Global Competitiveness Report

The Global Competitiveness Report is a yearly report published by the World Economic Forum

World Economic Forum

The World Economic Forum is a Geneva-based non-profit foundation best known for its annual meeting in Davos, Switzerland which brings together top business leaders, international political leaders, selected intellectuals and journalists to discuss the most pressing issues facing the world...

. The first report was released in 1979. The 2009-2010 report covers 133 major and emerging economies, down from 134 considered in the 2008-2009 report as Moldova

Moldova

Moldova , officially the Republic of Moldova is a landlocked country in Eastern Europe, located between Romania to the west and Ukraine to the north, east and south....

 was excluded due to lack of survey data. Switzerland

Switzerland

Switzerland , officially the Swiss Confederation , is a federal republic consisting of 26 states named cantons, with Bern as the seat of the federal authorities...

 leads the ranking as the most competitive economy in the world, as the United States

United States

The United States of America is a federal constitutional republic comprising fifty states and a federal district...

, which ranked first for several years, fell to second place due to the consequences of the financial crisis of 2007–2009

Financial crisis of 2007–2009

The financial crisis of 2007–2009 has been called the worst financial crisis since the one related to the Great Depression by leading economists, and it contributed to the failure of key businesses, declines in consumer wealth estimated in the trillions of U.S. dollars, substantial financial...

 and its macroeconomic stability.

The report "assesses the ability of countries to provide high levels of prosperity to their citizens.

The Global Competitiveness Report is a yearly report published by the World Economic Forum

World Economic Forum

The World Economic Forum is a Geneva-based non-profit foundation best known for its annual meeting in Davos, Switzerland which brings together top business leaders, international political leaders, selected intellectuals and journalists to discuss the most pressing issues facing the world...

. The first report was released in 1979. The 2009-2010 report covers 133 major and emerging economies, down from 134 considered in the 2008-2009 report as Moldova

Moldova

Moldova , officially the Republic of Moldova is a landlocked country in Eastern Europe, located between Romania to the west and Ukraine to the north, east and south....

 was excluded due to lack of survey data. Switzerland

Switzerland

Switzerland , officially the Swiss Confederation , is a federal republic consisting of 26 states named cantons, with Bern as the seat of the federal authorities...

 leads the ranking as the most competitive economy in the world, as the United States

United States

The United States of America is a federal constitutional republic comprising fifty states and a federal district...

, which ranked first for several years, fell to second place due to the consequences of the financial crisis of 2007–2009

Financial crisis of 2007–2009

The financial crisis of 2007–2009 has been called the worst financial crisis since the one related to the Great Depression by leading economists, and it contributed to the failure of key businesses, declines in consumer wealth estimated in the trillions of U.S. dollars, substantial financial...

 and its macroeconomic stability.

The report "assesses the ability of countries to provide high levels of prosperity to their citizens. This in turn depends on how productively a country uses available resources. Therefore, the Global Competitiveness Index measures the set of institutions, policies, and factors that set the sustainable current and medium-term levels of economic prosperity."

Description

Somewhat similar annual reports are the Ease of Doing Business Index

Ease of Doing Business Index

The Ease of Doing Business Index is an index created by the World Bank. Higher rankings indicate better, usually simpler, regulations for businesses and stronger protections of property rights...

 and the Indices of Economic Freedom

Indices of Economic Freedom

The annual survey Economic Freedom of the World is an indicator produced by the Fraser Institute, a conservative and libertarian think tank which attempts to measure the degree of economic freedom in the world's nations...

. They also look at factors that affect economic growth, but not as many as the Global Competitiveness Report.

One part of the report is the Executive Opinion Survey which is a survey of a representative sample of business leaders in their respective countries. Respondent numbers have increased every year and is currently just over 11,000 in 125 countries. http://www.weforum.org/en/initiatives/gcp/FAQs/index.htm

The report ranks the world's nations according to the Global Competitiveness Index. The report states that it is based on the latest theoretical and empirical research. http://www.weforum.org/pdf/Global_Competitiveness_Reports/Reports/gcr_2006/gcr2006_summary.pdf It is made up of over 90 variables

Variable (mathematics)

A variable is a symbol that stands for a value that may vary; the term usually occurs in opposition to constant, which is a symbol for a non-varying value, i.e. completely fixed or fixed in the context of use...

