Composite Indicators as a Useful Tool for International Comparison: The Europe 2020 Example

Composite indicators as a tool for a ranking become more and more popular, because they illustrate a comprehensive view on a phenomenon that cannot be captured by only one single indicator. Indicators for Europe 2020 are set of indicators used for monitoring targets defined by the European Commission in the Strategy of Smart, Sustainable and Inclusive Growth. The main objective of this paper is the comparison of performance of the EU Member States using the composite indicator principles. Within constructing composite indicators several steps have to be made and corresponding methods have to be chosen. There is not only one correct method how to develop a composite indicator. Of course, the choice of the methods manipulates the results. Primarily, normalisation methods, weighting schemes and aggregation formulas are fundamental but very subjective. This paper deals with two types of normalisation (z-score and min-max) and four weighting and aggregation schemes (equal weighting with linear aggregation, principal components analysis, benefit of doubt method and multi-criteria analysis). European countries ranking is provided according to the seven different scenarios.