Why was the “cap” on the income component of the HDI lifted, and what was the effect?
Income is instrumental to human development, but the contribution diminishes as incomes rise. GDP in the previous HDI was capped at $40,000 and was logarithmically transformed. The original HDI placed this cap on income to reflect the view that beyond some upper set amount, additional income does not expand human development opportunities. A further consideration was that while literacy rates and school enrolment and life expectancy have ‘natural’ caps (100 percent, mortality limits, and so on forth), the highest incomes would continue rising, skewing the upper ranks of the HDI to increasingly income-driven values and rankings over time. There are other reasons why the cap on income is lifted. First, countries were increasingly bunched at the cap. This meant that we could not distinguish among an increasing number of countries at the top of the distribution. In 2007, the GDP of 13 countries exceeded the cap. Thus, the discriminatory power of capped income has been weakened, especially
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