Abstract:

Last decades have featured a lasting interest in economic development and its determinants by both economic theorists and empirical researchers. Besides economic factors as capital formation, natural resources, conditions in foreign trade or economic system, some  socio-economic characteristics of the society such as human resources, quality of institutions, economic freedom or inequality come up to act as determinants of economic development. Multidimensionality of the assessment can present a practical problem especially in case of the multitude of cross-correlated measures. In this study we explore performance of the principal component analysis procedure in dimensionality reduction in the framework of non-parametrical DEA models employed to evaluate economic freedom of 178 countries of the world. Benchmarked against the full dimensional model, the results prove a fairly good performance of DEA-PCA technique.