Consequences of Data Error in Aggregate Indicators: Evidence from the Human Development Index

36 Pages Posted: 23 May 2008

See all articles by Hendrik Wolff

Hendrik Wolff

University of Washington - Department of Economics; IZA Institute of Labor Economics

Howard G. Chong

University of California, Berkeley

Max Auffhammer

University of California, San Diego (UCSD) - Department of Economics; University of California, Berkeley - Department of Agricultural & Resource Economics

Date Written: February 2008

Abstract

This paper examines the consequences of data error in data series used to construct aggregate indicators. Using the most popular indicator of country level economic development, the Human Development Index (HDI), we identify three separate sources of data error. We propose a simple statistical framework to investigate how data error may bias rank assignments and identify two striking consequences for the HDI. First, using the cutoff values used by the United Nations to assign a country as 'low', 'medium', or 'high' developed, we find that currently up to 45% of developing countries are misclassified. Moreover, by replicating prior development/macroeconomic studies, we find that key estimated parameters such as Gini coefficients and speed of convergence measures vary by up to 100% due to data error.

Keywords: measurement error, international comparative statistics

JEL Classification: O10, C82

Suggested Citation

Wolff, Hendrik and Chong, Howard G. and Auffhammer, Maximilian and Auffhammer, Maximilian, Consequences of Data Error in Aggregate Indicators: Evidence from the Human Development Index (February 2008). IZA Working Paper No. 3346, Available at SSRN: https://ssrn.com/abstract=1135922 or http://dx.doi.org/10.2139/ssrn.1135922

Hendrik Wolff (Contact Author)

University of Washington - Department of Economics

Box 353330
Seattle, WA 98195-3330
United States

IZA Institute of Labor Economics

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

Howard G. Chong

University of California, Berkeley ( email )

310 Barrows Hall
Berkeley, CA 94720
United States

Maximilian Auffhammer

University of California, San Diego (UCSD) - Department of Economics ( email )

9500 Gilman Drive
La Jolla, CA 92093-0508
United States
858-534-3383 (Phone)
858-834-7040 (Fax)

University of California, Berkeley - Department of Agricultural & Resource Economics ( email )

Berkeley, CA 94720
United States

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