The authors wish to thank two anonymous referees for the useful comments on an earlier version of the paper. The usual disclaimer applies.
Composite Indicator of Financial Development in a Benefit-of-Doubt Approach
Article first published online: 20 JUN 2013
© 2013 The Authors Economic Notes © 2013 Banca Monte dei Paschi di Siena SpA
Volume 42, Issue 2, pages 171–202, July 2013
How to Cite
GIAMBONA, F. and VASSALLO, E. (2013), Composite Indicator of Financial Development in a Benefit-of-Doubt Approach. Economic Notes, 42: 171–202. doi: 10.1111/j.1468-0300.2013.12005.x
- Issue published online: 20 JUN 2013
- Article first published online: 20 JUN 2013
We use data by the World Economic Forum (WEF) to build a Composite Financial Development Index (CFDI) alternative to the WEF financial index. Unlike the WEF index, the CFDI optimally combines seven dimensions with non-fixed weights determined endogenously without recourse to subjective opinions of experts. The CFDI is obtained by applying a Data Envelopment Analysis linear programming model with proportion restrictions on weights calculated in a Benefit-of-Doubt approach. In this way, the CFDI scores allow us to group 60 countries by different levels of financial development identifying dimensions that contribute to good or poor financial performances, taking into account the different characteristics of the financial systems in the countries under investigation.