Quantitative Methods in Social Sciences (E774): Review Session II

1. Quantitative Methods inSocial Sciences (E774): Review Session II Dany Jaimovich September 30, 2009

2. Plan for today • Re-review • HDI • Alternative indexes • Do we need these indexes? • The International Reports

3. Re-review • Our basic idea: • Motivation vs Research question • Normative vs Positive questions

4. Re-review • What is development? • How to measure development? • At what level? • How do we formulate research questions about development?

5. Re-review • The MDG as development… • ◦Propaganda • ◦Critics … “The Road to Heaven is Paved with Good Intentions”

6. Human Development Index(HDI) • Since 1990, one of the most recognized indicators of development. • A lot of publicity • Incentives comparison and “competition among countries” • Widely available, allowing cross-country comparisons…. But be careful!

7. Human Development Index(HDI) • Pioneered by Mahbub ul Haq, is the core indicator elaborated by UNDP. • The foundations are based in Amartya Sen’s ideas: development as freedom and the capabilities approach (different from basic needs) • Provides a annual rank of countries according to the HDI.

8. Human Development Index(HDI) • Based in three fundamental aspects of development: • Life expectancy at birth, as an index of population health and longevity • Knowledge and education, as measured by the adult literacy rate (with two-thirds weighting) and the combined primary, secondary, and tertiary gross enrollment ratio (with one-third weighting). • Standard of living, as measured by the natural logarithm of gross domestic product per capita at purchasing power parity.

9. Human Development Index(HDI) • How to put this three variables together in one index? The original units are years, percentages and money…. • There is a need to STANDARDIZE: • x-index = • E.g, Life Expectacy=

10. Human Development Index(HDI) • The final index is the simple average of the three components • Country categories: • >0.8, High Development • 0.5<HDI<0.79, Medium Development • <0.5, Low Development

11. Human Development Index(HDI)

12. Human Development Index(HDI)

13. Human Development Index(HDI)

14. Human Development Index(HDI) • How to define max and min?: • Relative to the sample • Relative to defined fixed values • Why to chose one of these options?

15. Human Development Index(HDI) • How to incorporate GDP? • Log is very smooth: • GDPpc Luxembourg=$60000, log(GDPpc)=4.78 • GDPpc Malawi=$667, log(GDPpc)=2.83 • “GDPpc target” failed:

16. Human Development Index(HDI) • Critics… • Why these three indicators and not others???.... Sustainability? HRs? Inequality? Consistency • Compensations: less education, but more income? • But… changes in methodology do not allow comparison in time. Data are consistent in cross-section but no in the time series. • Data quality… how reliable are national sources? • National Averages hide within country variation

17. Alternative Indexes • An alternative index provided by UNDP is Human Poverty Index (HPI), aimed to measure poverty related issues. • There are two different for developed and developing countries:

18. Alternative Indexes • HPI-1 = • P1: Probability at birth of not surviving to age 40 (times 100)P2: Adult illiteracy rateP3: Unweighted average of population without sustainable access to an improved water source and children under weight for ageα: 3

19. Alternative Indexes • HPI-2 = • P1: Probability at birth of not surviving to age 60 (times 100)P2: Adults lacking functional literacy skillsP3: Population below income poverty line (50% of median adjusted household disposable income)P4: Rate of long-term unemployment (lasting 12 months or more)α: 3

20. Alternative Indexes • Gender-related Development Index (GDI): HDI adjusted by gender differences. • The Gender Empowerment Measure (GEM) combines inequalities in three areas: • political participation and decision making • economic participation and decision making • power over economic resources.

21. Alternative Indexes • The Environmental Performance Index (EPI) is a method of quantifying and numerically benchmarking the environmental performance of a country's policies.

22. Alternative Indexes • The Gross National Happiness (GNH) index is generated to reflect the happiness and general well-being of the Bhutanese population more accurately and profoundly than a monetary measure: • 1.Psychological Well-being • 2.Time Use • 3.Community Vitality • 4.Culture • 5.Health • 6.   Education • 7.Environmental Diversity • 8.Living Standard • 9.Governance • GNH = 1- Average squared distance from cutoff

23. Are those indexes useful??? • Cross-country analysis • Macro vs Micro (Meso) development • Right or perverse incentives?

24. International Reports • HDR • WDR • IPES • UNCTAD

25. International Reports • Sarkozy commision: • Summarize the critics to GDP • Right measurement: • Consider leisure. • General Production vs Household Consumption • Inequality: Joint Distribution of development indicators. Mean vs Median. • Susteinability.