The Strengths and Weaknesses of Factor Analysis in Predicting Cuban GDP

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This paper has a dual purpose. At the technical level, it updates the work of Gitanjali Joglekar and Andrew Zimbalist (1989) on the use of factor analysis to estimate per capita Gross Domestic Product (GDP) for Cuba. At the analytical level, it questions the validity of this approach when the underlying economic structure of factor analysis is based on the data of relatively unregulated economies such as those of other Latin American countries. The main conclusion of the paper is that while factor analysis is indeed a powerful predictor of the economic performance of market economies, it tends to overestimate the level of economic activity of command economies, and it fails to take into account subjective (i.e., utility-related) values which are assumed to be an intrinsic part of any measure of economic well being. If this criticism stands, then it follows that other similar studies of Cuban GDP are failing to provide a good measure of economic performance and well being in this island nation.

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