Using Principal Components to Produce an Economic and Social Development Index: An Application to Latin America and U.S. States

This paper presents a principal components methodology (based on Ram (1982) and Srinivasan (1994)) for determining the weights for a set of indicators in a composite index of development. The procedure is applied to a 36 variable data set consisting of 1990 data for 19 Latin American countries and corresponding 1990 and 1960 data for the individual U. S. states. GDP is excluded from the index. The paper compares the results to other well-known indices, and uses the combined data set to better understand the level and scope of development in each region and over time.