utopia," with the following estimated values:
 Life Expectancy at Birth: 75 years (Minimum = 20, Maximum = 85)
 Mean Years of Schooling: 12 years (Minimum = 0, Maximum = 15)
 Expected Years of Schooling: 16 years (Minimum = 0, Maximum = 20)
 GNI per capita: $20,000 (Minimum = $100, Maximum = $75,000)
Step 1: Calculate the Health Index
[ \text{Health Index} = \frac{75 - 20}{85 - 20} = \frac{55}{65} \approx 0.846 ]
Step 2: Calculate the Education Index
 First, calculate the mean education index: [ \text{Mean Education Index} = \frac{12}{15}
= 0.8 ]
 Then, calculate the expected education index: [ \text{Expected Education Index} = \
frac{16}{20} = 0.8 ]
 The Education Index is the arithmetic mean of the two: [ \text{Education Index} = \
frac{0.8 + 0.8}{2} = 0.8 ]
Step 3: Calculate the Living Standards Index
[ \text{Living Standards Index} = \frac{20,000 - 100}{75,000 - 100} = \frac{19,900}{74,900} \
approx 0.265 ]

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