Day 47 – Q 2.Why is Inequality-adjusted Human Development Index (IHDI) a better measure of development? Explain with the help of suitable examples.

2. Why is Inequality-adjusted Human Development Index (IHDI) a better measure of development? Explain with the help of suitable examples. 

असमानता–समायोजित मानव विकास सूचकांक (IHDI) विकास का बेहतर माप क्यों है? उपयुक्त उदाहरणों की सहायता से समझाएँ।

Introduction:

The IHDI combines a country’s average achievements in health, education and income with how those achievements are distributed among country’s population by “discounting” each dimension’s average value according to its level of inequality. Thus, the IHDI is distribution-sensitive average level of human development. Two countries with different distributions of achievements can have the same average HDI value. Under perfect equality the IHDI is equal to the HDI, but falls below the HDI when inequality rises.

The difference between the IHDI and HDI is the human development cost of inequality, also termed – the overall loss to human development due to inequality. The IHDI allows a direct link to inequalities in dimensions, it can inform policies towards inequality reduction, and leads to better understanding of inequalities across population and their contribution to the overall human development cost. A recent measure of inequality in the HDI, the Coefficient of human inequality, is calculated as an unweighted average of inequality across three dimensions.

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Inequality-adjusted Human Development Index (IHDI) a better measure of development 

• While the HDI can be viewed as an index of average achievements in human development dimensions, the IHDI is the level of human development when the distribution of achievements across people in the society is accounted for. The IHDI will be equal to the HDI when there is no inequality but falls below the HDI as inequality rises. The difference between the HDI and IHDI, expressed as a percentage of the HDI, indicates the loss in human development due to inequality. 
• IHDI show if inequality is getting better or worse. By analyzing the trend in the IHDI one can assess the direction of the change.
• One of the key properties of the approach is that it is ‘subgroup consistent’. This means that if inequality declines in one subgroup and remains unchanged in the rest of population, then the overall inequality declines. The second important property is that the IHDI can be obtained by first computing inequality for each dimension and then across dimensions, which further implies that it can be computed by combining data from different sources, thus it is not necessary that micro data on all components come from the same survey.
• The IHDI allows a direct link to inequalities in dimensions of the HDI and the resulting loss in human development. Thus, it can help inform policies towards inequality reduction and to evaluate the impact of various policy options aimed at inequality reduction.
• The average global loss in HDI due to inequality is about 22.9 %—ranging from 5.5% (Finland) to 44.0% (Angola). People in sub-Saharan Africa suffer the largest losses due to inequality in all three dimensions, followed by South Asia and the Arab States and Latin America and the Caribbean. Sub-Saharan Africa suffers the highest inequality in health (36.6%), while South Asia has the highest inequality in education (41.6%). The region of Arab States also has the highest inequality in education (38%), Latin America and the Caribbean suffers the largest inequality in income (36.3%).
• The IHDI and its components can be useful as a guide to help governments better understand the inequalities across population and their contribution to the overall loss in the level of human development due to inequality.
• The IHDI can be adapted to compare the inequalities in different subpopulations within a country, provided that the appropriate data are available. National teams can use proxy distributions for indicators, which may make more sense in their particular case.

Generally countries with less human development also have more multidimensional inequality and thus larger losses in human development due to inequality, while people in developed countries experience the least inequality in human development.

The East Asia and the Pacific Region performs well on the IHDI, particularly in access to healthcare and education, and former socialist countries in Europe and Central Asia have relatively egalitarian distributions across all three dimensions.

Conclusion

Though insightful, the index does not reckon several factors, such as the net wealth per capita, the relative quality of goods, CO2 emissions, crime rate or risk of insolvency in a country. Accounting for these will lower the rank for some of the most advanced countries, such as the G7 members and others. However IHDI is still one of the best indicators of Human development.