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Sensitivity analysis as a tool to optimise Human Development Index

Author

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  • Marta Kuc-Czarnecka

    (Gdansk University of Technology, Poland)

Abstract

Research background: Composite indicators are commonly used as an approximation tool to measure economic development, the standard of living, competitiveness, fairness, effectiveness, and many others being willingly implemented into many different research disciplines. However, it seems that in most cases, the variable weighting procedure is avoided or erroneous since, in most cases, the so-called ‘weights by belief’ are applied. As research show, it can be frequently observed that weights do not equal importance in composite indicators. As a result, biased rankings or grouping of objects are obtained. Purpose of the article: The primary purpose of this article is to optimise and improve the Human Development Index, which is the most commonly used composite indicator to rank countries in terms of their socio-economic development. The optimisation will be done by re-scaling the current weights, so they will express the real impact of every single component taken into consideration during HDI’s calculation process. Methods: In order to achieve the purpose mentioned above, the sensitivity analysis tools (mainly the first-order sensitivity index) were used to determine the appropriate weights in the Human Development Index. In the HDI’s resilience evaluation process, the Monte Carlo simulations and full-Bayesian Gaussian processes were applied. Based on the adjusted weights, a new ranking of countries was established and compiled with the initial ranking using, among others, Kendall tau correlation coefficient. Findings & Value added: Based on the data published by UNDP for 2017, it has been shown that the Human Development Index is built incorrectly by putting equal weights for all of its components. The weights proposed by the sensitivity analysis better reflect the actual contribution of individual factors to HDI variability. Re-scaled Human Development Index constructed based on proposed weights allow for better differentiation of countries due to their socio-economic development.

Suggested Citation

  • Marta Kuc-Czarnecka, 2019. "Sensitivity analysis as a tool to optimise Human Development Index," Equilibrium. Quarterly Journal of Economics and Economic Policy, Institute of Economic Research, vol. 14(3), pages 425-440, September.
    • Handle: RePEc:pes:ierequ:v:14:y:2019:i:3:p:425-440
    DOI: 10.24136/eq.2019.020
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    Citations

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    Cited by:

    1. Céline Diebold, 2022. "How Meaningful is the Elite Quality Index Ranking?," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 163(1), pages 137-170, August.
    2. Pawel Merlo & Jacek Michalak, 2021. "Competitiveness of Regions Versus Accessibility of Cultural Infrastructure: A Case Study of Poland," European Research Studies Journal, European Research Studies Journal, vol. 0(Special 3), pages 365-387.
    3. Agnieszka Napiórkowska-Baryła & Natalia Świdyńska, 2021. "Factors affecting housing conditions: a case study of Cittaslow towns in Poland," Entrepreneurship and Sustainability Issues, VsI Entrepreneurship and Sustainability Center, vol. 9(2), pages 94-107, December.
    4. Wioletta Wierzbicka, 2021. "Differentiation in levels of human capital among small cities in Warminsko-Mazurskie Voivodship," Entrepreneurship and Sustainability Issues, VsI Entrepreneurship and Sustainability Center, vol. 9(2), pages 209-222, December.
    5. Kądziołka Kinga, 2021. "Ranking and Classification of Cryptocurrency Exchanges Using the Methods of a Multidimensional Comparative Analysis," Folia Oeconomica Stetinensia, Sciendo, vol. 21(2), pages 38-56, December.
    6. Marek Piotrowski & Paweł Huras & Katarzyna Modrzejewska, 2021. "Determinants of the human capital redistribution. What pushes out and what pulls to the regions of Masovian Voivodship," Entrepreneurship and Sustainability Issues, VsI Entrepreneurship and Sustainability Center, vol. 9(2), pages 50-64, December.

    More about this item

    Keywords

    Human Development Index; composite indicators; sensitivity analysis;
    All these keywords.

    JEL classification:

    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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