2021/42 LEM Working Paper Series

On Some Problems of Using the Human Development Index in Economic History

Nicola Amendola, Giacomo Gabbuti and Giovanni Vecchi
Human development index; economic wellbeing; composite indices; living standards; social welfare functions; Italy.

  JEL Classifications
N01, N3, O15
The Human Development Index (HDI) has attracted increasing interest among economic historians during the last 30 years. This paper provides a theoretical framework that shows that the HDI is equivalent to a paternalistic social welfare function: this implies that all alternative HDI formulas used by economic historians are a representation of their ethical systems. The problem is neither the choice of the dimensions included in the HDI, nor the choice of the weighting scheme, but the lack of consistency with standard economic theory. A key consequence is that with HDI, 'anything goes'. Using Italy 1861-2016 as a case study, we show how given the same data, and identical choices for the dimensions and weights defining the HDI, the interpretation of the Italians' living standard long-run evolution is entirely driven by the analyst's preferences. We conclude speculating on possible solutions to reconcile the use of HDI to assist historical analysis.
download pdf