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Methodological Choices Encountered in the Construction of Composite Indices of Economic and Social Well-Being

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  • Julia Salzman

Abstract

In recent year a large number of composite indexes of economic and social well-being have been developed (Hagerty et. al., 2001). Unfortunately, the methodological issues associated with index construction have often been neglected or inadequately treated by index developers. The objective of this paper is to provide a comprehensive review of the methodological choices involved in the construction of indexes of economic and social well-being and the implications of the choices for the properties of the index. Building on a recent paper by Booysen (2002) and work done by the United National Development Program (e.g. Anand and Sen, 1994), the paper addresses issues related to the choice of functional form of variables, scaling issues, the aggregation operations, weighting schemes, and the choice between single and complementary composite indexes. A detailed typology of the issues addressed in the paper accompanies this abstract. The paper concludes with a list of recommendations for best-practice methodologies for composite index construction.

Suggested Citation

  • Julia Salzman, 2003. "Methodological Choices Encountered in the Construction of Composite Indices of Economic and Social Well-Being," CSLS Research Reports 2004-05, Centre for the Study of Living Standards.
    • Handle: RePEc:sls:resrep:0405
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