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Consequences of Data Error in Aggregate Indicators: Evidence from the Human Development Index

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Author Info
Hendrik Wolff (University of Washington)
Howard Chong (University of California, Berkeley)
Maximilian Auffhammer (University of Californi, Berkeley)

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Abstract

This paper examines the consequences of data error in data series used to construct aggregate indicators. Using the most popular indicator of country level economic development, the Human Development Index (HDI), we identify three separate sources of data error. We propose a simple statistical framework to investigate how data error may bias rank assignments and identify two striking consequences for the HDI. First, using the cutoff values used by the United Nations to assign a country as 'low', 'medium', or 'high' developed, we find that currently up to 45% of developing countries are misclassified. Moreover, by replicating prior development/macroeconomic studies, we find that key estimated parameters such as Gini coefficients and speed of convergence measures vary by up to 100% due to data error.

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Paper provided by Department of Agricultural & Resource Economics, UC Berkeley in its series Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series with number 1051.

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Date of creation: 01 Jan 2008
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Handle: RePEc:cdl:agrebk:1051

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Keywords: Measurement Error; International Comparative Statistics;

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References listed on IDEAS
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  1. Subhayu Bandyopadhyay & Howard J. Wall, 2006. "The determinants of aid in the post-cold war era," Working Papers 2006-021, Federal Reserve Bank of St. Louis. [Downloadable!]
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  2. Desai, Meghnad, 1991. "Human development : Concepts and measurement," European Economic Review, Elsevier, vol. 35(2-3), pages 350-357, April. [Downloadable!] (restricted)
  3. Pillarisetti, J Ram, 1997. "An Empirical Note on Inequality in the World Development Indicators," Applied Economics Letters, Taylor and Francis Journals, vol. 4(3), pages 145-47, March. [Downloadable!] (restricted)
  4. Leandro Prados de la Escosura, 2007. "International inequality and polarization in living standards, 1870-2000 : evidence from the Western World," Working Papers in Economic History wp07-05, Universidad Carlos III, Departamento de Historia Económica e Instituciones. [Downloadable!]
  5. Francisco Arcelus & Basu Sharma & Gopalan Srinivasan, 2007. "Foreign Capital Flows and the Efficiency of the HDI Dimensions," Global Economy Journal, International Trade and Finance Association, vol. 5(2), pages 4. [Downloadable!]
  6. Farhad Noorbakhsh, 1998. "The human development index: some technical issues and alternative indices," Journal of International Development, John Wiley & Sons, Ltd., vol. 10(5), pages 589-605.
  7. Danny Quah, 1996. "Twin Peaks: Growth and Convergence in Models of Distribution Dynamics," CEP Discussion Papers dp0280, Centre for Economic Performance, LSE. [Downloadable!]
  8. Srinivasan, T N, 1994. "Human Development: A New Paradigm or Reinvention of the Wheel?," American Economic Review, American Economic Association, vol. 84(2), pages 238-43, May. [Downloadable!] (restricted)
  9. Quah, Danny, 1996. "Twin Peaks: Growth and Convergence in Models of Distribution Dynamics," CEPR Discussion Papers 1355, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  10. Ogwang, Tomson, 2000. "Inter-country Inequality in Human Development Indicators," Applied Economics Letters, Taylor and Francis Journals, vol. 7(7), pages 443-46, July. [Downloadable!] (restricted)
  11. Baliamoune-Lutz, Mina N., 2004. "On the Measurement of Human Well-being: Fuzzy Set Theory and Sen's Capability Approach," Working Papers UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER). [Downloadable!]
  12. Alesina, Alberto & Dollar, David, 2000. " Who Gives Foreign Aid to Whom and Why?," Journal of Economic Growth, Springer, vol. 5(1), pages 33-63, March. [Downloadable!] (restricted)
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  13. Alberto Alesina & Beatrice Weder, 2002. "Do Corrupt Governments Receive Less Foreign Aid?," American Economic Review, American Economic Association, vol. 92(4), pages 1126-1137, September. [Downloadable!]
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  14. Kenneth Y. Chay & Patrick J. McEwan & Miguel Urquiola, 2005. "The Central Role of Noise in Evaluating Interventions That Use Test Scores to Rank Schools," American Economic Review, American Economic Association, vol. 95(4), pages 1237-1258, September. [Downloadable!]
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