This paper supports the proposition that the indexes of technological achievement and of human development exhibit similar information validity and similar country rankings, thus questioning the need for the existence of two indexes rather than one.human development index

Basu Sharma

Francisco Arcelus

Gopalan Srinivasan

English

Research Papers in Economics

Assessing the information content of the technology
achievement index in the presence of the human development
index 
Francisco Arcelus
University of New Brunswick
Basu Sharma Gopalan Srinivasan
University of New Brunswick University of New Brunswick
Abstract
This paper supports the proposition that the indexes of technological achievement and of
human development exhibit similar information validity and similar country rankings, thus
questioning the need for the existence of two indexes rather than one.
Financial support to the first and third mentioned authors from the Natural Sciences and Engineering Research Council of
Canada for the completion of this research and the computational assistance of Runu Kumari are gratefully acknowledged.
Citation: Arcelus, Francisco, Basu Sharma, and Gopalan Srinivasan, (2005) "Assessing the information content of the
technology achievement index in the presence of the human development index." Economics Bulletin, Vol. 15, No. 4 pp. 1−5
Submitted: January 14, 2005.  Accepted: January 28, 2005.
URL: http://www.economicsbulletin.com/2005/volume15/EB−05O30001A.pdf   
1. Introduction 
 
The 2001 Human Development Report (UNDP, 2001) presented a new eight-factor measure of 
technological innovation, called the Technology Achievement Index (heretofore, TAI). The stated 
purpose (UNDP, 2001: 39) of the TAI was to capture the ability of countries to create new 
products and processes through research and development, to diffuse new and old technology in 
production and consumption and to develop the human skills for technological learning and 
innovation. Simultaneously, UNDP (2001) also issued the yearly Human Development Index 
(HDI), a composite measure of health, knowledge and wealth, widely used as a barometer of a 
nation’s progress in human development. The purpose of this note is two-fold, namely to evaluate 
(i) whether the TAI  has any information content over and above that provided by the more 
comprehensive HDI; and (ii) whether all eight factors included in the TAI are really needed for its 
composition or there exists enough redundancy among them to justify some factor pruning. 
 
The organization of this note is as follows. A brief description of the computational procedure to 
construct both indices appears in section 2. This is followed by a series of statistical tests 
designed to test the two propositions embedded in the dual purpose of the note. A Conclusions 
section completes the note. 
 
 
2. The nature of the TAI and of the HDI 
 
The process to calculate the TAI appears in Technical Note 2 of UNDP (2001). Two equally 
weighted indicators measure each of the four equally weighted dimensions used to generate the 
TAI. The components of technology creation (TC) are PGR (the number of patents granted per 
capita) and RRL (the receipts of royalties and license fees from abroad per capita). IH (the 
number of Internet hosts per capita) and TEX (high and medium technology exports as a share of 
all exports) measure DN, the diffusion of new technology. TMC (logarithm of telephones per 
capita, mainline and cellular) and ELC (logarithm of electricity consumption per capita) do 
likewise for DO, the diffusion of old technology. Finally, MYS (mean years of schooling in the 
population aged 15 and above) and TSR (gross tertiary science enrolment ratio) determine HS, the 
human-skills dimension. Details on data sources appear on UNDP (2001, p. 47). These eight 
indicators yield their respective achievement indexes, obtained by subtracting from each 
observed value the minimum for the respective indicator and then dividing the difference by its 
range (maximum – minimum). The average of the eight achievement indexes measures the TAI 
and the average of their corresponding pair of achievement indexes yields each dimension’s 
index.  
 
It should be pointed out that justification for considering the TAI as an index of technological 
progress does not yet exist. Irrespective of the extant gamut of theoretical and empirical evidence 
for the selection of one or more of the eight indicators, no study still exists corroborating the 
UNDP (2001) assertion of TAI as a comprehensive measure. Hence, doubts about the claim exist, 
especially when considering that all indicators are input related and none measure technology 
performance. 
 
On the other hand, the HDI reflects the mean achievement of a country in three basic dimensions 
of development – longevity, knowledge and purchasing power. The first relates to the attainment 
  1   
of long-life expectancy in good health, as measured by the life expectancy at birth. The second 
quantifies a country’s educational attainment through a knowledge index composed of “the adult 
literacy rate (with two-thirds weight) and the combined primary, secondary and tertiary gross 
enrolment ratio (with one-third weight).” (UNDP, 2004: 259). The third calculates the gross 
domestic product (GDP) per capita of each country, in US$, with the purchasing power parity 
used to convert the various national currencies into US$. Such index operates “as a surrogate for 
all the dimensions of human development not reflected in a long and healthy life and in 
knowledge.” (UNDP, 2004: 259). As before, each index is obtained as the ratio of the observed 
value minus the minimum divided by the range. The sum of the three indexes yields the HDI. 
 
Justification for considering HDI as a potential index of technological progress reflects the strong 
nexus between human development and technology, irrespective of the doubts about TAI. Such 
nexus is clearly stated in the rationale given by UNDP (2002) to create the TAI: “digital, genetic 
and molecular breakthroughs are pushing forward the frontiers of how people can use technology 
to eradicate poverty. These breakthroughs are creating new possibilities for improving health and 
nutrition, expanding knowledge, stimulating economic growth and empowering people to 
participate in their communities.” (UNDP, 2001: 27) 
 
In addition, innumerable studies evidence the important influence of technological advancements, 
especially in information systems, upon global development. Mention of three manifestations of 
this impact suffices to make the point. First, there are indications (e.g. Nasierowski and Arcelus, 
2003) that innovation has allowed countries leapfrogging (e.g. Barro and Sala-i-Martin, 1995) 
into modern service sectors without having to go through the normal manufacturing stage. In 
addition, high levels of technological development act as strong magnets in attracting foreign 
direct investment (Gani and Sharma, 2003; Sharma and Gani, 2004). Further, the development 
divide between rich and poor countries may be partially attributable to the quality of each 
country’s information base (e.g. Rodriguez and Wilson, 2000). Gani and Sharma (2003) present a 
recent review of this rather voluminous literature. 
 
