A Household-Based Distribution-Sensitive Human Development Index: An Empirical Application to Mexico, Nicaragua and Peru

In measuring human development, one of the main concerns relates to the inclusion of a measure that penalizes inequalities
in the distribution of achievements across the population. Using indicators from nationally representative household surveys
and census data, this paper proposes a straightforward methodology to estimate a household-based distribution-sensitive human
development index aggregated through generalized means. The evidence shows that the losses in human development due to inequality
reach up 22, 29 and 57% in Mexico, Peru and Nicaragua, respectively. Among dimensions, the loss in the income index reaches
up 61% in Nicaragua, while the education index appears as the most sensitive in the case of Mexico and Peru, with a percentage
of loss between 38 and 48%. The importance of household-level calculations is highlighted when we compare the indices computed
from the entire distribution with those existing indices computed for quintiles of the distribution, which minimizes the losses
due to inequality. Overall, the estimations evidence a higher sensitivity of the index to inequality, and therefore an important
space for public action to reduce inequality that could involve positive development returns.