Adjusting the human development index for economic vulnerability and resilience

Abstract

The Human Development Index (HDI) was created in an attempt to shift people's attention away from an index which is merely able to determine a country's wealth, namely the GDP, onto an index which is more comprehensive and better able to measure the attainment of more important goals which people strive to achieve in their lives. Therefore the HDI is a composite index made up of three components, namely health, education, as well as income. Income, however, is not considered to be the sum total of people's lives but is included as a proxy for measuring the ability which people have in achieving their ultimate goals in life. The HDI has, however, faced various criticisms mainly since it is not able in one simple number to capture the complex reality of human development and human deprivation. Several other factors may affect the level of human development of a population, such as economic vulnerability, which is mainly present in small states Vulnerability may lend to economic instability which may overturn the human development progress which a country would have achieved if it is hit by an external shock which it is not able to withstand. However, some countries were, over the years, able to strengthen their resilience to such shocks through policy implementation which enabled them to be better able to overturn a negative external shock. The net effect of these two forces shows the level of risk which countries are exposed to and therefore the possibility, or otherwise, of losing the level of human development which they would have achieved were they to be hit by a negative externality. As a result of this, it was deemed important to adjust the index to take account of this factor.