Sample response of SOL SSQ on Bulgaria, part (d) Focus: AR, EV

Discuss whether HDI is the perfect measure for us to compare living standards across countries. [8]
QA: Discuss: Two sides + EV
8marks: 3 + 3 + 2(EV)
Therefore, given each perspective is 3 marks only, can choose to write only 1 limitation (esp given how much we need to
write for the HDI component)

Response Notes
Introduction
HDI is a composite indicator that combines three key dimensions of human
development – life expectancy at birth, average number of education years for adults
aged 25 and above, expected years of schooling for children and GNI per capita PPP-
adjusted (international $).

Perspective 1
It is good a measure because firstly, the material aspect of the composite indicator, GNI State the advantage of PPP and Intl $
per capita PPP-adjusted, ensures that GNI amongst different countries are converted
to a common currency, and cost of living differences are adjusted for.

All these help to better reflect the relative costs of goods and services in each country
after adjusting for exchange rate differences. Together with how it also takes into
account the differences in population between countries, this indicator helps to better
reflect the quantity of goods and services that a local on average can consume across
countries, as compared to other indicators like GDP.
Explain the implication of looking at all these
(AR),
By asking yourself how do equalizing cost and
exchange rates link with whichever aspects of m.
SOL (quantity quality or variety of G and S) (AR)?

I consciously did not give e.g. here because I

wanted to balance with the amount I need to
write. If I gave e.g. of cost of living differences,
this para will be too long. Besides, focus is on HDI,
not ONLY on PPP-adjusted GNI per capita.
 Overall in the whole response however, there
must be usage of examples at least once.

Secondly, the other two aspects captured in the indicator also potentially lets us Explain the implication of looking at the other
understand the education standards attained by nationals, as well as how healthy two aspects by asking yourself, how do looking at
they could be. These therefore allow us to have a better comparison of the level of these data show us more on non-material SOL
non-material SOL in countries. (AR)?

Therefore, looking at the HDI alone can provide us with a good snapshot of the Remember, focus of question is HDI; need to still
material and non-material aspects of a country for comparison. talk about HDI, and not just PPP-adjusted GNI per
capita

Perspective 2
However, HDI may still not be perfect as it does not capture the level of income State point
inequality of the economy. This is important because even if the HDI level in for e.g. Explain implication of HDI missing the data, by
Singapore is higher than another country, the level of income inequality may be higher linking towards material SOL (AR)
in Singapore – where majority of the GNI per capita is concentrated in the hands of the Example
rich, and many others struggling to make ends meet. This would mean that the income
earned by the poor may be much less than what GNI and thus HDI data may show,
and thus may have lower material SOL than shown. Therefore, using HDI alone may Rmb to link back to answering question on
not be very useful to compare across countries in this case. whether it is perfect in comparing across space

Furthermore, these poor may also suffer from more stress given their need to search State point
for additional sources of income – something that the HDI does not capture, and thus Explain implication of limitation, by linking to
the average non-material SOL may be lower than what education and life expectancy non-material SOL and
paints in HDI.
This may therefore mean that HDI on a whole may overstate the standard of living of rmb the focus of question is ultimately HDI for
a Singaporean compared to another national in another country. comparing across space
Evaluation

In conclusion, HDI, and for that matter any indicator, can never be the perfect measure, Weighing (by using extremes, especially when it
as every measure will surely have some form of missing data. is applicable) though this on its own is not strong
an EV

While HDI is considered good enough based on how it provides an overview of both Recommend (since there are limitations involved
non-material and material SOL, I recommend that any economist should still make use in HDI, tell me what else can be done to let you
of additional indicators, depending on what information is most helpful. For example, compare SOL across countries better)
knowing that Bulgaria’s underground economy is substantial, using HDI and the size of
the informal economy will provide a better comparison with another country as it will
better capture Bulgaria’s material standard of living.

OR
In conclusion, whether or not HDI is a perfect measure to compare SOL across countries Situations (by coming up with some situation
may depend on which country we are comparing. where it can be really good enough, and another
￮ For example, by comparing two countries with similar stages of development where it isn’t)
(e.g. Sg and Norway), their life expectancies, education levels and even GNI per
capita PPP adjusted may be similar.
￮ Therefore, HDI may not give us meaningful data for comparison. Rmb to link back to answering question
￮ In such cases, I recommend the use of perhaps additional measures such as When you recommend, rmb to also mention
￮ Gini coefficient to have better understanding of the material SOL WHY, and how is the information better
between the rich and poor in both countries
￮ Or to use MEW instead, so that it can capture other more pertinent
measures of non-material SOL