Journal zyxwvutsr of International Development: Vol. zyxw 6, No. zyxw 4, 415-435 (1994) zyx THEORY AND MEASUREMENT OF LIVING LEVELS: SOME EMPIRICAL RESULTS FOR THE HUMAN DEVELOPMENT INDEX D. P. DOESSEL and RUKMANI GOUNDER Department of Economics, The University zyxw of Queensland, Australia. Abstract: In 1990 the United Nations Development Programme (UNDP) published the human development index (HDI), a new measure that provides a means by which inter-country and intertemporal comparisons of living levels can be undertaken. This paper has three objectives. Firstly, the various concepts and measures that can be used for inter-country and intertemporal comparisons are described so as to put this new measure in perspective with respect to the existing literature. Secondly, the conceptual basis of the HDI is described and it is shown that the index actually calculated by UNDP is, in fact, only one of three possible measures of the general conception of human development stated by UNDP. Thirdly, empirical analysis of the two more important measures of the HDI indicates that there are some important differences between the measures. Absolute values and the ranking characteristics of the three measures of the HDI are examined. These differences may be quite important if the HDI is used as an explanatory variable in economic or social analyses. 1 INTRODUCTION Income has long been used in economics as a measure of welfare. In part this emphasis comes from Pigou (1932, p. 11) who, in The Economics of Welfare, defined economic welfare as that part of social welfare that can be ‘brought directly or indirectly into relation with the measuring-rod of money’. This perspective still permeates the literature in welfare economics (Mishan, 1981). With the development of national accounting in the 1930s, per capita national income came to be used as a means of making international comparisons. Clark’s (1940) seminal The Conditions of Economic Progress showed the massive per capita income differences that existed between countries and, in part, provided the impetus for the study of undeveloped economies that has been a feature of the economic literature in the post-World War I1 era (Arndt, 1990). It has long been recognized that national accounting concepts do not capture all dimensions of economic welfare, e.g. quality of life, social justice, etc. Further- more, as conventionally computed, national accounting measures have a number of significant deficiencies. Firstly, there is the issue of non-marketed goods. Although CCC 0954- 1748/94/040415-2 1 zyxwvut 0 1994 by John Wiley zyxwvu & Sons, Ltd.