Colouring the socio-economic development into green: I-distance framework for countries' welfare evaluation

Abstract

The indicator-based research papers represent a substantial part of socioeconomic sphere, but the controversy about the choice of indicators and aggregation methods still remains. The aim of our paper is twofold: first, to elaborate the use of indicators in assessing socioeconomic development and welfare of countries, and in particular, to review the socioeconomic and welfare indicators in order to form a theoretical framework. Secondly, the idea of the paper is to emphasize the importance of incorporating environmental indicators into the evaluation of socioeconomic development. To this end we suggest the implementation of ecological footprint and environmental performance index, along with frequently used indicators such as GDP per capita, unemployment rate, etc. In addition, applying a statistical I-distance method we were able to overcome the problems concerning the aggregation of composite indicator using presumably biased weighting factors. As a case study we analyzed a dataset of 25 European Union countries, starting with 2007 and ending with the last available data of 2012. The results presented in this study clearly indicated EU countries with high level of socioeconomic development, with a special emphasis on the underlying dynamics of a five-year period. One of the contributions lies in the application of an I-distance method which can easily integrate economic, social and environmental variables with different measurement units into one composite indicator. Moreover, our approach could be a foundation for an appropriate framework of countries' welfare evaluation which would be unbiased i.e. independent from subjectively formed weighting factors. The ecological footprint and environmental performance index as environmental indicators proved to be essential part of an I-distance framework for countries' welfare evaluation.