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Issue 13/30 September 2009

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This edition is going to economics teachers and students in 45 countries


Today’s Issue Includes:


1) The Human Development Index: An Evaluation by Maziar Homayounnejad, Queen Elizabeth’s School, Barnet.

How useful is the Human Development Index (HDI) as a way to compare living standards between countries?

Firstly, it is worth remembering that there are three equal weights within the HDI – longevity, education and real GDP at PPP$.

hdi_09_400This is perhaps the biggest advantage, as it means the index combines the effects of economic growth with other quality of life indicators, to give us a broader view of living standards and well being. This is particularly important with many of the developing countries. For example, South Africa has achieved a relatively high income (GDP per capita at PPP was $11,110 in 2005). Yet it also suffers one of the lowest life expectancies in the world (50.8 years in 2005), mainly due to the prevalence of HIV / AIDS (18.1% of the adult population in 2007, making it the fourth worst-hit country in the world). Accordingly, South Africa’s HDI score in the 2007/08 report was only 0.674; hence the country ranks lower than Brazil, Columbia or even Vietnam, despite having a higher income than any of these other countries. And in the latest HDI report, the country has dropped to 121st place, primarily due to its AIDS epidemic.

Conversely, Sri Lanka is a good example of a country which has a very low level of income (GDP per capita at PPP was only $4,595 in 2005). Yet it ranks higher than South Africa in the 2007/08 HDI report, coming in at 99th place (and a HDI score of 0.743). This is because the government has prioritised health and education in previous years, to the extent that 90.7% of the Sri Lankan adult population are now literate, while life expectancy has reached an impressive 71.6 years. With longevity and education both approaching the standards of a developed country, it makes sense that Sri Lanka should rank higher than South Africa, despite its citizens having less than half the purchasing power. Consequently, another advantage of the HDI is that it indicates the extent to which GDP has been used to enhance social welfare, thus highlighting the relative success of domestic government policies around the world.

Another advantage concerns the origin of the index. The HDI is an international measure, developed and constructed by the United Nations Development Programme (UNDP), using a consistent methodology for all countries. This makes it particularly ideal for international comparison of living standards, and thus for determining which countries should be prioritised for foreign aid, loans or other types of assistance.

Also, as the UNDP is an independent organisation not affiliated to any particular country, the HDI rankings are more likely to be fair and impartial, hence a true reflection of living standards across the world.

There are also practical advantages to do with compiling the HDI. Namely, data on longevity, education and real GDP at PPP$ are all freely available in most countries, having already been collected by national governments for domestic policy-making. Therefore, such data are cheap and easy for the UNDP to collect, making the whole process more straightforward and cost-effective.

Disadvantages of the HDI

On the other hand, since the UNDP collects this data from the individual countries, there may be problems of data accuracy, especially with some low income and developing countries that will have an incentive to paint a rosier picture of their citizens’ well being. This could undermine the HDI’s validity in practice, especially as a tool for international comparison.

There are further disadvantages of the HDI, focusing more on how it is actually constructed. For example, the one-third weighting scheme seems arbitrary, with no empirical data to justify it. Indeed some people might see a country’s level of resources as the most important measure of living standards, hence arguing that real GDP at PPP$ should be weighted more heavily than longevity and education. If this argument is to be accepted, then South Africa should rise up the HDI rankings. And with an income per capita more than twice that of Sri Lanka’s, it is possible that South Africa would even overtake Sri Lanka in the HDI rankings. Of course, any attempt to change the weightings of the HDI’s three components will be arbitrary to some extent, so we must accept this as one of its inherent drawbacks.

southafrica-1_400
Low life expectancy reduces South Africa's HDI score

A related criticism concerns just how rigid these weightings are. For example, the IMF has argued that income has a diminishing impact on human development, the richer a country becomes. Hence if a poor country like Malawi was to increase GDP per capita by 10%, this will have a disproportionately greater impact on its citizens’ living standards than, say, the United States increasing its income per head by 10%. Yet the weighting of GDP per capita remains one-third, however rich or poor the country happens to be.

Moving on, the HDI can also be seen as rather limited in its inclusion of only three quality of life indicators. Surely living standards are dictated by a vast array of other factors, including the state of the environment and pollution levels; access to clean water, mobile phones and the internet. To omit these important indicators inevitably means that the HDI gives us an incomplete picture of living standards across the world.

Perhaps the most common criticism of the HDI is that it doesn’t directly take into account poverty or any other measure of deprivation, thus it is regarded by some as being of limited value. For example, the level of education, longevity and GDP per capita may all be fairly high in a country, leading to a high HDI score. But if income is unevenly distributed and there is a large proportion of the population in long-term unemployment, then there may also be a great deal of poverty and deprivation. In such a case, the overall standard of living is severely compromised, and this won’t always be reflected in the HDI. To overcome this problem, the UNDP also produces a measure of deprivation called the Human Poverty Index (HPI).

Conclusion

On balance, therefore, the HDI goes significantly beyond the simple use of GDP per capita, and in this sense it is a better measure of living standards between different countries. Also, the fact that there is a single methodology under the UNDP ensures the index remains fair, impartial and good for international comparison, while the underlying data remain cheap and easy to collect. However, it has rigid and arbitrary weightings, it omits numerous other quality of life indicators, and it fails to directly address poverty and deprivation. All these mean that the HDI should be qualified or at least combined with other measures if we are to gauge more accurately the differences in living standards from one country to the next.


asiandevelopmentbank-1

This is a really good resource produced by the Asian Development Bank. The first 30 pages have some excellent charts and analysis on the global situation.

There are also small case studies on protectionism, dollar fluctuations and oil price trends which could be easily adapted into data response questions for teaching.

To see this publication click here

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2) Lessons from the 2009 AS examinations by Chief Examiner, Quintin Brewer

This summer saw the first batch of the new AS examinations based on the revised syllabuses. Now that there are only 2 modules instead of 3 at AS Level, the length of examinations has increased. This has meant that mark bases are higher than on the old syllabuses which have arguably increased the demands on students. In particular, the ability to write extended prose answers is something which some students find especially difficult. Practise at structuring essays, using paragraphs and developing analysis logically should help to improve performance in this area as well as providing an important platform for A2.

In addition, there are some familiar issues:

  • Not answering the question set: candidates need to develop the confidence to apply concepts to unfamiliar contexts rather than writing pre-learnt answers which may not be entirely relevant

  • Imprecision: Students need to understand from the start of their course that terms and concepts need to be defined precisely

  • Poorly labelled and inaccurate diagrams: these are all too common in AS papers, particularly the use of micro supply and demand diagrams when macro aggregate demand and aggregate supply diagrams are required. A further issue is that the x and y axes need to be labelled accurately

  • Weak ability to interpret data: students often experience difficulty in reading graphs accurately; interpreting index numbers and describing trends.

  • Not using the information provided: data response questions are now a well-established method of assessing Economics. Unfortunately, a sizeable minority of students make little or no use of the data and extracts provided so limiting their ability to access the highest marks

  • Inaccurate calculations: a surprisingly large number of AS Economics candidates seem to be unable to calculate percentages

  • Limited use of economic analysis: weaker scripts are characterised by generalised, journalistic responses which show only a limited ability to apply economic concepts and diagrams

  • Absence of evaluation: Some examination papers do not include any evaluation even though this might account for up to 25% of the marks. AS students often find this difficult initially so practise in this area is vital especially in identifying the command words (e.g. assess; to what extent; evaluate) which demand evaluative comments.

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