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The Strengths and Weaknesses of Factor Analysis in Predicting Cuban GDP

Author

Listed:
  • Nicolas Sanchez

    (Department of Economics, College of the Holy Cross)

  • Miles Cahill

    (Department of Economics, College of the Holy Cross)

Abstract

This paper has a dual purpose. At the technical level, it updates the work of Gitanjali Joglekar and Andrew Zimbalist (1989) on the use of factor analysis to estimate per capita Gross Domestic Product (GDP) for Cuba. At the analytical level, it questions the validity of this approach when the underlying economic structure of factor analysis is based on the data of relatively unregulated economies such as those of other Latin American countries. The main conclusion of the paper is that while factor analysis is indeed a powerful predictor of the economic performance of market economies, it tends to overestimate the level of economic activity of command economies, and it fails to take into account subjective (i.e., utility-related) values which are assumed to be an intrinsic part of any measure of economic well being. If this criticism stands, then it follows that other similar studies of Cuban GDP are failing to provide a good measure of economic performance and well being in this island nation.

Suggested Citation

  • Nicolas Sanchez & Miles Cahill, 1998. "The Strengths and Weaknesses of Factor Analysis in Predicting Cuban GDP," Working Papers 9806, College of the Holy Cross, Department of Economics.
    • Handle: RePEc:hcx:wpaper:9806
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    File URL: http://lanic.utexas.edu/la/cb/cuba/asce/cuba8/32sanchez.pdf
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    References listed on IDEAS

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    1. Jorge A. Sanguinetty, 1997. "The Structural Transformation of the Cuban Economy: A Report of the Last Twelve Months," Annual Proceedings, The Association for the Study of the Cuban Economy, vol. 7.
    2. Marshall, Jeffery H., 1998. "The political viability of free market experimentation in Cuba: Evidence from Los Mercados Agropecuarios," World Development, Elsevier, vol. 26(2), pages 277-288, February.
    3. Jorge Luis Romeu, 1995. "More on the Statistical Comparison of Cuban Socioeconomic Development," Annual Proceedings, The Association for the Study of the Cuban Economy, vol. 5.
    4. Betancourt, Roger R, 1996. "Growth Capabilities and Development: Implications for Transition Processes in Cuba," Economic Development and Cultural Change, University of Chicago Press, vol. 44(2), pages 315-331, January.
    5. Pissarides, Christopher A, 1997. "Learning by Trading and the Returns to Human Capital in Developing Countries," The World Bank Economic Review, World Bank, vol. 11(1), pages 17-32, January.
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    Cited by:

    1. Miles Cahill & Nicolás Sánchez, 2001. "Using principal components to produce an economic and social development index: An application to Latin America and the U.S," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 29(3), pages 311-329, September.

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    Keywords

    Cuba; Cuban GDP; factor analysis;
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