Multidimensional Measures of Poverty and Well-being Based on Latent Variable Models

Abstract

Development is a multidimensional concept incorporating diverse social, economic, cultural and political dimensions and economic growth, though necessary, is not sufficient in itself to bring about development in this broad sense. According to Nobel Prize Laureate Amartya Sen (for example, Sen, 1985, 1999), the basic purpose of development is to enlarge people’s choices so that they can lead the life they want to. In this approach, the choices are termed ‘capabilities’ and the actual levels of achievement attained in the various dimensions are called ‘functionings’. Thus human development is the enhancement of the set of choices or capabilities of individuals whereas functionings are a set of ‘beings’ and ‘doings’ which are the results of a given choice. The concept of human development proposed by Mahbub ul Haq, in the first Human Development Report in 1990 (see UNDP, 1990), largely inspired by Sen’s various works, represents a major step ahead in the concretization of this extended meaning of development and in the effort to bring people’s lives to the centre of thinking and analysis. Since then, human development and human deprivation have been the object of extensive theoretical and empirical research. They have been studied from various angles: conceptual, methodological, operational and policy making. As it is not possible to directly observe and measure human development in its broad sense or the lack of it, they are generally constructed as composite indices based on several variables (indicators).