Use of Principal Component Analysis to Create an Environment Index in Measuring Welfare Levels

Abstract

Human welfare in a region is very important to know. It is a matter of whether a region has progress or setback in building a region. Human welfare has been measured based on the Human Development Index (HDI), which is calculated based on three aspects, namely education, health and income. So far environmental aspects are not considered in calculating the welfare. Whereas in the process of human life, always side by side with the environment. It is possible that the environment also plays an important role in human welfare. Therefore, in this study we will create an environment index using Principal Component Analysis (PCA) and will be made a combination index between environmental index and IPM then will be correlated between index combination with HDI and Gross Domestic Product (GDP). The data used in this thesis is secondary data of environment and HDI obtained from West Java Provincial Environment Agency and Central Bureau of Statistics (BPS) West Java Province. The results of the Principal Component Analysis (PCA) show that the environmental index can provide other information and should be included in the measurement of wellbeing.