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Using Spatial Factor Analysis to Measure Human Development

56 Pages Posted: 31 Aug 2016 Last revised: 3 Sep 2016

Qihua Qiu

Georgia State University - Department of Economics

Jaesang Sung

Georgia State University, Andrew Young School of Policy Studies, Department of Economics, Students

William Davis

Georgia State University - Department of Economics

Rusty Tchernis

Georgia State University - Department of Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

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Date Written: August 18, 2016

Abstract

In this paper, we propose a Bayesian factor analysis model with the purpose of serving as an alternate approach to calculating the UNDP’s Human Development Index, as well as providing a general methodology which can be used to augment existing indices or build new ones. In addition to addressing several potential issues of the official HDI, we also estimate an alternative “green HDI” index by adding a new environmental variable, and build a novel MDG index as an example of constructing a new index with a more complex variable structure. Under our methodology, we find the “living standard” dimension provides a greater proportional contribution to human development than it is assigned by the official HDI while the “longevity” dimension provides a lower proportional contribution. The results also show considerable levels of general disagreement when compared to the ranks of the official HDI. We show that incorporating an environmental variable increases the amount of disagreement between model based ranks and the official HDI, but decreases the amount of uncertainty associated with model ranks. In addition, we report the sensitivity of our methods to the choice of functional form and data imputation procedures.

Keywords: Human Development Index, Factor Analysis

JEL Classification: O15, O57

Suggested Citation

Qiu, Qihua and Sung, Jaesang and Davis, William and Tchernis, Rusty, Using Spatial Factor Analysis to Measure Human Development (August 18, 2016). Andrew Young School of Policy Studies Research Paper Series No. 16-10. Available at SSRN: https://ssrn.com/abstract=2832209 or http://dx.doi.org/10.2139/ssrn.2832209

Qihua Qiu

Georgia State University - Department of Economics ( email )

P.O. Box 3992
Atlanta, GA 30302-3992
United States

Jaesang Sung

Georgia State University, Andrew Young School of Policy Studies, Department of Economics, Students ( email )

35 Broad Street
Atlanta, GA
United States

William Davis

Georgia State University - Department of Economics ( email )

P.O. Box 3992
Atlanta, GA 30302-3992
United States

Rusty Tchernis (Contact Author)

Georgia State University - Department of Economics ( email )

P.O. Box 3992
Atlanta, GA 30302-3992
United States

HOME PAGE: http://www2.gsu.edu/~ecort

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

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