Institutional efficiency of selected EU & OECD countries using DEA-like approach

Abstract

The paper estimates institutional efficiency of a sample of EU and OECD countries. We employ an output-oriented Data Envelopment Analysis (DEA-like) approach where six Worldwide Governance Indicators published by the World Bank in 2009 constitute a vector of outputs. Assuming that all countries should aim at the same level of institutional quality, inputs were considered unimportant. The results, as to in which areas and how much individual countries need to improve, were not surprising. Concerning the overall efficiency scores and rankings, the most institutionally efficient countries are situated in northern Europe. The Czech Republic ranked 24th in the overall sample and 3rd among New EU Member States. The biggest necessary improvements are in the area of government effectiveness and control of corruption. The robustness check using Principal Component Analysis revealed significant qualitative correlation with the DEA-like results, with the correlation coefficient of 0.9653. We propose that both sets of results could be used equally well as explanatory variables in growth and other regressions.