Cluster analysis of OECD countries in terms of Economic Freedom Index and World Happiness Report

Increasing the welfare of societies and countries and maintaining their lives in better living conditions are closely related to the economy of the countries. Economic freedom will be at its highest in a situation where the private sector has as much freedom as possible, free from government interference. It is thought that societies with higher economic freedom maintain a better life. So, what is the role of happiness in societies with high economic freedom? In this study, a cluster analysis was carried out by combining the "Economic Freedom Index" and "World Happiness Report" datasets published by the "Heritage Foundation" and benefiting from the relationship between economic freedom and happiness. The research was carried out for 31 OECD countries, including Turkey, covering 5 years from 2017 to 2021. In the research, 4 main factors from the Economic Freedom Index and 7 sub-factors from the World Happiness Report, a total of 11 factors were used. In the analysis, firstly, a dendrogram was created with Ward's method to determine the number of clusters, and at the same time, the elbow method was used and the optimal number of clusters was determined as 4. After the number of clusters was determined, the cluster analysis was performed with the k-means method. A decision tree was created for this purpose. In the light of this information, the clusters formed by the countries were interpreted. As a result of the cluster analysis, Mexico and Slovakia have been in the same cluster as Turkey for 5 years, besides Hungary and Poland for 4 years. The most influential factors in the formation of clusters were observed to be the rule of law,government size, healthy life expectancy at birth, social support, market openness, perception of corruption and regulatory efficiency. Keywords: OECD, Ward Method, k-means method, Decision Tree, Economic Freedom Index, World Happiness Report.