IDEAS home Printed from https://ideas.repec.org/a/spr/qualqt/v57y2023i4d10.1007_s11135-022-01515-5.html
   My bibliography  Save this article

Modeling indices using partial least squares: How to determine the optimum weights?

Author

Listed:
  • Taşkın DİRSEHAN

    (Marmara University
    University of Twente)

  • Jörg HENSELER

    (University of Twente
    Universidade Nova de Lisboa)

Abstract

Indices are often used to model theoretical concepts in economics and finance. Beyond the econometric models used to test the relationships between these variables, partial least squares path modeling (PLS-PM) allows the study of complex models, but it is an estimator that is still in its infancy in economics and finance research. Thus, the use of PLS-PM for composite analysis needs to be explored further. As one such attempt, this paper is focused on the determination of the indices’ optimum weights. For this purpose, the effects of the market potential index (MPI) on foreign direct investment (FDI) and gross domestic product (GDP) were analysed by implementing different weighting schemes. The assessment of the model shows that PLS Mode B leads to better model fit.

Suggested Citation

  • Taşkın DİRSEHAN & Jörg HENSELER, 2023. "Modeling indices using partial least squares: How to determine the optimum weights?," Quality & Quantity: International Journal of Methodology, Springer, vol. 57(4), pages 521-535, December.
    • Handle: RePEc:spr:qualqt:v:57:y:2023:i:4:d:10.1007_s11135-022-01515-5
    DOI: 10.1007/s11135-022-01515-5
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s11135-022-01515-5
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s11135-022-01515-5?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Stiglitz, Joseph E., 2000. "Capital Market Liberalization, Economic Growth, and Instability," World Development, Elsevier, vol. 28(6), pages 1075-1086, June.
    2. Mark Montgomery & Paul Hewett, 2005. "Urban poverty and health in developing countries: Household and neighborhood Effects," Demography, Springer;Population Association of America (PAA), vol. 42(3), pages 397-425, August.
    3. Theo Dijkstra & Karin Schermelleh-Engel, 2014. "Consistent Partial Least Squares for Nonlinear Structural Equation Models," Psychometrika, Springer;The Psychometric Society, vol. 79(4), pages 585-604, October.
    4. Carstensen, Kai & Toubal, Farid, 2004. "Foreign direct investment in Central and Eastern European countries: a dynamic panel analysis," Journal of Comparative Economics, Elsevier, vol. 32(1), pages 3-22, March.
    5. Jose Benitez & Javier Llorens & Jessica Braojos, 2018. "How information technology influences opportunity exploration and exploitation firm’s capabilities," Post-Print hal-01774321, HAL.
    6. Clements,Michael & Hendry,David, 1998. "Forecasting Economic Time Series," Cambridge Books, Cambridge University Press, number 9780521634809, June.
    7. Henseler, Jörg & Schuberth, Florian, 2020. "Using confirmatory composite analysis to assess emergent variables in business research," Journal of Business Research, Elsevier, vol. 120(C), pages 147-156.
    8. Robert Costanza & Ida Kubiszewski & Enrico Giovannini & Hunter Lovins & Jacqueline McGlade & Kate E. Pickett & Kristín Vala Ragnarsdóttir & Debra Roberts & Roberto De Vogli & Richard Wilkinson, 2014. "Development: Time to leave GDP behind," Nature, Nature, vol. 505(7483), pages 283-285, January.
    9. Krzysztof Drachal, 2020. "Forecasting unemployment rate in Poland with dynamic model averaging and internet searches," Global Business and Economics Review, Inderscience Enterprises Ltd, vol. 23(4), pages 368-389.
    10. Cavusgil, S. Tamer, 1997. "Measuring the potential of emerging markets: An indexing approach," Business Horizons, Elsevier, vol. 40(1), pages 87-91.
    11. Jörg Henseler, 2010. "On the convergence of the partial least squares path modeling algorithm," Computational Statistics, Springer, vol. 25(1), pages 107-120, March.
    12. Tifang Ye & Xiuli Xiang & Xiangyu Ge & Keling Yang, 2022. "Research on Green Finance and Green Development Based Eco-Efficiency and Spatial Econometric Analysis," Sustainability, MDPI, vol. 14(5), pages 1-29, February.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gudergan, Siegfried P. & Moisescu, Ovidiu I. & Radomir, Lăcrămioara & Ringle, Christian M. & Sarstedt, Marko, 2025. "Special issue editorial: Advanced partial least squares structural equation modeling (PLS-SEM) applications in business research," Journal of Business Research, Elsevier, vol. 188(C).
