Multistage method of measuring human development through improved directional distance formulation of data envelopment analysis: application to Indian States

United Nations Development Program (UNDP) introduced the Human Development Index (HDI) in 1990 to measure human development of its member countries. Since then United Nations (UN) has been publishing HDI annually in its Human Development Report. The HDI is a composite index calculated on the basis of three major dimensions of human development; longevity, educational attainment and standard of living. To address the issue of regional disparities among the states in the countries in terms of human well beings a method to measure extent of disparity based on optimum combination of the indicators is required. In this paper we reassess the HDI through directional distance formulation of data envelopment analysis (DEA) of Indian states. Here, we re-estimate the HDI by finding relative efficiency of different states of India. Human development is benchmarked on the basis of empirical observations of states with best practice. A new estimation of HDI is made under the same assumptions as that of the original HDI. When the new measure of human development is compared with original HDI, it is found that they are highly correlated. Further, a new procedure, multistage reference technology is introduced to improve the performance of backward states in a stepwise approach. The paper develops a new method for computing HDI that aims at reducing regional disparities systematically.