A new set of cluster driven composite development indicators

Abstract

AbstractComposite development indicators used in policy making often subjectively aggregate a restricted set of indicators. We show, using dimensionality reduction techniques, including Principal Component Analysis (PCA) and for the first time information filtering and hierarchical clustering, that these composite indicators miss key information on the relationship between different indicators. In particular, the grouping of indicators via topics is not reflected in the data at a global and local level. We overcome these issues by using the clustering of indicators to build a new set of cluster driven composite development indicators that are objective, data driven, comparable between countries, and retain interpretabilty. We discuss their consequences on informing policy makers about country development, comparing them with the top PageRank indicators as a benchmark. Finally, we demonstrate that our new set of composite development indicators outperforms the benchmark on a dataset reconstruction task.