PROSPERITY INDEX AS A MEASURE OF WELLBEING IN EUROPEAN UNION AND WESTERN BALKAN COUNTRIES

Abstract

Composite indices have recently become a very popular measure for tracking the progress of national economies. One of them is Legatum Prosperity Index (LPI), a relatively new and comprehensive indicator, which describes in a unique way the level and the dynamics of prosperity in the countries across the world. In this paper, prosperity of European Union and Western Balkan states during the last ten years was analyzed and its drivers investigated, using data for LPI. Also, analysis was performed of the relationships of LPI with GDP per capita and Human Development Index, as well as of the deviation of LPI level from the one that could be expected based on GDP per capita level for each observed country. In addition, the paper examines convergence/divergence between developing European countries and old EU members according to the level of LPI and the key dimensions and components of this indicator. Results indicate that new member states have the most room for improvement in the Institutional dimension, or more precisely in the Personal Freedom component, whereas Western Balkan countries could speed up their prosperity by investing more into Environment, as well as into Education, Health, and Personal Freedom.