Friday, May 22, 2009

Freakodevelopment

Well, Justin Wolfers at Freakonomics has now chimed in on the the HDI debate. He refers to Andrew Gelman's observation that the fake data I used in my post on the HDI of US states pretty much just amount to a ranking of states by income under a fancy name. Wolfers adds this observation:
Given this debate, I wondered whether Gelman’s critique might also apply to the U.N.’s original cross-national Human Development Index, so I downloaded the latest data. The graph below compares a country’s ranking on the human development index with its ranking on average income. The correlation between the two is even stronger — a massive 95 percent! For all but a handful of countries, your ranking on average income is the same as your ranking on this multi-dimensional index.




Interesting. I'll talk about this in a moment, but first I want to address what Wolfers says about yrs. truly:
Some commentators have been comparing the scores of individual states on the state-based index with the international index, which yields newsworthy bites, like “Mississippi has an H.D.I. level roughly on par with that of Turkey.” But the two indices aren’t comparable. Dig deep into the methods used to construct the state-based index, and you’ll find that not only are the inputs different, but so are the formulae.
Aha! What Wolfers is ignoring is that I was comparing fake data for the US states to real data for countries. But they were on the same scale! It was an apples-to-apples comparison - it just happens that some of my apples were imaginary.

Okay, back to Wolfers' substantive point: I believe I disagree! It is the case that his chart ends up showing a rather straight, clumpy diagonal line, meaning that most countries' ranks for HDI are quite similar to their ranks for GDP per capita. But it's also obvious that there are a handful of big outliers. GNQ appears to be ranked in the 110s for HDI but in the 20s for GDP/capita. CUB is in the 40s for HDI but in the 80s for GDP. QAT is in the top 5 for GDP but in the 30s for HDI, etc. But more than that: the general correlation doesn't seem to hold as well when you zoom in on this chart. For instance, look at the lower-left corner, where all the wealthiest and most developed countries are clustered. Within that group, there seems to be wide divergence from the overall trend that GDP/capita rank directly correlates with HDI rank. Or look farther up the diagonal line: RUS and ALB (presumably Russia and Albania) both appear to follow the general pattern of a strong correlation which Wolfers sees in this data. But RUS appears to be ranked in the 50s for GDP and in the 70s for HDI, whereas ALB look to be right around 70 for HDI, but is way to the right on the GDP scale, somewhere in the 90s. That's a significant difference!

Wolfers concludes, "For all the work that goes into the Human Development Index, it just doesn’t tell you much that you wouldn’t learn from simple comparisons of G.D.P. per capita. But you do get the veneer of something broader, with a normatively loaded name for this index." But the difference between RUS and ALB is big, and if we didn't have HDI, we wouldn't have the vocabulary (or as much vocabulary, at least) to talk about that difference. Or about the difference between a rich petro-state and a Scandinavian democracy. Or about the consequences of Cuba's form of government on its people's standard of living. All Wolfers' chart demonstrates, really, is that rich countries are almost certain to have high HDI ranks, poor countries are almost certain to have low HDI ranks, and middle-income countries are almost certain to have middling HDI ranks. But we already knew that! Wolfers doesn't acknowledge that, with only a slightly more fine-grained look at the HDI numbers, we can find a ton of valuable information that we can't get from simply looking at GDP/capita. The HDI has more than a "veneer of something broader." It gives us the vocabulary to talk about development in terms of something other than just GDP; it allows us to contribute other values to our understanding of what it means to achieve development.

18 comments:

Andrew Gelman said...

Chachy: Funny line about the fake apples. To get to your later point, I disagree that, "if we didn't have HDI, we wouldn't have the vocabulary (or as much vocabulary, at least) to talk about that difference. Without HDI, we could talk directly about life expectancy, infant mortality, kids completing school, and all the rest. Graphing HDI and then trying to figure out what's causing the outliers . . . that's not really necessary if you graph or map the substantive things that go into it.

I think that taking averages of similar quantities (literacy, schooling rate, etc.) and forming mini-indexes can be helpful, but combining unrelated items, maybe not so much.

To me, the real selling point of HDI is that it might be a better single-number summary than GDP per capita, which is what everyone uses now. For one thing, GDP fluctuates hugely with exchange rates, for another, as you note, GDP misses some important aspects of well-being. So I can see HDI being a useful single-number summary to be used in rankings, graphs, and the like. I don't see it as such a great research tool.

To put it another way, I'd be more interested in seeing life expectancy, literacy, and the rest, plotted versus some summary (GDP, HDI, or whatever), rather than staring at a graph of HDI vs. GDP and trying to piece out what's going on.

Chachy said...

Thanks for the comment, Andrew. I can see your point, and I can especially see why it would make sense for someone with professional expertise in this area: the more data, and especially the more nuanced data, the better. But an expert I am not, and I can only give my perspective as a layman.

And here's the thing from that perspective: we have this concept of "development." Like any abstract concept, it's somewhat crude and nebulous, and it will always be possible to quibble about what it means. But we're also always going to want to represent that concept in a digestible form - in a map or a graph - to answer the questions: which countries are developed? Which are not? Which have been developing the fastest? Which are being left behind? Etc.

We could just use GDP/capita to represent levels of development; but as you acknowledge, that's not ideal. Or we could use a cluster of indicators, which would no doubt give a more nuanced picture of things, and will be more useful to social scientists.

But HDI gives us a single metric that can stand in for the concept of "development." And by representing that concept, it also enriches it, by allowing us to conceptualize it as something more than just, e.g., a measure of accumulated wealth. That may not be all that useful as a research tool, but it certainly appeals to people like me, who don't have the professional background in social science but just want to be able to understand the world we live in.

E. Martins said...

Hear hear!!!

Chachy and Andrew have both hit the spot: the HDI was developed exactly to be a better alternative to GDP per capita as a summary measure of a country's state of development. But any serious analysis has to go well beyond the HDI, and look at it's individual components and scores of other indicators.

All the UN Human Development reports publish an extnsive statistical annex, and so did we on "The Measure of America", where we compiled dozens of indicators for the US states (and a significant number for congressional districts as well).

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