A Common Weight Approach to Construct Composite Indicators: The Evaluation of Fourteen Emerging Markets

A Common Weight Approach to Construct Composite Indicators: The Evaluation of Fourteen Emerging... This study presents an ongoing project, emerging market (EM) evaluation project, of the Taiwan Institute of Economic Research (TIER). The purpose of this project is to construct a composite indicator (CI) named as growth potential index (GPI) for selecting the promising EMs, in which to begin new or expand existing business is attractive to governments, firms, and investors. However, weight determination is one of the most difficult tasks in the construction process of a CI. A new approach inspired by the Z score and rooted in data envelopment analysis (DEA) is proposed to objectively determine the common weights for constructing the GPI without requiring data normalisation beforehand. The same dataset is used to compare the proposed common weight approach with the equal weighting method (currently used by the TIER), the widely used DEA-CI model, and the first common weight DEA-CI model. Spearman’s rank correlation test revealed a high positive correlation between the GPIs obtained by the proposed approach and each considered method. The major findings include: (1) China is the most promising EM; (2) Argentina, China, Malaysia, Poland, and Russia are above-average EMs; (3) India, Indonesia, Saudi Arabia, South Africa, and Thailand are below-average EMs; and (4) of the so-called BRIC countries (Brazil, Russia, India, and China), China is the best EM, and India is the worst EM. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Social Indicators Research Springer Journals

A Common Weight Approach to Construct Composite Indicators: The Evaluation of Fourteen Emerging Markets

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Publisher
Springer Journals
Copyright
Copyright © 2017 by Springer Science+Business Media Dordrecht
Subject
Social Sciences; Sociology, general; Quality of Life Research; Microeconomics; Public Health; Human Geography; Quality of Life Research
ISSN
0303-8300
eISSN
1573-0921
D.O.I.
10.1007/s11205-017-1603-7
Publisher site
See Article on Publisher Site

Abstract

This study presents an ongoing project, emerging market (EM) evaluation project, of the Taiwan Institute of Economic Research (TIER). The purpose of this project is to construct a composite indicator (CI) named as growth potential index (GPI) for selecting the promising EMs, in which to begin new or expand existing business is attractive to governments, firms, and investors. However, weight determination is one of the most difficult tasks in the construction process of a CI. A new approach inspired by the Z score and rooted in data envelopment analysis (DEA) is proposed to objectively determine the common weights for constructing the GPI without requiring data normalisation beforehand. The same dataset is used to compare the proposed common weight approach with the equal weighting method (currently used by the TIER), the widely used DEA-CI model, and the first common weight DEA-CI model. Spearman’s rank correlation test revealed a high positive correlation between the GPIs obtained by the proposed approach and each considered method. The major findings include: (1) China is the most promising EM; (2) Argentina, China, Malaysia, Poland, and Russia are above-average EMs; (3) India, Indonesia, Saudi Arabia, South Africa, and Thailand are below-average EMs; and (4) of the so-called BRIC countries (Brazil, Russia, India, and China), China is the best EM, and India is the worst EM.

Journal

Social Indicators ResearchSpringer Journals

Published: Mar 14, 2017

References

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