ITC Fragility Index

Objective

To build a business-specific “fragility index” based on the International Trade Centre (ITC) Business Fragility Survey.¹

Description

The Business Fragility Survey is a national business-level questionnaire aimed at assessing how small and medium enterprises (SME) cope within fragile social and political environments. The Survey contacted around 2,600 businesses from eight developing countries, of which over 1,100 provided complete responses. The Survey was carried out in partnership with domestic business support organizations. Further details on the Survey can be found in the ITC SME Competitiveness Outlook 2023.

The survey includes questions about firm characteristics such as size, sector, and trade status, as well as age and gender of the manager. It includes questions about business growth in terms of revenue and employees, as well as ease of access to financial resources and human capital. Finally, it queries business experience with fragility—encompassing finance, permits, regulations, competition, corruption, crime, etc.—and the coping mechanisms adopted by companies.

The Fragility Index is created using a factor analysis technique in Stata and R. Broadly, factor analysis seeks to define the fundamental dimensions assumed to underlie a set of variables. It combines a theoretical understanding of the subject matter with statistical techniques to summarize manifest variables into a smaller set of latent factors while minimizing information loss ( Hair et al. 2010).

Further description of the data and methodology for the fragility index can be found in the associated blog post.

References