New governance composite indicator: a quality and reliability-based approach

Composite indicators simplify the representation of complex realities without losing generality, attracting the attention of researchers from various fields, including operational research. Despite their advantages, many composite indicators fail with regard to quality and reliability, e.g., governance composite indicators. This study proposes an innovative quality- reliability approach for constructing composite indicators, which can be applied to represent the multidimensional governance of the 20 largest economies in the world. The composite indicator obtained showed high explanatory power (correlation of 0.85 with GDP per capita), absence of countries with discrepant scores (0% bivariate outliers), high informational power (retention of 90% of input data), and high discriminant power (well-distributed scores). Finally, the countries' uncertainty of 0.20 positions in the ranking guarantees that the composite indicator has a stable internal structure, and the results are reliable and valuable for guiding investors and public managers on making investments and/or prioritizing institutional reforms.