The Human Development Index

Name:

Lumperdean Radu Marius

Harton David

Group: 1091
 Introduction

While almost all countries have improved their levels of human development over
the past few decades, recent gains have not been smooth. Progress has taken place in a
context of growing uncertainty due to deeper and more frequent shocks. From greater financial
instability to high and volatile commodity prices, from recurrent natural disasters to
widespread social and political discontent, human development achievements are more
exposed to adverse events.
Human development is the process of expanding the range of choices. The most important
elements of choice are to live a long and healthy life, education and a decent standard of
living. Additional selections include political freedom, guaranteed human rights and self-
esteem. This system of views is aimed at improving the quality of human life, enhance and
improve its capabilities in all areas. The human development concept has replaced the so
called "classical" theory of economic development, which was based on the gross national
product, considered the man only as a driving force of economic development and economic
growth proclaimed the main purpose of social progress.
The formation of the current stage of society development implies not only changes in the
quality of its structure, but also the improvement of the socio-economic system, the growing
humanization of all spheres of social life, the priority of human values. Mankind has come to
realize that the main wealth of any country is the people, its human potential, as an essential
element of social and economic progress of society. The human development concept
reflects the person at the center of the progress of civilization, not only as a tool, but also as the
main goal of socio-political and socio-economic processes.
A distinctive feature of human development concept is the position that people do not need
infinitely high income to ensure a decent standard of living. Higher income enhances
human choice, but the impact is weakened with increasing income. Income, according to the
concept of human development is only one choice that would like to have a man, albeit a very
significant one.
There is no doubt in the fact that the human capital, rather than physical, plays a major role
in increasing the rate of economic growth in modern economy. Human capital includes the
accumulated investment in education, science, health, security, quality of life and in the tools of
intellectual work.
The Human Development Index (HDI) is a comprehensive index, which
characterizes the level of human development in the countries and regions of this country.
This index is inherent in the measurement of the country's achievements in terms of health and
longevity, education and actual income of its citizens.( Gregory Mankiw, David Romer, David N.
Weil, 1992) The Human Development Index is analyzed in three main areas, which are estimated
by other indexes that are listed below:
Life expectancy index is the main indicator of the average life expectancy in the world. In
addition, this index measures the health and longevity citizens of the particular country.
The education index, which includes access to education, as measured by average
school life expectancy of children of school age and mean years of schooling of the
adult population.
The index of gross national income, which is the primary method of assessing the level of
life (quality of life), it is measured by the value of the gross national income (GNI) per capita in
US dollars.
 Human Development Index (HDI):
The Human Development Index HDI is defined as the composite statistics used to rank
countries by levels of human development. The HDI is a measure of health, education and
income. It measures the average achievements in a country in these three basic dimensions of
human development, calculated into an index.

The data sources:

● www.worldbank.org
● http://hdr.undp.org

Human Development Index and its components, ranks countries by 2019 HDI value and
details the values of the three HDI components: longevity, education (with two indicators)
and income.
The variables chosen were: The Human Development Index (HDI) -dependent
variable , Life expectancy, by average school life expectancy of children of school age and
mean years of schooling of the adult population and , gross national income (GNI)
The 50 observations represent countries of the world. Values are recorded for the year
2019.
 Human Development Index (HDI

The HDI is essentially a summary measurement of basic achievement levels in

fundamental dimensions of human development. The computed HDI of a country is a geometric
mean of normalized indexes of each of the life aspects that are examined – knowledge and
understanding, a long and healthy life, and an acceptable standard of living.

Life expectancy at birth:

Life expectancy is a statistical measure of the average time an organism is expected

to live, based on the year of their birth, their current age and other demographic factors
including sex. Life expectancy at birth reflects the overall mortality level of a population. It
summarizes the mortality pattern that prevails across all age groups - children and adolescents,
adults and the elderly. Average number of years that a newborn is expected to live if current
mortality rates continue to apply. Life expectancy at birth is the total person-years lived beyond
exact age divided by the number of newborns.
 Expected years of schooling:

Number of years of schooling that a child of school entrance age can expect to
receive if prevailing patterns of age-specific enrolment rates persist throughout the child’s life.

Calculation method: For a child of a certain age, the expected years of schooling is
calculated as the sum of the age specific enrolment rates for the levels of education specified.
The part of the enrolment that is not distributed by age is divided by the school-age population
for the level of education they are enrolled in, and multiplied by the duration of that level of
education. The result is then added to the sum of the age-specific enrolment rates.
 Mean years of schooling:

Average number of years of education received by people ages 25 and older,

converted from education attainment levels using official durations of each level.
Calculation method: The following information is needed for each country to estimate
MYS:
 Distribution of the population by age group and highest level of education attained in a
given year; and
 Time series with the official duration of each level of education. For each age group,
the proportion that attained a given level of education is multiplied by the official duration of that
level. The sum of the resulting values yields the MYS for the population under investigation.
 Gross national income (GNI) per capita:

Aggregate income of an economy generated by its production and its ownership of

factors of production, less the incomes paid for the use of factors of production owned by the rest
of the world, converted to international dollars using PPP rates, divided by midyear population.

