A new index of welfare - An econometric approach on a new index of welfare generated with principal component analysis

Abstract: Purpose: The purpose of this essay is to generate a wider measurement of welfare by carefully chosen variables in mainly three different areas: economic, socio-economic and environment in order to generate a welfare index which describes the world yesterday, today and tomorrow. Method: With the Principal Component Analysis 14 variables from 115 coun-tries are studied and verified and analyzed with regression models, clus-ter analysis and time series analysis. Conclusion: In the present of 2008 the Generated Index explains the HDI and DI in a fairly good way thus it has the possibility to replace the two of them. However in a longer period of time the index is not to be equal to HDI. As for the DI there is only data for a couple of years and con-clusion of this cannot be drawn during a longer period of time. The Generated Index could instead perhaps be used as a crisis predictor of some sort. The correlation with the different crisis during the time period 1960-2008 is imminent and with some extended study of the model a better crisis predictor can possibly be created.