Measuring the social market economy. A composite index approach for EU countries

Abstract

Abstract The main objective of the paper was to construct a synthetic measure that can be used as benchmark for measuring the progress toward convergence to the social market economy as specification of the Lisbon Treaty. This kind of approach will enable us to identify the main determinants of the social market economy among EU member states using a principal component analysis technique (PCA) analyzing comparatively different group of countries. The analysis was conducted at the level of the 28 EU countries for the year 2013 using 15 indicators from four categories: efficient market allocation, efficient property rights, economic and ecological sustainability and social inclusion. The empirical results revealed that the key determinants in explaining the social market economy at European level are freedom of contract, open markets, financial stability and effective environmental protection and highlighted Sweden, Finland, Denmark, Estonia and Germany as the main poles of social market economy at European level while at the opposite side Romania, Hungary and Bulgaria registered the smallest level of social market economy. As main contribution brought by the paper there can be mentioned the attempt of measuring the level of social market economy at European level using an aggregate composite index for the level of 2013 highlighting the main poles of social economy.