Constructing digital economy index: Case of small open economy

The main objective of this study is to develop a Digital Economy Index (DEI) for the case of Malaysia. The procedure used in this study to construct a composite indicator was from the ideas proposed by the Conference Board. This composite DEI is constructed by the high correlation component series with the various methods and procedures proposed by the previous researchers. This study shows that the DEI has the leading power, leading the reference series (ICTE) on average for 2.8 quarters. Thus, DEI can be the short-term forecasting tool to decide due to it can provide an early signal than the ICTE for significant economic events. Therefore, the construction of DEI is significant as it can be used by policymakers to predict and measure the digital economy performance for the country.