An Indicator for the Economic Performance and Ecological Sustainability of Nations

This document proposes a new indicator to assess countries' sustainability. The indicator synthetises measures of economic and ecological efficiency. In other words, we assess the ability of countries to use resources to produce the maximum possible amounts of goods and services while keeping production activities' impact on the environment as low as possible. The measure of ecological efficiency is the ecological reserve/deficit (ERD), which is based on the concept of ecological footprint. The new indicator is computed using the data envelopment analysis (DEA) model, a well-known non-parametric technique that delivers measures of productive efficiency by comparing outputs to inputs used in production. We modify the standard DEA model in two ways. Firstly, we allow for negative input and output data. Secondly, to increase DEA discriminating power of countries, we compute anti-efficiency measures. This allows us to obtain a ranking of countries based on the best and worst performances. Results show that the new efficiency indicator is valid and that high ERD positively influences the ranking of countries. Introducing anti-efficiency provides more plausible results and a more accurate ranking, for example high-polluting countries like China previously economically efficient are now ranked as low efficient when sustainability is taken into account.