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

Fu-Chiang Yang (), Rui-Hsin Kao (), Yi-Tui Chen (), Yueh-Fei Ho (), Cheng-Chung Cho () and Shi-Wei Huang ()
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Fu-Chiang Yang: De Lin Institute of Technology
Rui-Hsin Kao: National Quemoy University
Yi-Tui Chen: National Taipei University of Nursing and Health Sciences
Yueh-Fei Ho: Aletheia University
Cheng-Chung Cho: De Lin Institute of Technology
Shi-Wei Huang: Taiwan Institute of Economic Research

Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, 2018, vol. 137, issue 2, No 3, 463-479

Abstract: 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.

Keywords: Composite indicator; Data envelopment analysis; Common weights; Emerging market (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1007/s11205-017-1603-7

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