Characterizing the level of economic development of countries

Abstract

Abstract The main purpose of this paper is to provide an objective analysis of the economic development level of countries. This is done by measuring it through a new index and by classifying the countries in an optimal number of clusters, each group characterizing different levels of economic development. The proposed methodology is based on three steps: creating a composite index (by applying the principal component analysis), establishing the optimal number of development groups (based on the number of principal components and on the hierarchical clustering) and clustering countries into them (with the help of k-means analysis). Therefore, this approach solves the difficulty of classifying the countries, complication that is mentioned in the specialized literature. Also, the paper creates a better understanding on the economic development level of countries, as, usually, the papers examine the economic growth level of countries. The analysis is conducted at the level of 60 countries for year 2015, using 12 indicators from categories that influence economic development (income, inequality, health, education and living conditions). The empirical results revealed that the countries can be grouped in two groups: economical developed countries (approximatively 2/3) and economic developing countries (approximatively 1/3). The countries that are most developed from an economic point of view are: Singapore, Luxemburg and Finland.