Sustainable Transformation Potential in European Union Countries: A Composite Index Approach and Analysis of Associated Factors

This study develops an integrated approach to assessing the Sustainable Transformation Potential of European Union countries. The analysis uses a balanced panel of 27 EU member states for 2015–2024. The Sustainable Transformation Potential Index (STPI) integrates human capital, innovation potential, and green transformation. Principal Component Analysis (PCA) determines dimension weights, while alternative normalization and weighting methods assess index robustness. Five mutually exclusive rule-based country profiles are identified. Associations between STPI and economic, technological, and investment conditions are examined using a two-way fixed-effects model with Driscoll–Kraay standard errors. GDP per capita and ICT specialization show positive and statistically significant associations with STPI, whereas gross fixed capital formation is insignificant. Lagged estimates preserve the positive associations of GDP per capita and ICT specialization, although the GDP per capita result is sensitive to functional form. A joint Wald test confirms that the selected determinants are collectively associated with STPI without establishing causal relationships or synergies. The findings reveal substantial differences in the configuration of transformation-related capacities across EU countries, including cases where similar composite scores reflect contrasting component profiles. The study contributes a reproducible framework for examining these differences and their associated conditions rather than predicting future sustainability outcomes. PCA provides data-driven weights for preselected dimensions without establishing construct validity. An external benchmark comparison across the EU-27 yields a Spearman rank correlation of 0.886 with the European Innovation Scoreboard and 0.553 with the European SDG Index, revealing both substantial overlap and country-specific divergences that clarify the added descriptive value of the three-dimensional STPI profiles.