Composite indices of development

This chapter 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 relate to the selection of dimensions and indicators, their correlation (and the trade-off between redundancy and robustness), their type (input versus output and stock versus flow), and the normalization procedure, weighting, and aggregation of the components. However, as long as the purpose of the index and its indicators and weights are clearly specified and justified, the direction in which the index will move under specific transformations is axiomatically stated, robustness tests are performed, and the index is open to public scrutiny and revision, composite (and multidimensional) indices can prove invaluable in development studies