Beyond HDI and Per Capita Income: Constructing a Composite Economic Development Index (CEDI) for a Multi dimensional Assessment
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The measurement of economic development remains central to both academic inquiry and policy formulation. Traditional indicators such as Per Capita Income (PCI) and the Human Development Index (HDI) have long dominated development discourse, yet their limitations—ranging from mono-dimensionality to insensitivity to institutional and structural change—have increasingly constrained their utility. This paper introduces the Composite Economic Development Index (CEDI), a novel, multidimensional framework that captures the complex, interrelated drivers of sustainable economic progress. Unlike PCI, which reflects only in come averages, and HDI, which narrowly aggregates education, income, and life expectancy, the CEDI encompasses six core dimensions: Economic Structure and Diversification; Institutional and Governance Quality; Human Capital and Health; Technological Readiness and Innovation; Environmental Sustainability; and Employment and Labour Market Inclusion. The construction of the CEDI employs Principal Component Analysis (PCA) to derive empirically grounded weights, thereby addressing methodological shortcomings in existing indices. By integrating structural transformation, productive capacity, institutional integrity, and inclusion, the CEDI provides a more comprehensive and diagnostic measure of development. The paper argues for the superiority of CEDI over HDI and PCI based on its multidimensional depth, structural and institutional sensitivity, balance and equity considerations, and enhanced policy relevance. The CEDI not only captures current outcomes but also the underlying conditions that determine a nation’s long-term development trajectory. Its adaptability and diagnostic accuracy make it particularly valuable for developing countries, where traditional indicators frequently mask critical dimensions of development. The study concludes by recommending the adoption of CEDI by national governments and international agencies as a superior benchmarking and planning tool in the pursuit of inclusive, resilient, and sustainable economic development.
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