So how do we measure the level of welfare in a country? The traditional approach has been to look at the average incomes of its citizens. This is not a straightforward task since we need to make all sorts of adjustments for different exchange rates and relative prices of goods in each individual country. Even if we can sort these problems out satisfactorily, then it is still arguable that income-based measures focus too much on material wealth and fail to account for important factors such as health and the level of education.
In an attempt to deal with these issues the United Nations (UN) publishes the human development index (HDI). This attempts to provide a measure of welfare which incorporates real material incomes, health of the population and levels of education in a single index. In this column we will investigate how the HDI is constructed and how it varies across different countries. We will also examine how it has changed over time and assess whether different countries are converging towards a common level of development.
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