Procedure for normalizing specific indicators in assessing the resource potential of the agricultural sector: comparative analysis of methods and justification of choice

Abstract

This article examines methodological issues regarding the normalization of specific indicators used to assess the resource potential of the agricultural sector. The study aims to conduct a comparative analysis of normalization methods for heterogeneous indicators and to justify the selection of an optimal method for subsequent aggregation into a composite index. The methodological framework relies on a systems approach, as well as methods of economic analysis, comparative analysis, and scientific generalization. The study compares three normalization methods (linear normalization, standardization, and the relative value method), justifies the choice of linear normalization, and outlines a normalization procedure utilizing direct and inverse formulas for "stimulators" and "destimulators." It also addresses special cases - such as outliers, equality of minimum and maximum values, negative values, and percentage-based indicators - proposes a procedure for checking indicators for multicollinearity, and presents a hypothetical example of normalization involving a destimulator. The article concludes that the correct normalization of indicators - accounting for the direction of their impact and checking for multicollinearity - is a prerequisite for their subsequent aggregation into a composite index of resource potential.