If you are confused what HDI or what does HDI stand for, then here is the answer— HDI: Human Development Index. Human Development Index is an acronym for HDI. HDI refers to a statistical tool which is incorporated in order to measure the accomplishment of a country in its socio-economical dimensions, e.g. health & wellness of people, their education, level of income capacity and standard of living. It is formed to focus attention on people and their abilities which should be the main parameter for assessing the development of a country, not just the economic growth.
Full Form of HDI in Economics
You are now aware that HDI stands for Human Development Index and it holds the same meaning in economics too. Established by Indian Economist—Amartya Sen and Pakistani economy strategist— Mahbub ul Haq, HDI was later used by the United Nations for the purpose of analyzing the social and economic development of the countries.
How is HDI Calculated?
HDI is calculated taking into account the four parameters that are as below:
Gross national income per capita: standard of living
Expected years of schooling
Mean years of schooling
Life expectancy at birth
The higher the score of HDI of a country, it displays that the people of that specific country have higher GNP per capita, better standard of living, higher education level and lifespan.
HDI is published by the United Nations Development Programme (UNDP) year by year. It ranks countries based on the idea of HDI report issued in its annual report.
HDI is considered one among the easiest tools to periodically assess the development of a country since it is dependent on all the main socio-economic indicators that are held liable for the economic development.
Components of HDI
Following are the main components of HDI:-
Standard of living
The first component of the HDI is considered to be – a long and healthy life – measured by life expectancy. Long-run estimates of life expectancy throughout the globe are displayed in the visualization. For countries where historical records are made available, such as the UK, estimates can stretch out as far back as 1543. Global and regional approximations of UK data extend back to the year 1770.
The second component included is – access to education – Expected and average years of schooling— measured by anticipated years of schooling of children at the age of school-entry and further the mean years of schooling of the adult population. Throughout the world, education has been one of the most cardinal drivers and results of global development. In most parts of the, the means of education is now observed as a fundamental right – with pressure on governments to make sure superlative education for all.
3. Standard of Living
It is measured by capturing the GNI (Gross National Income) per capita which includes GDP (gross domestic product) + money flowing from foreign countries (income earned by residents from foreign investments) - money flowing to foreign countries. The developers of the HDI have thought of adding a third dimension – a decent standard of living – and to calculate it by capturing Gross National Income per capita.
For most of human history, our forefathers had been stuck in an arena of poor health, hunger and little access to luxury, formal education and healthy-hygienic lifestyle. Economic growth – specifically over the past few centuries – has enabled some part of the world population to flee from these conditions.
This parameter is adjusted for price alterations over time, and price differences between countries – is measured in international-$ in 2011 prices.
What Does the HDI Shows?
The HDI provides an overall index of economic growth and development. It also includes some limitations and excludes some factors that might have been included, but it does provide an approximate competency to make comparisons on problems of economic welfare – much more than just using GDP statistics display.
Limitations of HDI
Broader divergence within countries. For example, countries like China and Kenya have hugely different HDI scores based upon the region in question. (E.g. north China poorer than south-east).
HDI presents long-term changes (e.g. life expectancy) and might not respond to recent short-term alterations.
Higher national wealth does not signal welfare. GNI may not necessarily improve economic welfare; since it depends on how it is spent. Economic welfare is also dependent on various other factors, such as – threat of war, pollution level, access to clean drinking water etc.