The Tilburg Institute of Economics - Institute of the Economic Faculty of the Tilburg University - proposes itself to publish results of economic research taking part in the F acul ty . To facilitate the choice of the potential reader, every publication will be marked by the department, where the publication took its origin. As Mr. Schilderinck's 'Factor Analysis' applied to developed and developing countries, is a result of research in the Econometric Department, it is mark­ ed Econometrics. Every publication will be published under the supervision of the head of the department. For this reason this preface is written by the head of the Econometric Department. Mr. Schilderinck's study forms an introduction to a larger project of research, which proposes itself to develop methods of analysis, which try to eliminate the difficulties of multi-collinearity and the arbitrariness of the introduction of lags in regression analysis. This study applies the method of factor analysis to statistical material collected by the Institute of Development Problems of our University. Prof. Dr. J. J. J. Dalmulder Head of Department of Econometrics v Contents PREFACE. . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . v . . . . . INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . .. . . IX . . . 1. AIM OF FACTOR ANALYSIS . . . . . . . . . . . . . . . . . . . . . 3 2. THE METHOD OF FACTOR ANALYSIS. 3 2.1 Normalisation of the variables . . . 4 2.2 Correlation and variance in factor analysis . 5 2.3 The model of the factor analysis 2.4 Solution of the model ..... . 9 2.5 Interpretation of the final aspects . 17 3. APPLICATION OF FACTOR ANALYSIS TO DATA FROM DEVELOPING COUNTRIES . . . . . . . . . . . . . . . .. . . 22 . .