Academic journal article The European Journal of Comparative Economics

Efficiency in Human Development: A Data Envelopment Analysis

Academic journal article The European Journal of Comparative Economics

Efficiency in Human Development: A Data Envelopment Analysis

Article excerpt

1. Introduction

In 1990, the first Human Development Report, published by the UNDP (United Nations Development Programme), introduced a new development indicator developed by a task force working under the guidance of Mahbub ul Haq. For many years, the only available measure of development had been per capita GDP, so the UNDP proposed the human development index (HDI) to rank the nations of the world with respect to the state of their human, not only economic, development. The UNDP has published this indicator, along with the associated country rankings, every year since 1990. While it has been subject to some criticism, its computational simplicity has given it a wide following. However, since the 2010 Human Development report, the UNDP has adopted a new methodology for measuring the HDI as well as new indicators of development (for example, the Multidimensional Poverty Index, MPI).

Nonetheless, we may ask why some countries that seem similar, especially in terms of their economies, and that have comparable GDP or per capita GDP results, post divergent HDIs. For example, while Chile and Gabon are, respectively, 50th and 49th globally in terms of per capita GDP, in 2009, Chile was ranked 44th overall with respect to the HDI while Gabon languished in 108th position. This may suggest that some countries devote little or no expenditures specifically to human development. Conversely, they may be investing resources in education and healthcare, but in a fashion that is inefficient or wasteful and thus not yielding the desired results: a more educated and healthier population. This is what we want to verify in this article. Using classical and bootstrapped Data Envelopment Analysis (DEA) models, we will seek to determine whether past or current expenditure levels in these countries are yielding an optimal HDI--i.e. the "best" possible HDI in light of the resources invested. In an economic downturn, it seems reasonable to verify the efficiency of countries in achieving their objectives. In this paper, it is the objective of human development that we analyze.

The remainder of this paper is structured as follows. In the second part we review the definition of the human development index and briefly examine the literature. In Part 3, we present the DEA method and, in Part 4, the data. Part 5 contains our results and is followed by the conclusion.

2. The Human Development Index

According to the UNDP, personal incomes represent one indicator of a country's level of human development. However, it is not the only one. Thus, a country with high incomes, as might be generated by resource extraction, for example, will not have a very strong growth potential if these revenues are primarily devoted to expenditures on consumption and imports (2). Conversely, this potential may exist if there is investment in individuals. This might, for instance, take the shape of investing in citizens' education or health. For this reason, the HDI is a composite indicator consisting of two elements in addition to gross national income (GNI). Human health is measured by individuals' ability to live long lives in good health. The first element in the HDI is thus life expectancy at birth. The second component of the HDI captures populations' knowledge. This indicator is decomposed into a measure of mean- and expected- years of schooling. Finally, the log of per capita GNI is the third component of the HDI, measuring the ability to access resources, in particular healthcare and education. Thus, the HDI is measured as the geometric mean of these three indicators: health, education, and income. The value of the HDI falls between zero (0) and one (1), where one indicates the maximal value of human development and zero a deplorable lack thereof. In 2011, the HDI ranged from 0.286 (Democratic Republic of the Congo) to 0.943 (Norway).

The UNDP also computes a non-income HDI that only accounts for the health and education indicators. …

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