IB Economics HLTopic 4 — The Global EconomyPaper 1, 2 & 3Core skill~11 min read
Composite Indicators of Development
If one number can only tell you one thing, the obvious fix is to combine several. That is what a composite indicator does — and the HDI, which does exactly this with health, education and income, is the one the IB expects you to know inside out.
📚 What you need to know
A composite indicator combines several single indicators into one score.
The Human Development Index (HDI) combines health, education and income, each weighted equally.
It runs from 0 to 1; higher means more developed.
The IHDI adjusts the HDI for inequality and is never higher than the HDI.
The GII measures gender inequality, where a lower score is better.
The HPI asks how efficiently a country delivers long, happy lives given its ecological footprint.
How the HDI is built
The two schooling measures are doing different jobs. One is a stock of education already in the workforce, the other is a forecast of what today’s children will get.
Reading an HDI score
Band
HDI range
Roughly what that looks like
Low
Below 0.550
Short life expectancy, low schooling and low income all at once
Medium
0.550 to 0.699
Real progress on health and primary schooling, incomes still low
High
0.700 to 0.799
Secondary schooling widespread, life expectancy near rich-country levels
Very high
0.800 and above
Advanced economies, where further gains are slow and expensive
Watch the shape of HDI progress. Because each component has a ceiling, gains get harder the higher you climb. A country moving from 0.45 to 0.55 has done something dramatic; one moving from 0.90 to 0.91 may have done just as much work for a much smaller number.
The IHDI: what inequality costs
The HDI uses averages, so it inherits the problem you met with GDP per capita. The Inequality-adjusted HDI discounts each dimension according to how unevenly it is spread. If a country were perfectly equal, the IHDI would equal the HDI. In practice it is always lower, and the gap between the two is the loss.
Loss to inequality
Loss (%) = ((HDI − IHDI) ÷ HDI) × 100 the share of potential human development destroyed by unequal distribution
Two countries can share an HDI of 0.750 and have completely different IHDIs. Comparing the two scores is one of the quickest ways to make a data-response answer look sharp.
The other composites
Indicator
What it combines
How to read it
HDI
Life expectancy, schooling (two measures), GNI per capita at PPP
0 to 1; higher is better; three equally weighted dimensions
IHDI
The same three, each discounted for inequality
0 to 1; always at or below the HDI; the gap is the loss
GII
Reproductive health, empowerment, labour market participation
0 to 1; lower is better; 0 means full gender equality
HPI
Wellbeing, life expectancy, ecological footprint
Rewards countries delivering long, happy lives on a small footprint
The direction trap. HDI, IHDI and HPI all reward a higher number. The GII rewards a lower one. Getting this backwards in an exam turns a correct analysis into a wrong conclusion.
The HPI is the odd one out and worth a sentence in any essay about sustainability. It treats resource use as a cost rather than an achievement, which is why some middle-income countries outrank very rich ones. That is a deliberate design choice, not an error.
Worked examples
WORKED EXAMPLE 1
Country P has an HDI of 0.750 and an IHDI of 0.600. Country Q has an HDI of 0.900 and an IHDI of 0.855. Calculate the loss to inequality in each and comment. [4]
Country P(0.750 − 0.600) ÷ 0.750 × 100 = 20.0%Country Q(0.900 − 0.855) ÷ 0.900 × 100 = 5.0%Comment
Q is more developed on the average measure and also shares that development far more evenly. P loses a fifth of its potential human development to unequal distribution.
P loses 20.0%, Q loses 5.0%always divide by the HDI, not by the IHDI — the loss is a share of what was possible
WORKED EXAMPLE 2
Explain why the HDI gives a better picture of development than GDP per capita alone. [4]
Point 1: it is multidimensional
Development is about lives, not just output. The HDI adds health and education to income.
Point 2: the components can move apart
A country can raise GDP per capita through one export industry while life expectancy and schooling stagnate. The HDI catches that; GDP does not.
Point 3: income is capped in the index
Extra income counts for less at higher levels, reflecting diminishing returns to income in terms of wellbeing.
The limit
It is still an average, so it says nothing about inequality — which is precisely why the IHDI exists.
Broader than GDP, but still blind to distribution on its own
💡 Exam tip
Learn the HDI’s three dimensions and four indicators. Listing them precisely is straightforward marks.
Say equal weighting. It is a specific feature examiners look for.
Quote the HDI as GNI per capita at PPP, not GDP. That detail is often the difference between two answers.
If given both HDI and IHDI, calculate the loss rather than just noting the gap.
Remember the direction of the GII when you interpret it.
⚠ Common mix-up
The HDI is not a measure of happiness. That is closer to the HPI.
The IHDI is not a separate ranking of inequality. It is the HDI after a discount.
A high GII is bad. The scale runs the opposite way to the others.
The HDI uses GNI, not GDP. Small wording difference, real mark difference.
Composite does not mean complete. The HDI ignores freedom, safety and the environment entirely.
Up next: Comparing the Different Approaches — how to weigh single against composite indicators when a question asks you to judge which measure to trust.
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