IB Economics SLTopic 4 — The Global EconomyPaper 2Core skill~9 min read
Composite Indicators: HDI and Beyond
If one indicator is too narrow, combine several. That is the idea behind the Human Development Index and the family of measures that followed it. Each one widens the picture, and each one still leaves something out, which is why examiners like asking about them.
📘 What you need to know
A composite indicator combines several single indicators into one number.
The Human Development Index (HDI) was developed by the United Nations and combines three dimensions.
Those are health (life expectancy at birth), education (mean years of schooling plus expected years of schooling) and income (GNI per capita at PPP).
Each dimension carries equal weight, and the score runs from 0 to 1. Closer to 1 means more developed.
Bands: below 0.550 is low, 0.550 to 0.699 medium, 0.700 to 0.799 high, 0.800 and above very high.
The IHDI adjusts the HDI for inequality. It equals the HDI when there is none and falls further below as inequality rises.
The GII measures gender inequality through reproductive health, empowerment and the labour market. Here a lower score is better.
The HPI measures sustainable wellbeing, rewarding countries that deliver long, happy lives with a small ecological footprint.
How the HDI is built
Notice what is not in there: no measure of inequality, no measure of the environment, no measure of political freedom. Those gaps are what the later indices were built to fill.
HDI score
Category
What it broadly means
Below 0.550
Low development
Short lives, limited schooling, low incomes
0.550 to 0.699
Medium development
Improving on all three, gaps remain
0.700 to 0.799
High development
Long lives and widespread schooling
0.800 and above
Very high development
Strong on all three dimensions at once
WORKED EXAMPLE
A country has an HDI of 0.742. State its category and explain what the score is telling you. [3]
Step 1: place it in a band
0.742 falls between 0.700 and 0.799, so it is high development.
Step 2: say what the number is made of
It combines life expectancy, schooling and income at PPP, each with equal weight.
Step 3: say what it does not tell you
It is an average, so it cannot show whether those gains are shared. A country with the same score could be far more unequal.
High development, but an averageAdding the limitation is what turns a one-mark statement into a three-mark answer.
Adjusting for inequality: the IHDI
Created in 2010, the IHDI asks a sharper question: what is the level of human development that people actually experience, once you allow for how unevenly health, education and income are spread? If everyone had the same, the IHDI would equal the HDI. In reality it always sits below, and the size of the gap is the point.
The percentage gap between HDI and IHDI is published as the loss in potential human development due to inequality. It is one of the most quotable figures in this whole topic.
WORKED EXAMPLE
Country B has an HDI of 0.780 and an IHDI of 0.585. Calculate the loss due to inequality and comment. [3]
Step 1: the difference0.780 − 0.585 = 0.195Step 2: as a percentage of the HDI(0.195 ÷ 0.780) × 100 = 25%Step 3: interpret it
A quarter of the country’s potential human development is lost because health, education and income are unequally distributed.
A 25% loss to inequalityDivide by the HDI, not by the IHDI. The question is how much of the potential was lost, so the potential is the starting value.
The other composite measures
Index
What it combines
How to read it
HDI
Life expectancy, schooling, GNI per capita at PPP
0 to 1; higher is better
IHDI
The HDI adjusted for how unequally each is spread
Always at or below the HDI; the gap is the loss
GII
Reproductive health, empowerment, the labour market
0 to 1; lower is better
HPI
Wellbeing, life expectancy, ecological footprint
Rewards long happy lives with a small footprint
Watch the direction of the GII. Every other index on this page rewards a high score; the Gender Inequality Index rewards a low one, because it is measuring the inequality itself rather than the achievement. Getting that backwards in a data question is an easy mark to lose.
The Happy Planet Index is the odd one out in a useful way. Because it divides wellbeing and long life by the ecological footprint needed to produce them, a wealthy country with very high consumption can rank surprisingly low, while a middle-income country with a light footprint can rank near the top. Whether you think that is a flaw or the whole point depends on what you think development is for, which is exactly the kind of judgement a 15-mark question wants.
WORKED EXAMPLE
Plan: “Evaluate the usefulness of the HDI as a measure of economic development.” [15]
1 Set-up
Define the HDI and name its three dimensions and its 0 to 1 scale.
2 The case that it is useful
Broader than income alone; combines health, education and income; comparable across countries and over time; simple enough to be understood and used; published annually by the UN.
3 The case against
It is an average, so it hides inequality; it ignores the environment entirely; nothing on political freedom, safety or human rights; equal weighting is a value judgement; data quality is weakest where it matters most.
4 The alternatives
The IHDI fixes the inequality gap, the GII adds gender, the HPI adds sustainability. None of them covers everything either.
5 Judgement with a reason
“The HDI is more useful than GDP per capita and less useful than the set of measures alongside it. It works well as a headline comparison, but for judging whether development is shared or sustainable it needs the IHDI and an environmental measure beside it.”
Useful for what, exactlyFor any “evaluate this measure” question, ask what it was designed to do before deciding whether it does it well.
💡 Exam tip
Name all three HDI dimensions and the indicator used for each. Vague answers say “health and education” and stop.
Learn the four bands. A data question can ask you to categorise a score in one line.
Use the HDI minus IHDI gap as evidence of inequality. It is precise and very few students use it.
Remember the GII runs the other way. Say so explicitly when you use it.
Criticise the HDI for what it leaves out: inequality, the environment, freedom and safety.
Pair composite with single indicators. The best answers use both and say why.
⚠️ Common mix-up
Thinking the HDI includes inequality. It does not; that is what the IHDI is for.
Reading a low GII as bad. A low score means greater gender equality.
Assuming the HDI measures sustainability. There is nothing environmental in it at all.
Treating the score as a percentage. It is an index between 0 and 1.
Saying composite indicators solve everything. They widen the picture, they do not complete it.
Comparing scores across different years’ reports without checking that the method has not changed.
That completes Topic 4, from why countries trade to how their development is measured. Up next: What Paper 1 Asks You to Do — turning all of it into marks, starting with the shape of the paper itself.
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