Composite indices of development

Abstract

This paper reviews the literature on composite (and multidimensional) indices of development. 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 they emerged, they were also criticized. Points of debate related to in the selection of dimensions and indicators include parsimony vs. comprehensiveness, redundancy vs. robustness, input vs. output and stock vs. flow variables. Other points refer to the implicit trade-offs between the components, affected by the normalization and weighting of indicators as well as by the aggregation function. However, as long as the purpose of the index is specified, the indicators and weights are justified, the roads not taken are explicit, the index has axiomatic foundations, robustness tests are performed, and the index is open to public scrutiny, composite (and multidimensional) indices can prove invaluable in development studies