A composite index of economic integration in the Asia-Pacific region

In the second stage, we use the indicators of trade, FDI and tourism, as well as the convergence index, to compute the weights for the composite index. [...] The main purpose of this paper is to construct a composite index of economic integration that will show the extent of integration not only for the Asia Paci c region as a whole, but also the degree of integration of individual economies with the region. [...] On the other hand, parametric methods assume there is some structure behind the variation of the included indicators and hence the weights for these indicators are determined by the covariation between them on each dimension of the structure. [...] The rst PC accounts for the largest amount of the total variation (information) in the original data (in 5 the following, the second PC explains the second largest variation and so on). [...] And the (normalized) loadings in a PC are the weights of the corresponding indicators in the dimension represented by that PC.1 The nal weight assigned to each indicator in a composite index is its loading in each dimension of the selected CFs or PCs weighted by the relative importance (accountability of the total variation of the original data) of that factor or component.