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The index of economic freedom: methodological matters

The index of economic freedom: methodological matters The purpose of this paper is to deal with methodological issues in the Index of Economic Freedom (IEF) building by using principal components analysis (PCA) and benefit of the doubt (BOD) methods to generate component- and country-specific weights in computing the scores.Design/methodology/approachThe paper uses endogenous model and country-specific weight system to generate country-specific score unlike the equal weight used by the Heritage Foundation.FindingsThe PCA and BOD analyses provide consistent results that differ dramatically with the baseline ones (results using equal weights).Research limitations/implicationsThe limitation of the paper is that the results change depending on the method used.Practical implicationsGiven results provided by the PCA and BOD analysis, the IEF would receive broad legitimacy basing the calculation of its scores on endogenous weighting models.Social implicationsAs composite indicators are essential in public debates and policies, their construction must be objective and well-known by a large public, making the methodological matters in composite indexes building one of the big challenge to researchers and a major democratic issue.Originality/valueThe originality of the paper is to use endogenous approach to generate weights and countries’ scores. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Studies in Economics and Finance Emerald Publishing

The index of economic freedom: methodological matters

Studies in Economics and Finance , Volume 38 (3): 33 – Jul 27, 2021

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Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
1086-7376
DOI
10.1108/sef-07-2015-0181
Publisher site
See Article on Publisher Site

Abstract

The purpose of this paper is to deal with methodological issues in the Index of Economic Freedom (IEF) building by using principal components analysis (PCA) and benefit of the doubt (BOD) methods to generate component- and country-specific weights in computing the scores.Design/methodology/approachThe paper uses endogenous model and country-specific weight system to generate country-specific score unlike the equal weight used by the Heritage Foundation.FindingsThe PCA and BOD analyses provide consistent results that differ dramatically with the baseline ones (results using equal weights).Research limitations/implicationsThe limitation of the paper is that the results change depending on the method used.Practical implicationsGiven results provided by the PCA and BOD analysis, the IEF would receive broad legitimacy basing the calculation of its scores on endogenous weighting models.Social implicationsAs composite indicators are essential in public debates and policies, their construction must be objective and well-known by a large public, making the methodological matters in composite indexes building one of the big challenge to researchers and a major democratic issue.Originality/valueThe originality of the paper is to use endogenous approach to generate weights and countries’ scores.

Journal

Studies in Economics and FinanceEmerald Publishing

Published: Jul 27, 2021

Keywords: Benefit of the doubt weighting system; Country ranking; Index of economic freedom; Principal components analysis

References