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Principal Component Analysis (PCA) based Indexing

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Citation
Sendhil R, Anuj Kumar, Satyavir Singh, Ajay Verma, Karnam Venkatesh and Vikas Gupta
(2017). Data Analysis Tools and Approaches (DATA) in Agricultural Sciences. ICAR-Indian
Institute of Wheat and Barley Research. pp 1-126.

ISBN
978-93-5300-510-8

Publication
March, 2017

Patron
Director, ICAR-Indian Institute of Wheat and Barley Research, Karnal

Disclaimer
The views expressed in the chapters are the sole responsibility of the respective authors. The
editors bear no responsibility with regard to source and authenticity of the contents.
 Data Analysis Tools and Approaches (DATA) in Agricultural Sciences

10. Principal Component Analysis (PCA) based Indexing

Darshnaben Mahida1 and R Sendhil2
1
ICAR- National Dairy Research Institute,Karnal-132001,Haryana
2
ICAR-Indian Institute of Wheat and Barley Research, Karnal-132001, Haryana

Principal Component Analysis (PCA)

PCA is a tool to identify the similarities and dissimilarities pattern in the data. It is an effective
tool in identifying the prototype of high dimension data where we cannot have luxury of
graphical presentation. It facilitate in reducing the dimensions of the data after identifying the
pattern without much loss of information. PCA have many alternative uses among which
assigning the weights while computing a index is one.

Steps for Computing Index using PCA

 Collection of data on relevant variables
 Normalization of variables based on the association with the objective of grouping
 Assignment of weights using PCA
Wi =∑│Lij│Ej
where,
W i is the weight of ith indicator
Ej is the eigen value of the jth factor
Lij is the loading value of the ith unit of grouping on jth factor
i = 1,2,3,…..n indicators
j = 1,2,…. Factors or Principal Components (PCs)
 Index formation
I = ∑ XiWi
∑W i
where,
I is the index of each unit
Xi is the normalized value of ith indicator
W i is the weight of ith indicator

PCA based Indexing: An Illustration

PCA requires a large sample size. It is based on the correlation matrix of the variables
involved, and correlations usually need a large sample size before they stabilize. As a rule of
thumb, a bare minimum of 10 observations per variable is necessary to avoid computational
difficulties.
1. Collect cross section data on different variables across the population for which index
has to be made.
2. Normalization: Since different explanatory variables are measured in different units, in
order to bring them in a comparable range they need to be normalized. There are many
methods for normalization appropriate to different situations.

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 Data Analysis Tools and Approaches (DATA) in Agricultural Sciences

Formula for normalization

a. When a variable have positive influence then
Actual value - Min value
Max value - Min value

b. When a variable have negative influence then

Max value - Actual value
Max value - Min value
3. Run PCA in the software (XL Stat/SPSS/SAS/EVIEWS) using the normalized values of
different variables which will produce Principal Components i.e. variables have
significant variations, eigen values and factor loading values.

For assignment of weights, the PCs having eigen value greater than one have to be
selected. Eigen value represent the variation in the PCs. Standardisation of variable
indicates that each variable have variance of 1. So PCs having variance less one accounts
for less variance then did the original variables (which has variance of 1) and so are of little
use. The sum product of absolute value of factor loading values with their respective eigen
values give the weights for each variable (Formula in step c).

Through PCA we can also have a

scree plot which graphs eigen values
against the PCs. We can see that
after third component, there is not
much difference in the height of
successive bar of the graph,
meaning the each successive PC is
accounting for smaller and smaller
variation to the total variance.

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 Data Analysis Tools and Approaches (DATA) in Agricultural Sciences

4. Finally a composite index for each unit under consideration can be computed by dividing
the sum product of normalized observed value and their respective assigned weights,
and then divided by sum of the all weights (Formula in step d).

Suggested Readings

Ayyoob, K. C., Krishnadas, M. and Kaeel, C. M. H. (2013). Intra-regional disparities in

agricultural development in Kerala. Agricultural Update, 8: 103-106.
Chotia,V. and Chaudhry,O.(2014). Investing the inter-relationship between regional
infrastructure, poverty and economic growth: A district-wise study of Rajasthan.
International Journal Of Social-Science And Interdisciplinary Research, 3:211-233.
Chotia,V. and Rao. N.V.M.(2015). Examining the interlinkage between regional infrastructure
disparities and poverty: A case of Indian states. Economic Annals, 205:53-71.
Feroz, S. M. and Chauhan, A. K. (2010). Performance of dairy self help groups (SHGs)
India: Principal component analysis (PCA) approach. Indian Journal of Agricultural
Economics, 65:308-320.
GOI.(1999).Education Development Index. Department of Secondary and Higher Education,
GOI, MHRD, 167-185.
Kale, R. B., Ponnusamy, K., Chakravaty, A. K., Sendhil, R. And Mohmmad, A. (2016).
Assessing resource and infrastructure disparities to strengthen Indian dairy sector.
Indian Journal of Animal Science, 86:720-725.

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