How we got Here? A Methodology to Study the Evolution of Economies

Abstract

This paper proposes a methodology to analyze the evolution of the economic development of countries. Our approach is based upon the definition of temporal trajectories of countries in a common bidimensional space yielded by a High-Order Singular Value Decomposition (HOSVD). These trajectories are defined with respect to a pre-selected set of macroeconomic indicators and are appropriate for comparison purposes. To show the applicability of the proposed methodology we have used data from the World Bank concerning the economic and financial development of EU-27 over a 14-year span, that goes from 1995 to 2008. Based on this data we group the EU-27 state members according to their economic development, which is indicated by the position of their trajectories on the plane. We further perform individual analyses of the trajectories of Luxembourg, Germany and Portugal, aiming to both detect and interpret trends and changes in these economies. The results show that this methodology is of importance for economic studies, since it can help the design, monitoring and evaluation of specific economic policies, as well as provide an overview of the evolution of the studied economic phenomenon.European Union, HOSVD, International Comparisons, Temporal Trajectories