The Economic and Social Performance of Nations: Efficiency and Returns to Scale

The authors, who earlier have applied data envelopment analysis to rank the economic performance of nations, propose to extend the calculations to take account of social variables such as education, health, and welfare policy as well. An empirical application is presented, rating 72 developed and developing countries by their economic and social performance during the time period 1970 to 1985. For each country, the efficiency rating and also a measure of returns scale - increasing, constant, or decreasing returns to scale (RTS) are calculated. The frequency of alternate optima, leaving the returns of scale indeterminate, is examined. For nations with increasing RTS, continued long-run growth of both GNP and social performance is indicated. For countries with decreasing RTS, a slowing down of both GNP and social performance is indicated. The data for countries exhibiting constant RTS is further investigated using more detailed RTS analysis tools and, for some of these countries, we show how the constant RTS characterization can be highly sensitive to changes in the data.