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Socioeconomic Status Measurement With Discrete Proxy Variables

Is Principal Component Analysis a Reliable Answer

Bibliographic Data

ID19609732
AuthorsStanislav Kolenikov (0000-0003-2977-7326, University of Missouri, corresponding author), Gustavo Angeles
Year2009
Volume55
Issue1
Pages128-165
Publication date2009-02-16
Peer ReviewedYes
Open AccessYes
TypeARTICLE
VenueReview of Income and Wealth (JOURNAL)
Journal identifiersISSN: 0034-6586 • E-ISSN: 1475-4991
PublisherWiley (PUBLISHER • GB)
DOI10.1111/j.1475-4991.2008.00309.x
OpenAlexW2048792999
LanguageEN
Citations received240
References cited53

The last several years have seen a growth in the number of publications in economics that use principal component analysis (PCA) in the area of welfare studies. This paper explores the ways discrete data can be incorporated into PCA. The effects of discreteness of the observed variables on the PCA are reviewed. The statistical properties of the popular Filmer and Pritchett (2001 ) procedure are analyzed. The concepts of polychoric and polyserial correlations are introduced with appropriate references to the existing literature demonstrating their statistical properties. A large simulation study is carried out to compare various implementations of discrete data PCA. The simulation results show that the currently used method of running PCA on a set of dummy variables as proposed by Filmer and Pritchett (2001 ) can be improved upon by using procedures appropriate for discrete data, such as retaining the ordinal variables without breaking them into a set of dummy variables or using polychoric correlations. An empirical example using Bangladesh 2000 Demographic and Health Survey data helps in explaining the differences between procedures

Correlation · Data set · Econometrics · Ordinal data · Polychoric correlation · Principal component analysis · Proxy (statistics) · Statistics · Economics of Agriculture and Food Markets · Efficiency Analysis Using DEA · Income, Poverty, and Inequality · Mathematics

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Unique citing works240
Citations per year16
Citation span2011 - 2026 (16)
Citation velocitycurrent
Highly citedYes
Citation typesNeutral: 227
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