Measuring rural economic development in Norway using data envelopment analysis

During the 1980s Norway was troubled with overcapacity in the agricultural sector. The rural development support scheme (RDSS) was introduced. Farmers were encouraged to invest in forestry-related projects and rural business. More than 15 evaluations of the RDSS are undertaken, all of them having severe methodological weakness. The following study introduces a new tool, when analyzing a public support scheme like the RDSS in Norway. Data envelopment analysis (DEA) is a multi-input, multi-output optimization model used to measure relative efficiency of the best practice counties. The analysis is a two-stage study. In step one, it is found that 13 of the 18 (72%) counties in Norway are generating less output in the form of employment from a given level of the RDSS-budget than technically possible. In step two, a reallocation of the budget is shown for the purpose of maximizing the output of job establishments in rural Norway. The DEA is seen as a useful tool in measuring the efficiency of the RDSS at regional level in Norway.