This paper introduces a novel method for measuring global prosperity using data envelopment analysis (DEA). As a well-known optimization approach, DEA has been widely used for performance and efficiency evaluation of decision-making units (DMUs) in the public and private sectors. This study extends the existing prosperity assessment approach proposed by the Legatum Institute, an international charity organization registered in the United Kingdom (UK) that prepares a global prosperity index every year. The Legatum Institute creates a framework that assesses countries based on the promotion of their citizens’ prospering, reflecting both wealth and wellbeing.
The current Legatum prosperity index is obtained by averaging a set of distinct variables, but it fails to obtain the optimal weights for the variables for each country. Using data envelopment analysis (DEA), each country can freely obtain optimal weights that are most favorable to achieve maximum prosperity. It provides a flexible and competitive environment in which all countries can present their strengths. In addition, this study uses multi-level DEA efficiency frontiers for categorizing countries into different groups of standing based on their levels of prosperity score.
The Legatum prosperity index can be interpreted as a central tendency approach, which evaluates countries relative to an average performance. In contrast, DEA is an extreme-point method and compares each country with only the best practices. The prosperity score obtained by DEA prevents the subjective weighting methodology currently existing in the Legatum methodology. The usefulness of the proposed method in this paper is illustrated through assessing the global prosperity of 149 countries taken from the Legatum database.
Keywords: Global Prosperity; Data Envelopment Analysis; Legatum Prosperity; Multi-level Frontiers.