Efficiency of Working of Governments: A Case Study of 27 OECD Countries
Keywords:
DEA (Data Envelopment analysis), Truncated Regression Analysis, Constant Returns to Scale, Variable Returns to Scale, OECD CountriesAbstract
Efficiency for 27 OECD countries is computed and evaluated by taking statistics of seven years from 2008-2014 in this paper. Three input variables education spending, health spending and social spending are taken as percentage of GDP and Output variables include life expectancy at birth, Infant Survival Rate (ISR), 25-34 years old population with tertiary education, unemployment rate and Corruption index. DEA is applied to gauge the technical efficiency of the chosen DMUs under the assumptions of CRS and VRS and then Scale efficiency is estimated. There are 9 countries on the frontier under CRS while France is the least efficient one and total CRS efficiency score is 94%. Under VRS, 15 countries are on the frontier and the least efficient one is Belgium while total efficiency under VRS is 97%. Switzerland is the least efficient country under Scale efficiency and there are 9 countries on the frontier. Total Scale Efficiency is 97%. Then second stage analysis is executed in order to further scrutinize the European and Non-European countries by taking CRS & VRS efficiency scores as dependent variable and the independent variables include GDP per capita growth rate, Government Stability, Income Inequality, Labor Force Participation rate (between 15-64 years), Human development Index (HDI) and one Dummy variable that take 1 for non-European and 0 for European countries. The second stage analysis shows a significant positively related impact of GDP Per Capita Growth Rate and Government Stability over efficiency. There is a negative relation between Income inequality HDI income inequality is statistically significant while HDI is insignificant statistically because it is a combination variable. All the computed results for truncated regression are calculated at 95% confidence interval.
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