Composite Indicators Conditioned by Discontinuous Spaces: Capturing the Spatial Heterogeneity of the Costs of Doing Business Across Advanced and Emerging Economies

Attempts to represent the costs of doing business through composite indicators commonly assume that the importance of each cost component is homogeneous across countries, overlooking spatial heterogeneity. Existing approaches predominantly represent spatial heterogeneity through geographical relationships, making them less suitable for geographically discontinuous settings such as cross-country analyses. This study investigates a third perspective, in which spatial heterogeneity is operationalized through location-specific weighting structures. To this end, we identify, apply, and compare the benefit-of-the-doubt (BoD) and ordered weighted averaging (OWA) methods in constructing the cost of doing business index conditioned by discontinuous spaces (CDBI-CDS). The results show that the ability to operationalize spatial heterogeneity depends on the extent to which weighting methods generate distinct location-specific weighting structures rather than on optimization itself. The study also introduces a simple measure of heterogeneous weighting based on the proportion of unique weight structures and identifies the winning and losing subindicators that characterize each country’s business environment. These findings contribute to the literature on composite indicators by extending the representation of spatial heterogeneity to geographically discontinuous spatial units and providing a methodological framework for comparing heterogeneous weighting methods.