Evaluation of economic growth in the European Union using DEA

DEA (Data Envelopment Analysis) is a non-parametric method used for evaluation of multiple decision making units (DMU) using more inputs to produce more outputs, based on Pareto optimization.

In this paper we will consider GDP, as well as unemployment and inflation to measure relative efficiency of EU countries, but also to establish, for the country under observation, an individual mixture of factors which have an impact on growth.

Using this method we can detect target countries, as peer countries, and also during a few years time span we can evaluate the progress of individual countries over a given time period. The idea is also to possibly find equilibrium between GDP, unemployment and inflation for the selected country , thus observing the policy target for that country.

Using relative efficiency, DEA method,  based on given data, efficient and non-efficient countries are detected. Efficient countries form the efficient frontier, and inefficient countries in order to became efficient should consider to move to the efficient frontier, meaning that these countries establish the target for each factor.

On the other hand, for each country, due to diversity in the economies, different structure of factors contributing to growth can be detected, as well as different combination of GDP, unemployment and inflation. This mean that besides a single goal of GDP growth, some other targets can be incorporated, such as minimizing unemployment.  Using different weight factors for inefficient countries, targets can be established.

Also the results can be compared with those using other quantitative approaches, thus identifying possible differences and source there of if different methods are used.