The Quantitative Comparative Economics: indices of similarity to economic systems

TL;DR

This paper introduces a set of quantitative, distance-based indices to objectively classify and analyze countries' economic systems along a continuous spectrum, improving upon subjective categorical methods.

Contribution

It proposes novel institutional similarity indices grounded in mathematical rigor, enabling more accurate and objective comparative economic analysis.

Findings

High explanatory power of the indices in classifying countries

Effective mapping of economic systems on GIS maps

Indices capture structural and institutional nuances

Abstract

This paper presents a novel quantitative approach for comparative economic studies, addressing limitations in current classification methods. Conventional approaches in comparative economics often rely on ad hoc and categorical classifications, leading to subjective judgments and disregarding the continuous nature of the spectrum of economic systems. These can result in subjectivity and significant information loss, particularly for countries with systems near categorical borders. To overcome these shortcomings, the present paper proposes distance-based indices for objective categorization, considering economic foundations and using hard data. Accordingly, the paper introduces institutional similarity indices--Capitalism Similarity Index (CapSI), Communism Similarity Index (ComSI), and Socialism Similarity Index (SocSI)-which reflect countries' positions along the economic system continuum. These indices adhere to mathematical rigor and are grounded in the mathematical fields of real analysis, metric spaces, and distance functions. By classifying 135 countries and creating GIS maps, the practical applicability of the proposed approach is demonstrated. Results show a high explanatory power of the introduced indices, suggesting their beneficial usage in comparative economic studies. The paper advocates for their adoption due to their objectivity and ability to capture structural and institutional nuances without subjective judgments while also considering the continuous nature of the spectrum of economic systems.