Quality of institutions in the european union countries. Application of TOPSIS based on entropy measure for objective weighting

Abstract

The relation between the quality of institutions and long term growth is currently an accepted stylized fact, which has good support in empirical literature with regard to both developing and developed countries. In the case of the second group, the quality of intuitions is crucial for keeping their abilities to face quick technological changes, which is a condition for maintaining their international competitiveness. The objective of the article is to analyse the quality of institutions in the European Union countries in the years 2000-2015 from the perspective of its influence on the speed of resources reallocation. The research touches upon the question of the abilities of the countries to take advantage of the knowledge based-economy potential. The concept of the institutional quality is rooted in the transaction costs theory framework. The phenomenon under evaluation is treated as a multiple-criteria problem. Thus, modified TOPSIS method based on entropy measure for objective weighting is applied here. The research shows institutional disparities between Northern and Southern European countries and confirms significant institutional reforms implemented in the Central European economies, which resulted in an improvement of their institutional quality with regard to knowledge-based economy requirements.