    2. Andrey V. Korytin, 2020. "Tax Burden Influence on the Foreign Direct Investment Distribution by Economic Industries," Finansovyj žhurnal — Financial Journal, Financial Research Institute, Moscow 125375, Russia, issue 1, pages 68-86, February.
    3. Priewe, Jan, 2016. "Ethiopia's high growth and its challenges: Causes and prospects," IPE Working Papers 70/2016, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    4. Alessandra Canepa & Fawaz Khaled, 2018. "Housing, Housing Finance and Credit Risk," IJFS, MDPI, vol. 6(2), pages 1-23, May.
    5. Hendry, David F. & Clements, Michael P., 2003. "Economic forecasting: some lessons from recent research," Economic Modelling, Elsevier, vol. 20(2), pages 301-329, March.
    6. Eloi Laurent & Jean Jouzel, 2018. "The Well-being Transition: Measuring what counts to protect what matters," SciencePo Working papers Main hal-03458057, HAL.
    7. Lindh, Thomas & Malmberg, Bo, 2007. "Demographically based global income forecasts up to the year 2050," International Journal of Forecasting, Elsevier, vol. 23(4), pages 553-567.
    8. Flouris, Triant & Walker, Thomas, 2005. "Financial Comparisons Across Different Business Models in the Canadian Airline Industry," 46th Annual Transportation Research Forum, Washington, D.C., March 6-8, 2005 208157, Transportation Research Forum.
    9. Athanasia Gavala & Nikolay Gospodinov & Deming Jiang, 2006. "Forecasting volatility," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 25(6), pages 381-400.
    10. Kenneth Gillingham & William D. Nordhaus & David Anthoff & Geoffrey Blanford & Valentina Bosetti & Peter Christensen & Haewon McJeon & John Reilly & Paul Sztorc, 2015. "Modeling Uncertainty in Climate Change: A Multi-Model Comparison," NBER Working Papers 21637, National Bureau of Economic Research, Inc.
    11. Bhattacharya, Prasad S. & Thomakos, Dimitrios D., 2008. "Forecasting industry-level CPI and PPI inflation: Does exchange rate pass-through matter?," International Journal of Forecasting, Elsevier, vol. 24(1), pages 134-150.
    12. Alexander D. Rothenberg & Francis E. Warnock, 2011. "Sudden Flight and True Sudden Stops," Review of International Economics, Wiley Blackwell, vol. 19(3), pages 509-524, August.
    13. Ard H.J. den Reijer, 2005. "Forecasting Dutch GDP using Large Scale Factor Models," DNB Working Papers 028, Netherlands Central Bank, Research Department.
    14. Zheng, Fengyi & Jiang, Jiahui & Ma, Jing & Liou, Jennhae, 2024. "Capital market opening, digital transformation and corporate risk-taking ——empirical evidence from Shanghai Shenzhen-Hong Kong stock connect," International Review of Economics & Finance, Elsevier, vol. 96(PB).
    15. Seitz, Franz & Baumann, Ursel & Albuquerque, Bruno, 2015. "The information content of money and credit for US activity," Working Paper Series 1803, European Central Bank.
    16. Ajit Singh, 2012. "Financial Globalization and Human Development," Journal of Human Development and Capabilities, Taylor & Francis Journals, vol. 13(1), pages 135-151, February.
    17. Asongu, Simplice A., 2017. "Assessing marginal, threshold, and net effects of financial globalisation on financial development in Africa," Journal of Multinational Financial Management, Elsevier, vol. 40(C), pages 103-114.
    18. J. Ramos-Tallada., 2013. "The IMF and management of capital flows: the long road towards a pragmatic approach," Quarterly selection of articles - Bulletin de la Banque de France, Banque de France, issue 31, pages 63-85, Autumn.
    19. Goodness C. Aye & Stephen M. Miller & Rangan Gupta & Mehmet Balcilar, 2016. "Forecasting US real private residential fixed investment using a large number of predictors," Empirical Economics, Springer, vol. 51(4), pages 1557-1580, December.
    20. Dierk Herzer & Philipp Hühne & Peter Nunnenkamp, 2014. "FDI and Income Inequality—Evidence from Latin American Economies," Review of Development Economics, Wiley Blackwell, vol. 18(4), pages 778-793, November.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:qualqt:v:57:y:2023:i:4:d:10.1007_s11135-022-01515-5. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.