The Competitiveness of the EU Countries: A Multi-dimensional Cluster Analysis Approach

Abstract

Considering the changing concepts of competitiveness in current economic literature, the chapter evaluates competitiveness using various approaches to definition and measurement across the EU countries. In particular, three dimensions of competitiveness evaluation were identified and used in the analysis. In the first dimension, the traditional cost-based measures were applied to assess and compare competitiveness and its development over time in the EU countries. The second dimension captures the potential of a country to attract firms to establish and sustain high-skilled enterprises in a country. Descriptive comparative analysis is used to evaluate the EU countries using the traditional cost-based competitiveness measures approach. The analysis of the second and third dimensions concentrates more on evaluating the similarity of countries in terms of the entire sets of competitive indicators examined in each dimension. Hence, the multi-dimensional cluster analysis is applied for clusters’ identification. Also the dynamics analysis was applied to examine changes in clustering structures over time. The paper finds that, although traditional cost-based measures of competitiveness suggest a clear division between the core EU countries and the periphery, in addition to the new member states, measures based on infrastructure, human capital and the institutional environment do not confirm the existence of these three country groups. However, when innovation potential is included as a measure of competiveness, a stable division of two country groups consisting of core countries, on one hand, and the periphery plus the new member states, on the other, emerges.