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A Multivariate Analysis and Extension of the Human Development Index

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  • Basudeb Biswas
  • Frank Caliendo

Abstract

A multivariate technique called principal component analysis is used to combine measures of human development. The first principal component index is the linear combination of component indexes with maximal information content. This multivariate technique accounts for differences in the variances of component indexes as well as interdependence among the component indexes. The first principal component of the three indexes used in the HDI (life expectancy, education, GDP) yields international rankings nearly identical to the HDI itself. We interpret this as theoretical support for the HDI ranking system as a metric of international human development. Also, we create a new index which is the first principal component of the five indexes: the three components of the HDI together with two additional indexes that capture gender inequality and child malnutrition. The international ranking of countries from most to least developed, according to the new index, is quite similar to the HDI ranking.

Suggested Citation

  • Basudeb Biswas & Frank Caliendo, 2004. "A Multivariate Analysis and Extension of the Human Development Index," Working Papers 2004-01, Utah State University, Department of Economics.
  • Handle: RePEc:usu:wpaper:2004-01
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