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The Sensitivity of the Human Development Index to Assumptions about Income

Author

Listed:
  • Maria Cornachione Kula

    (Mario J. Gabelli School of Business, Roger Williams University, Bristol, US)

  • Charles J. Moyer, Jr.

    (Moyer Realty Advisors, Allentown, US)

  • Priniti Panday

    (Mario J. Gabelli School of Business, Roger Williams University, Bristol, US)

Abstract

The Human Development Index (HDI) aims to present a more robust picture of a country’s development status than that suggested by national income per capita. The HDI aggregates dimension indices based on transformed measures for the core values of health, education, and income per capita. Assumptions are made regarding the upper and lower bounds used to re-scale each core value into its dimension index, as well as the functional form used to create the HDI. The treatment of income in the HDI’s construction suggests incompatibilities with its underlying capability theory, which stresses the importance of individuals’ abilities to make their own consumption and life choices. We examine the currently formulated HDI, as well as two influential proposed alternatives which generalize the aggregation functions of the pre-2010 HDI formulation and the current HDI, in light of recent empirical research into the relationship between well-being and income. We use underlying data for 2016, a representative year, to examine distributional changes as well as specific country rankings. We find that the income bounds used to calculate the income dimension index in the HDI should be changed. We also suggest that the three aggregation formulations, along with prominent descriptions of the assumptions and consequent implications of each approach, should be disseminated for policymakers and the public to consider.

Suggested Citation

  • Maria Cornachione Kula & Charles J. Moyer, Jr. & Priniti Panday, 2025. "The Sensitivity of the Human Development Index to Assumptions about Income," Journal of Economic Analysis, Anser Press, vol. 4(1), pages 192-213, March.
  • Handle: RePEc:bba:j00001:v:4:y:2025:i:1:p:192-213:d:361
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    References listed on IDEAS

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    1. Gary S. Becker & Tomas J. Philipson & Rodrigo R. Soares, 2005. "The Quantity and Quality of Life and the Evolution of World Inequality," American Economic Review, American Economic Association, vol. 95(1), pages 277-291, March.
    2. Amartya Sen, 1999. "The Possibility of Social Choice," American Economic Review, American Economic Association, vol. 89(3), pages 349-378, June.
    3. Nicola Amendola & Giacomo Gabbuti & Giovanni Vecchi, 2023. "On some problems of using the Human Development Index in economic history," European Review of Economic History, European Historical Economics Society, vol. 27(4), pages 477-505.
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