Are International Indices Good Predictors of Economic Growth? Panel Data and Cluster Analysis for European Union Countries

• Main Authors: Manuel Carlos Nogueira, Mara Madaleno
• Format: Article
• Language: English
• Published: MDPI AG 2021-05-01
• Series: Sustainability
• Subjects: economic growth; Gini coefficient; competitiveness; human development; ease of doing business; environmental performance
• Online Access: https://www.mdpi.com/2071-1050/13/11/6003

Every year, news about the publication of rankings and scores of important international indexes are highlighted, with some of the most prestigious being the Global Competitiveness Index (GCI), the Human Development Index (HDI), the Ease of Doing Business (EDB), the Environmental Performance Index (EPI) and the Global Entrepreneurship (GEI). A country’s progression in these indices is associated with economic growth, especially since several empirical studies have found evidence to reinforce these beliefs, the indices having been built based on the scientific literature on economic growth. Building a database on these indices for European Union countries between 2007 and 2017 and using panel data methodologies and then 2SLS (Two-Stage Least Squares) to solve the problem of endogeneity, we verify empirically through panel data estimates, what is the relationship between the mentioned indices and the European Union countries’ economic growth for the period. However, as the European Union is made up of diverse countries with different economic and social realities, we divided the countries into six clusters and made an individual interpretation for each one. We found that human development and competitiveness play an important role in economic growth, and entrepreneurship also impacts this growth. Regarding income distribution, applying the Gini index, we found that only human development mitigates inequalities.