Building the constituents of EEI

There are seven sub-indices that constitute the EEI. These sub-indices were chosen in accordance with the stakeholder approach. The steps involved were:

• Extensive Literature Review: Apart from an in depth study of several measures of economic governance and indices such as Provincial Competitiveness Index, One Stop Shop in Cambodia, Economic Environment Index in Sri Lanka, we referred several studies on different factors affecting business climate, local business environment and economic governance.
• Expert Opinion: To select the sub-indices and indicators, experts and practitioners were consulted. The methodology team got the opinion of a number of professionals working on different aspects of business climate and governance, academics and government officials on the selection procedure as well as the methodology.
• Interview and discussion with different stakeholders: The Centre for Development Finance has worked in close collaboration with CII (Confederation of Indian Industries, Tamil Nadu) and the State Planning Commission (Tamil Nadu) to create this index. The team had regular meetings with these partners as well as other stakeholders such as business houses operating in Tamil Nadu and non-government organizations working on economic governance and other related topics.

The indicators for each sub-index were selected according to the following criteria:

• Relevancy: The indicator should be relevant as per the definition of Economic Governance for the purpose of Economic Environment Index at district level
• Availability of Quality Data Source: The indicator should have good quality and timely updated data support.
• Interpretability and Comparability: It can be interpreted and compared across all districts.
• Reliability: The indicator should be able to be produced by different people using the same coding rules and survey materials.

The UNDP guidelines for selection of policy indicators (Governance Indicators: A Users’ Guide) were followed for selection of indicators. There were a number of indicators which were strong contenders for selection, but they could not be incorporated in the study due to lack of quality data and absence of frequently updated data sources.

The selection of variables for the sub-indices has been primarily done on the basis of their relevance and analytical soundness. Since this index captures access as well as quality dimensions of the different aspects of economic governance, variables that reflect the quality of the public good/services provided by the government have been incorporated. For instance, instead of merely using number of schools and hospitals as indicators of delivery of public services we have used a wide range of indicators that reflects not just the access to these services but also the quality of these services and satisfaction level of users/consumers. Secondly, those indicators have been excluded which do not significantly vary among different districts, such as centrally enforced policies with limited discretion in implementation. Thirdly, data unavailability has also been one important concern while including/excluding a particular indicator. Although, the primary survey has been our source for many of these indicators, it is not possible to collect data for the full range of indicators we would prefer to include. Proxy variables/indicators have been used to capture some of the aspects of governance where there is no clear indicator for that dimension. For instance, a concept like accountability cannot be measured by a single indicator and hence we have used proxies such as ease of access to different government documents.