Economics Research Institute Study Paper
Utah State University Department of Economics
Copyright for this work is held by the author. Transmission or reproduction of materials protected by copyright beyond that allowed by fair use requires the written permission of the copyright owners. Works not in the public domain cannot be commercially exploited without permission of the copyright owner. Responsibility for any use rests exclusively with the user. For more information contact the Institutional Repository Librarian at email@example.com.
A multivariate technique called principal component analysis is used to combine measures of human development. The first principal component index is the linear combination of component indexes with maximal information content. This multivariate technique accounts for differences in the variances of component indexes as well as interdependence among the component indexes. The first principal component of the three indexes used in the HDI (life expectancy, education, GDP) yields international rankings nearly identical to the HDI itself. We interpret this as theoretical support for the HDI ranking system as a metric of international human development. Also, we create a new index which is the first principal component of the five indexes: the three components of the HDI together with two additional indexes that capture gender inequality and child malnutrition. The international ranking of countries from most to least developed, according to the new index, is quite similar to the HDI ranking.
Biswas, Basudeb and Caliendo, Frank, "A Multivariate Analysis and Extension of the Human Development Index" (2004). Economic Research Institute Study Papers. Paper 275.