Composite indices emerged as an alternative to using a portfolio of indicators, whose scattered information is sometimes difficult to grasp, or simply the GNP per capita, which often does not correlate well with development goals. As indices emerged, they were also criticized. The debate revolved around several issues. First, the selection of dimensions and indicators. Second, their correlation (and the trade-off between redundancy and robustness), their type (input vs. output; stock vs. flow). Finally, the normalization procedure, weighting, and aggregation of the elements. Nonetheless, indices can prove invaluable in development studies if they meet the following conditions: a) clear justification of the purpose of the index and its indicators and weights; b) the direction in which the index will move under specific transformations is axiomatically stated; c) robustness tests are performed, and d) the index is open to public scrutiny and revision.
— Suggested Readings
Alkire, Sabina and Maria E. Santos. (2010). “Acute Multidimensional Poverty: A New Index for Developing Countries,” OPHI Working Paper 38, Oxford Poverty & Human Development Initiative (OPHI), Department of International Development, University of Oxford.
Asselin, Louis-Marie, Jean-Bosco Ki, and Vu Tuan Anh. (2009). Analysis of multidimensional poverty theory and case studies. Dordrecht: Springer Verlag. (Résumé en français disponible ici)
Decancq, Koen and Maria A.Lugo (2012). “Weights in Multidimensional Indices of Wellbeing: An Overview,” Econometric Reviews, 32(1): 7–34.
Dercon, Stefan. (2006). “Poverty Measurement,” in D. A. Clark (ed.), The Elgar Companion to Development Studies. Cheltenham and Northampton: Edward Elgar, 457–64.
Duclos, Jean-Yves, and Abdelkrim Araar. (2006). Poverty and equity measurement, policy and estimation with DAD. New York: Springer. (Résumé en français disponible ici)
Foster, James E., Luis F. Lopez-Calva and Miguel Szekely (2005). “Measuring the Distribution of Human Development: Methodology and Application to Mexico,” Journal of Human Development, 6(1): 5–30. [250MB]
Lustig, N. (2011). Multidimensional indices of achievements and poverty: what do we gain and what do we lose? An introduction to JOEI Forum on multidimensional poverty. Journal of Economic Inequality, 9(2), 227-234.
McGillivray, Mark (ed) (2007). Human Wellbeing: Concept and Measurement. Basingstoke: Palgrave Macmillan. (chapters 5 and 7)