Introducing the BCG Sustainable Economic Development Assessment

Introducing the BCG Sustainable Economic Development Assessment

          
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Introducing the BCG Sustainable Economic Development Assessment

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    Assessing Long-term Sustainability

    In addition to assessing current well-being and recent progress, SEDA also analyzes sustainability, which provides a sense of how well nations are positioned for the future. Assessing sustainability is difficult but important because of its potential value in creating development strategies.

    As we developed our methodology, we found that five of our ten key sustainability factors have an especially large impact on the ten dimensions of socioeconomic development: education and skills development, health care, investment capacity, public finances, and economic institutions. (See Exhibit 4.)

    exhibit

    Education and skills development illustrate the way in which a sustainability factor can influence multiple dimensions of development. This factor comprises five indicators: female primary enrollment, tertiary gross enrollment, years of primary through tertiary schooling, the ratio of public-school teachers to students, and average test scores in math and science. Any one or a combination of these indicators will have an impact on the long-term sustainability of improvements in income, economic stability, income equality, civil society, governance, education, health, and environmental stewardship.

    As with the indicators used to measure current-level development and recent progress on each dimension of social and economic development, we identified the best available measurements and data sources for each indicator of sustainability. We then scored each country’s ability to sustain development along each of the ten dimensions, as well as overall.

    To confirm that the framing and mix of our indicators correspond to the impact of the key sustainability factors on future changes in a country’s social and economic development, we performed two basic back-testing exercises. (For details, see the Appendix.) First, we compared each country’s improvements in the key sustainability factors with its 2011 recent-progress SEDA score. Second, we compared each country’s improvement in the key sustainability factors with improvements in its current-level score. Both tests had positive results, suggesting that countries that improved the most over the past decade in terms of sustainability factors register higher recent-progress scores as well as greater improvement in current-level scores. This persuaded us that SEDA is using the right indicators to analyze levels of well-being and their sustainability, though additional testing is necessary.

    To get a clearer picture of which sustainability factors distinguish countries with high scores from those with low scores, we again compared groups of countries at similar levels of economic development. One interesting contrast is between the underperforming economies of Portugal, Italy, Ireland, Greece, and Spain and the rest of Western Europe. All five nations lag behind their European peers in investment capacity and public finances, and all but Ireland lag in economic institutions. (See Exhibit 5.)

    exhibit

    We also compared the potential for improvement in three low-income emerging markets in Southeast Asia—Vietnam, Indonesia, and the Philippines. As factory wages rise in China, each of these countries is vying to attract manufacturing investment from foreign companies. Their ability to continue their socioeconomic development is therefore important.

    Vietnam, Indonesia, and the Philippines show common weaknesses in long-term sustainability, scoring poorly in investment capacity, economic institutions, and infrastructure development. Interestingly, while Indonesia’s current-level and recent-progress SEDA scores are the highest of the three, Vietnam has the strongest key sustainability factors, scoring far higher in health care, for example. (See Exhibit 6.) Vietnam scores better in social development as well, largely because of high levels of public safety and trust and stronger intergroup cohesion, and it leads in economic dynamism. Vietnam also leads the Philippines and Indonesia in indices measuring innovation capacity and the ability to do business, suggesting greater potential to increase its pace of improvement.

    exhibit