Gross national income (GNI) is the sum of value added by all resident producers plus any
product taxes (less subsidies) not included in the valuation of output plus net receipts of primary
income (compensation of employees and property income) from abroad. GNI per capita is gross
national income divided by mid-year population. GNI per capita in US dollars is converted using
the World Bank Atlas method.
 Multiple regression model
Multiple linear regression (MLR) is a statistical technique that uses several explanatory
variables to predict the outcome of a response variable. The goal of multiple linear regression
(MLR) is to model the relationship between the explanatory and response variables

We will use the multiple regression model with four independent variables:

yi =ᵦ+ᵦx+ᵦx ᵦx ᵦx
0 1 i1 2 i2 + 3 i3+ ε
4 i4+ 0 i=1.2…..n

Y = HDI

X1 = Life expectancy at birth (LEB)

X2 = Expected years of schooling(EYS)

X3= Mean years of schooling (MYS)

 X4= Gross national income per capita(GNI)

Residuals are essentially the difference between the actual observed response values and the
response values that the model predicted. The Residuals section of the model output breaks it
down into 5 summary points. When assessing how well the model fit the data, you should look
for a symmetrical distribution across these points on the mean value zero (0). In our example, we
can see that the distribution of the residuals do not appear to be strongly symmetrical. That
means that the model predicts certain points that fall far away from the actual observed points.
The Pr(>|t|) p-value of 5% or less is a good cut-off point. In our model example, the p-values
are 0,0175. Three stars (or asterisks) represent a highly significant p-value.
Constant: if all the variables are 0, Human development index is equal with 0.0578.
Expected years of schooling has no influence on the model because the probability is 0.00.
Life expectancy at birth has no influence on the model because the probability is 0.00.
Mean years of schooling has no influence on the model because the probability is 0.00.
Gross national income (GNI) per capita has no influence on the model because the probability is
0.00.
R-squared: 95.2% from the variation of the Human development index is explained by the
variation of independent variables .

The equation of the regression model is:

y =0,0884+0,006052x1+0,01311 x2+0,00782 x3+0,000743 x4
Test the validity of the regression model

F-statistic is a good indicator of whether there is a relationship between our predictor and
the response variables. The further the F-statistic is from 1 the better it is. However, how much
larger the F-statistic needs to be depends on both the number of data points and the number of
predictors. Generally, when the number of data points is large, an F-statistic that is only a little
bit larger than 1 is already sufficient to reject the null hypothesis (H0 : There is no relationship
between HDI si others variabile ) In our example the F-statistic is 223,1 which is relatively larger
than 1 given the size of our data

The correlation coefficient can take values from -1 to +1. When the coefficient values of
0.3-0.5 for module –dependence is medium. When values below 0.1 indicate weak link direct.
The degree of association is strong, if the ratio is not lower than 0.5. The correlation coefficient
is determined up to two decimal places. If r is positive, then the connection direct or
positive. If the correlation expressed as a negative number, then the connection is
negative (or reverse). It is worth mentioning that at sufficiently high correlation
coefficient inclusion in the model of the corresponding factor is not appropriate. This will only
worsen the overall quality of the model by reducing its explanatory power. The table
below shows the correlation coefficients of the dependent variable in pairs with each factor.
Multiple regression model & dummy variable

Dummy Variable

Dummy variables are "proxy" variables or numeric stand-ins for qualitative facts in
a regression model. In regression analysis, the dependent variables may be influenced not only
by quantitative variables (income, output, prices, etc.), but also by qualitative variables (gender,
religion, geographic region, etc.). A dummy independent variable (also called a dummy
explanatory variable) which for some observation has a value of 0 will cause that
variable's coefficient to have no role in influencing the dependent variable, while when the
dummy takes on a value 1 its coefficient acts to alter the intercept. For example, suppose
membership in a group is one of the qualitative variables relevant to a regression. If group
membership is arbitrarily assigned the value of 1, then all others would get the value 0. Then the
intercept (the value of the dependent variable if all other explanatory variables hypothetically
took on the value zero) would be the constant term for non-members but would be the constant
term plus the coefficient of the membership dummy in the case of group members.

Dummy variables are used frequently in time series analysis with regime switching, seasonal
analysis and qualitative data applications. Dummy variables are involved in studies for economic
forecasting, bio-medical studies, credit scoring, response modelling, etc. Dummy variables may
be incorporated in traditional regression methods or newly developed modeling paradigms.

In this model, the dummy variable shows if a country is or not in Europe (if it is, will have the
value 1, if not 0).

Constant: if all the independent variables are 0, the HDI is equal with 0, 8903

R-squared: 95.2 % from the variation of Human development index is explained by the variation
of all the independent variables.
Dummy variable: The position of the countries are influencing human development index. If all
the countries in the model where only in Europe, the Human development index would increase
with 0.00809 .

Bibliography

 www.sciencedirect.com

 www.investopedia.com

 http://hdr.undp.org

 www.wikipedia.org

 www.who.int

 www.worldbank.org/

 www.uis.unesco.org

 data.worldbank.org

 www.gfmag.com