Measuring Human Development - Essay Example

Article Analysis “Measuring Human Development: A Stochastic Dominance Approach” by The article analyses various methods and techniques that have been used traditionally and are currently used to measure human development. According to the article, traditionally, each attribute that affect human welfare is analysed separately. This approach is limited, as it does not show the relationship between the attributes. The modern methods uses construction of an aggregate index that combines different attributes such as HDI index used by UNDP. HDI combines health, income and education to make a weighted average index. The index is used to measure a country’s performance based on human longevity, living standard and knowledge. However, the index is limited in that it ignores the relationship of the attributes that are used to construct it. As such, two countries can have the same HDI but have different levels of education standards or health care. In order to eliminate the limitations of the HDI and traditional models that are used to measure human development, the article proposes a new model. The model is constructed based on stochastic dominance. The stochastic model used compares different variables according to the preferences of rational economic decision makers and ordering them in a stochastic manner. The model has not been used because it can only be tested pair-wise. The article contends that the stochastic model weights are explicit which leads to the creation of the scenario that represents the most optimistic development. The model gives more weight to the dimension that is realized much higher in the countries than other dimensions. The article uses the HDI index as a benchmark and uses the stochastic dominance model to get weights that are assigned to the sub-indices. The article asserts that this move helps to maximize the distribution distance which occurs between the used indices. As such, the article uses stochastic dominance to measure the factor that has the major contribution to the development using the HDI index. The article uses the biased literature review which reveals the weakness of the traditional methods of measuring development. GNP and GDP are cited as the main traditional methods of measuring development. The articles espouses that GDP and GNP per capita uses the income to analyses development while there are other factors that cannot be owned or produce by individuals that lead to the development. HDI was development to remedy these shortcomings, however, HDI is criticised in using poor source of data to construct its constituents. There is also a lack of conserves as to what should be the maximum and the minimum and values of each component that should be included in the model. The model is also criticised for using the three main elements, that is, education, health and living standard, which are much related. The article uses efficiency testing that assigns positive weights to all the components of HDI. The article derives statistics which are used to test the stochastic dominance efficiency of the equally weighted HDI, with respects to different combinations of the weighing scheme. The article uses the identified maximum and minimum values to obtain the maximum and the minimum variables that should be used in the HDI model to make it more efficient. In the analysis, the article uses two independent variables from distribution to test HDI. Stochastic dominance efficiency in the HDI is then tested using the derived statistics. Weighted Kolmogorov-Smirnov is used as the test statistics. After testing the stochastic dominance in HDI, the article then drives a mathematical formulation for the test statistics. In testing the efficiency of the method used, the article evaluates three simulation experiments. In the first simulation three components are used (as in HDI) without variance, in the second simulation they are used with variance while in the third simulation component that have different means and vary are used. The article utilises the stochastic dominance tests to evaluate whether the HDI and its components have been improving with time. In a period of the five time horizons considered, the article finds out that the HDI index and its component has been improving over the time. GDP is the only index that has not been improving with time. Using the stochastic dominance model tests reveals that life expectancy and education has been improving with time but the life expectancy index has not been increasing between the years 1990 and 2000. Improvement in the HDI index is mainly, as a result if improved standards of education in many countries. The overall improvement of the HDI is held by the GDP and low life expectancy over the ten years that was considered. The article presents the stochastic dominance efficiency tests the data that are dependent on time. The article concludes that the improvement in the HDI index does not necessarily reflect an improvement in the development of human welfare; rather it shows that some components of the model have been performing better than others. As such, HDI does not reflect the development of all the countries in equal, measures. The article is interesting as it evaluates the mainly used methods for measuring national, economic and regional development. The stochastic dominance model for testing variance components of the HDI models helped to eliminate the shortcomings of the HDI in that it does not reflect the relationship between the components. Measuring a country’s development cannot be subject of three factors only. The productive of an economy and the improvement of people’s life are contributed by multivalent factors such as social and infrastructural development on top of education health and GDP per capita. The stochastic dominance tests used in the article creates a more optimistic development-weighting scheme where the countries considered shows higher development over the time and compared to others. High HDI is contributed mainly by education showing that education is a very important contributor to the productivity of the country (Pinar, Stengos, Topaloglou, 2013). The models help to show the contribution of each component of HDI in the development of the country. When the policy formulation identifies the factors that have improved much over the time, they can have efficient way of allocating the scarce resources in an efficient way. The best scenario weighting schemes is a better way of measuring the country development than the HDI that is commonly used. The model reflects new rankings to the country’s which is more stable and comparable than the HDI. The model showed than those countries that have high education quality but poor living standards are ranked high while those with poor quality education and high living standards are ranked low. As such, the article singles out education as the main contributor of the national development. References Pinar, M. , Stengos, T. , Topaloglou, N., (2013) . Measuring human development: A stochastic dominance approach. Journal of Economic Growth, 18 (1), 69-108. Read More