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The Human Development Index as a Criterion for Optimal Planning

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  • Merwan Engineer
  • Ian King
  • Nilanjana Roy

Abstract

Planning strategies that maximize the Human Development Index (HDI) tend towards minimizing consumption and maximizing non-investment expenditures on education and health. Interestingly, such strategies also tend towards equitable outcomes, even though inequality aversion is not modelled in the HDI. A problematic feature of strategies that maximize the HDI is that the income component in the index only role is to distort the allocation between health and education expenditure. Because the income component does not play its intended role of securing resources for a decent standard of living, we argue that it is better to drop income from the index in considering optimal plans. Alternatively, we consider net income, income net of education and health expenditures, as indicator of capabilities not already reflected in the education and life expectancy components of the index. When net income is used in a modified HDI index, optimal plans yield a balance between allocations for consumption, education, and health. Finally, we calculate our modified indexes for OECD countries and compare them with the HDI.

Suggested Citation

  • Merwan Engineer & Ian King & Nilanjana Roy, 2008. "The Human Development Index as a Criterion for Optimal Planning," Department of Economics - Working Papers Series 1041, The University of Melbourne.
  • Handle: RePEc:mlb:wpaper:1041
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    References listed on IDEAS

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    1. Angus Deaton, 2003. "Health, Inequality, and Economic Development," Journal of Economic Literature, American Economic Association, vol. 41(1), pages 113-158, March.
    2. Sudhir Anand & Amartya Sen, 2000. "The Income Component of the Human Development Index," Journal of Human Development and Capabilities, Taylor & Francis Journals, vol. 1(1), pages 83-106.
    3. Sen, Amartya, 1981. "Public Action and the Quality of Life in Developing Countries," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 43(4), pages 287-319, November.
    4. Sudhir Anand & Martin Ravallion, 1993. "Human Development in Poor Countries: On the Role of Private Incomes and Public Services," Journal of Economic Perspectives, American Economic Association, vol. 7(1), pages 133-150, Winter.
    5. James Foster & Luis Lopez-Calva & Miguel Szekely, 2005. "Measuring the Distribution of Human Development: methodology and an application to Mexico," Journal of Human Development and Capabilities, Taylor & Francis Journals, vol. 6(1), pages 5-25.
    6. Lars Osberg & Andrew Sharpe, 2005. "How Should We Measure The "Economic" Aspects Of Well-Being?," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 51(2), pages 311-336, June.
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    Cited by:

    1. David Mayer-Foulkes, 2011. "A Causal Panorama of Cross-Country Human Development," DEGIT Conference Papers c016_049, DEGIT, Dynamics, Economic Growth, and International Trade.
    2. Merwan Engineer & Ian King, 2013. "Maximizing human development," Canadian Journal of Economics, Canadian Economics Association, vol. 46(2), pages 497-525, May.
    3. David Mayer-Foulkes, 2013. "A Cross-country Causal Panorama of Human Development and Sustainability," Review of Development Economics, Wiley Blackwell, vol. 17(2), pages 235-251, May.
    4. Merwan Engineer & Nilanjana Roy & Sari Fink, 2010. "“Healthy” Human Development Indices," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 99(1), pages 61-80, October.
    5. Michael, Bryane, 2015. "What Does Brunei Teach Us About Using Human Development Index Rankings as a Policy Tool?," EconStor Preprints 107401, ZBW - German National Library of Economics.

    More about this item

    Keywords

    Consumption; Human development index; Income; Inequality; Planning;

    JEL classification:

    • O21 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Planning Models; Planning Policy
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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