Working Paper: NBER ID: w23952
Authors: Qihua Qiu; Jaesang Sung; Will Davis; Rusty Tchernis
Abstract: We propose a Bayesian factor analysis model as an alternative to the Human Development Index (HDI). Our model provides methodology which can either augment or build additional indices. In addition to addressing potential issues of the HDI, we estimate human development with three auxiliary variables capturing environmental health and sustainability, income inequality, and satellite observed nightlight. We also use our method to build a Millennium Development Goals (MDG) index as an example of constructing a more complex index. We find the “living standard” dimension provides a greater contribution to human development than the official HDI suggests, while the “longevity” dimension provides a lower proportional contribution. Our results also show considerable levels of disagreement relative to the ranks of official HDI. We report the sensitivity of our method to different specifications of spatial correlation, cardinal-to-ordinal data transforms, and data imputation procedures, along with the results of a simulated data exercise.
Keywords: Human Development Index; Bayesian Factor Analysis; Spatial Correlation; Human Development
JEL Codes: O15; O57
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Bayesian factor analysis model (C11) | more accurate representation of human development (O15) |
| living standard dimension (I31) | overall human development (O15) |
| longevity dimension (C41) | overall human development (O15) |
| deterministic weights in HDI (C69) | inaccurate reflection of relative importance of each dimension (D91) |
| model's rankings (C52) | discordance with official HDI ranks (O15) |
| spatial correlation and population differences (R23) | human development rankings (O15) |
| auxiliary variables (environmental health, income inequality, nightlight) (I14) | causal links to human development (O15) |