The Human Development Index in 1994: Impact of Income on Country Rank

Abstract

The Human Development Report published annually by the United Nations Development Programme (UNDP) computes for each country a Human Development Index (HOI). The HOI is a composite index constructed from measures of life expectancy, education, and per-capita income. This paper argues that the UNDP's method of estimating the contribution of per-capita income to human development is inappropriate and leads to misleading country HDI rankings. For countries below the world-average per-capita income, the UNDP's estimation formula allows percapita income to make a large contribution to development, as measured by each country's HDI. But for countries above the world-average per-capita income, their higher incomes are effectively estimated to make no additional contribution to their human development, as measured by HDI. An alternative treatment of income is illustrated. The consequent modified HDls result in an appreciable alteration of the country rankings.