Ministry of Commerce And Supplies - Enhanced Integrated ...

N T I S2010Box A1.1. Composite IndicatorsIn order to build a composite index, variables used for each component indicator need to be put on a common basis to compare differentmeasurement units (e.g. dollar value, percentage growth rate). Several techniques can be used to standardize or normalize variables, witheach method having its advantages and disadvantages.The method used here transforms each indicator into a range of 0 (weak performance) and 100 (best performance). It gives 0 (100) pointsto sectors with values below (above) a certain threshold value and points between 0 and 100, depending on the distance between these twothresholds. The values of the thresholds (i.e. the lower and upper limits) are defi ned through an analysis of the dispersion of the productgroups. The following formula is then applied:Value − Lower Limit100*Upper Limit − Lower LimitIt must be noted that indicators and composite indexes can only give a partial view of the real situation: by defi nition, they can only includedata that can be quantifi ed and for which sources are available. For example, in order to assess market access conditions for goodssectors, it would have been useful to incorporate not only tariff barriers but also non-tariff measures, but it does not lend itself easily to strictquantitative comparisons. In addition, the component indicators are backward looking, as prospects are based on recent trend growth.Composite indicators are also sensitive to the choice and weight of the underlying indicators.2. Market Attractiveness IndexIn addition to the four indexes discussed previously, a market attractiveness index (MAI) is available. TheMAI is not used to compare sectors with each other, but rather to identify promising export markets for eachsector independently.Using ITC’s database of trade flows and tariffs (more below on data sources), all import markets for eachproduct are ranked separately using three indicators: The size of the import market, measured by imports for the particular goods or services. The dynamism of the market, as measured by growth rates, specifically the difference between growthrate for a particular market and world average. The market access conditions (openness), as measured by the ad valorem equivalent tariff appliedto imports from Nepal and the difference between the tariffs applied to Nepal and to its five largestcompetitors in the particular market.*Detailed results for each sector are presented in the individual sector profiles presented in Chapter 2. For goodsexports, rankings of attractive markets (importing markets) are shown both according to individual indicators(size, dynamism, openness) and based on a ranking based on a weighting of the three indicators (using 30 percent weight for size of importing markets, 50 per cent for dynamism, and 20 per cent for openness).In the case of service exports, mostly size of importing markets and dynamism were used as indicatorswherever data could be found. Rankings shown in Chapter 2 are based on the individual indicators.Detailed findings are included in the detailed sector profiles presented in Chapter 2.* It should be noted that the index can be higher for a country A than for a country B, even though both apply the same tariffs to imports (e.g.because A and B are members of a customs union). This is the case because A and B may import from different countries, to which the customsunion applies different tariffs. If, for example, Spain imports mostly from China (high tariff), and France mostly from Italy (zero tariff), then theresulting index for Spain and France will be different, even though both belong to a customs union.294NEPAL TRADE INTEGRATION STRATEGY 2010BACKGROUND REPORT