Economic Performance and

Development
Human Development Index
The Human Development Index (HDI) is a statistical tool used to
measure a country's overall achievement in its social and economic
dimensions. The social and economic dimensions of a country are
based on the health of people, their level of education attainment and
their standard of living.
• The HDI was created to emphasize that people and their capabilities should be the ultimate criteria for assessing
the development of a country, not economic growth alone. The HDI can also be used to question national policy
choices, asking how two countries with the same level of GNI per capita can end up with different human
development outcomes. These contrasts can stimulate debate about government policy priorities.
The Human Development Index (HDI) is a summary measure of average achievement in key dimensions of
human development: a long and healthy life, being knowledgeable and have a decent standard of living. The HDI
is the geometric mean of normalized indices for each of the three dimensions.
• The health dimension is assessed by life expectancy at birth, the education dimension is measured by mean of
years of schooling for adults aged 25 years and more and expected years of schooling for children of school
entering age. The standard of living dimension is measured by gross national income per capita. The HDI uses
the logarithm of income, to reflect the diminishing importance of income with increasing GNI. The scores for the
three HDI dimension indices are then aggregated into a composite index using geometric mean. Refer to 
Technical notes for more details.
• The HDI simplifies and captures only part of what human development entails. It does not reflect on
inequalities, poverty, human security, empowerment, etc. The HDRO offers the other composite indices as
broader proxy on some of the key issues of human development, inequality, gender disparity and poverty.
Income Inequality and
Economic Growth
Introduction
• Economic growth means an increase in national income, but does
economic growth actually help to reduce relative poverty and income
inequality – or can economic growth exacerbate existing income
inequalities?
Economic growth will reduce income
inequality if:
• Wages of the lowest paid rise faster than the average wage.
• Government benefits, such as; unemployment benefits, sickness
benefits and pensions are increased in line with average wages.
• Economic growth creates job opportunities which reduce the level of
unemployment. Unemployment and lack of employment are one of
the biggest causes of relative poverty.
• Minimum wages are increased in line with average earnings.
• Progressive taxes redistribute income.
Why economic growth may not reduce
income inequality?
• Economic growth often creates the best opportunities for those who
are highly skilled and educated. In recent years, in the UK, we have
seen faster wage growth for highly paid jobs than unskilled jobs.
• Modern economies are creating an increased number of
part-time/flexible service sector jobs. In these sectors, wages have
been lagging behind average earnings.
• Interest-bearing wealth. The wealthy gain interest and dividends from
their assets. This rent, interest and dividends can be used to re-invest
in increasing their wealth.