 
3. The empirical evidence  
 
This section presents an empirical evaluation of the two hypotheses subject of this note. In terms 
of the magnitude of the information content of TAI, given HDI, the evidence indicates that the 
ability of the TAI to provide additional information over and above that provided by the HDI is 
questionable at best. This can be readily seen by observing that the Spearman correlation 
coefficient between the two indexes is .958 and between TAI and the three HDI dimensions, life 
expectancy, educational attainment and wealth, .873, .919 and .948, respectively. Further, the p-
values are under 10
-4 in all cases. Hence, the hypothesis of differences in the country rankings 
provided by these indexes can be rejected 
 
Further, the evidence in favour of a great degree of redundancy embedded in the computation of 
the TAI is also overwhelming. Three types of statistical tests substantiate this assertion. First, the 
Spearman correlations between the TAI and its eight components, PGR, RRL, IH, TEX, TMC, 
ELC, MYS and TSR, .862, .802, .928, .784, .958, .956, .882, and .891, respectively; between TAI 
and its four dimension, TC, DM, DO and HS, 0871, .894, .970 and .948. The corresponding p-
values are also under 10
-4 in all cases. These results underscore once again the similarity in 
  2   
country rankings obtained with either TAI or through any of their components. Second, the 
regression results of Table 1, with one of the TAI  indicators as dependent variable and the 
remaining as explanators, reveal a great degree of multicolinearity among them. This suggests the 
advisability of some pruning in the set of indicators selected for the construction of the index. 
Third, further unsuccessful efforts to single out distinguishing factors led to a principal 
components analysis of the eight TAI indicators. Only one factor exhibited an eigenvalue greater 
than 1 (5.08 in this case) and explained at least 10% of the variation (63.5%) in the data, the usual 
two criteria for factor selection (e.g. Hair, et.al., 1998). However, this factor included all the eight 
indicators, since all had factor loadings in excess of .85. 
 
 
Table 1: Stepwise regression results (p-values in parenthesis) 
  
Dependent Variable 
TAI 
indicators 
 
PGR 
 
RRL 
 
IH 
 
TEX 
 
TMC 
 
ELC 
 
MYS 
 
TSR 
 
Constant 
 
-1.08 
(.017) 
 
-.032 
(.100) 
 
-.032 
(.648) 
 
-.187 
(.056) 
 
.174 
(.000) 
 
-.103 
(.001) 
 
-.039 
(.487) 
 
-.248 
(.000) 
 
PGR 
 
 
   
.477 
(.006) 
    
 
RRL 
   
.666 
(.000) 
 
.327 
(.097) 
    
 
IH 
  
.403 
(.000) 
   
-.072 
(.085) 
  
.311 
(.000) 
 
.346 
(.000) 
 
TEX 
 
.225 
(.001) 
 
.130 
(.004) 
      
 
TMC 
   
-.264 
(.073) 
 
.647 
(.000) 
  
.959 
(.000) 
 
.728 
(.000) 
 
.634 
(.000) 
 
ELC 
     
.790 
(.000) 
   
 
MYS 
 
.146 
(.085) 
  
.402 
(.002) 
   
.142 
(.023) 
  
 
TSR 
   
.297 
(.007) 
  
.142 
(.003) 
   
 
R
2 
 
 
.545 
 
.739 
 
.812 
 
.732 
 
.968 
 
.966 
 
.875 
 
.810 
  3 
 
 
4
 
 
4. Some concluding comments 
 
  The analysis of this note has produced two basic insights. First, the HDI and the TAI exhibit 
similar information validity and yield similar country rankings. Hence, both indexes provide 
equivalent measures of social and economic well-being and the TAI does not add information to 
HDI. This insight does not question the usefulness of either index. Rather, it merely questions the 
need to use both. Second, the eight indicators are not needed in the creation of the TAI, given the 
high degree of redundancy among them. As a result, a natural suggestion for further research 
includes additional work on improving the TAI, before it can be accepted over the HDI as a proxy 
for technological achievement. 
 
 
References 
 
Barro, R and X. Sala-i-Martin (1995) Economic Growth, McGraw-Hill. 
 
Gani, A. and B. Sharma (2003) “The Effects of Information Technology Achievement and 
Diffusion on Foreign Direct Investment” Prospectives on Global Development and Technology 2 
(2), 1-18. 
 
Hair, J.F., R.E. Anderson, R.L. Tatham and W.C. Black (1998) Multivariate Data Analysis, 
Prentice Hall. 
 
Nasierowski, W. and F.J. Arcelus (2003) “On the Efficiency of National Innovation Systems” 
Socio-Economic Planning Sciences 37, 215-234. 
 
Rodríguez, F. and E.J. Wilson, (2000) “Are Poor Countries Losing the Information Revolution?” 
INFODEV WORKING PAPER  (http://www.infodev.org/library/working.htm) 
 
Sharma, B. and A. Gani (2004) “The effects of Foreign Direct Investment on Human 
Development” Global Economy Journal 4 (2), Art. 9  (http://www.bepress.com/gej/vol4/iss2/9). 
 
UNDP (2001) Human Development Report 2001 (http://hdr.undp.org/). 
 
UNDP (2004) Human Development Report 2004 (http://hdr.undp.org/). 

Are Poor Countries Losing the Information Revolution?”

Human Development Report

Multivariate Data Analysis,

Assessing the information content of the technology achievement index in the presence of the human development index

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