, of which two thirds come from the Executive Opinion Survey, and one third comes from publicly available sources such as the United Nations

United Nations

The United Nations is an international organization whose stated aims are facilitating cooperation in international law, international security, economic development, social progress, human rights, and the achieving of world peace...

. The variables are organized into nine pillars, with each pillar representing an area considered as an important determinant of competitiveness.

The report notes that as a nation develops, wages tend to increase, and that in order to sustain this higher income, labor productivity

Productivity

Productivity is a measure of output from a production process, per unit of input. For example, labor productivity is typically measured as a ratio of output per labor-hour, an input. Productivity may be conceived of as a metric of the technical or engineering efficiency of production. As such, the...

 must improve in order for the nation to be competitive. In addition, what creates productivity in Sweden

Sweden

Sweden , officially the Kingdom of Sweden , is a Nordic country on the Scandinavian Peninsula in Northern Europe...

 is necessarily different from what drives it in Ghana

Ghana

The Republic of Ghana is a country in West Africa which borders Côte d'Ivoire to the west, Burkina Faso to the north, Togo to the east, and the Gulf of Guinea to the south...

. Thus, the GCI separates countries into three specific stages: factor-driven, efficiency-driven, and innovation-driven, each implying a growing degree of complexity in the operation of the economy.

In the factor-driven stage countries compete based on their factor endowments, primarily unskilled labor and natural resources. Companies compete on the basis of prices and sell basic products or commodities, with their low productivity reflected in low wages. To maintain competitiveness at this stage of development, competitiveness hinges mainly on well-functioning public and private institutions (pillar 1), appropriate infrastructure

Infrastructure

Infrastructure can be defined as the basic physical and organizational structures needed for the operation of a society or enterprise, or the services and facilities necessary for an economy to function....

 (pillar 2), a stable macroeconomic framework (pillar 3), and good health

Health

At the of the creation of the World Health Organization , in 1948, Health was defined as being "a state of complete physical, mental, and social well-being and not merely the absence of disease or infirmity"....

 and primary education

Primary education

A primary school is an institution where children receive the first stage of compulsory education known as primary or elementary education. Primary school is the preferred term in the United Kingdom and many Commonwealth Nations, and in most publications of the United Nations Educational,...

 (pillar 4).

As wages rise with advancing development, countries move into the efficiency-driven stage of development, when they must begin to develop more efficient production processes and increase product quality. At this point, competitiveness becomes increasingly driven by higher education and training (pillar 5), efficient markets (pillar 6), and the ability to harness the benefits of existing technologies (pillar 7).

Finally, as countries move into the innovation-driven stage, they are only able to sustain higher wages and the associated standard of living

Standard of living

Standard of living is generally measured by standards such as real income per person and poverty rate. Other measures such as access and quality of health care, income growth inequality and educational standards are also used. Examples are access to certain goods , or measures of health such as...

 if their businesses are able to compete with new and unique products. At this stage, companies must compete by producing new and different goods using the most sophisticated production processes (pillar 8) and through innovation (pillar 9).

Thus, the impact of each pillar on competitiveness varies across countries, in function of their stages of economic development. Therefore, in the calculation of the GCI, pillars are given different weights depending on the per capita

Per capita

Per capita is a term adapted from Latin phrase pro capite meaning "per head" with pro meaning "per" or "for each", and capite meaning "head." Both words together equate to the phrase "for each head."...

 income of the nation. http://www.weforum.org/pdf/Global_Competitiveness_Reports/Reports/gcr_2006/chapter_1_1.pdf The weights used are the values that best explain growth in recent years http://www.columbia.edu/~xs23/papers/WEC_00220_00701_Snowdon.pdf For example, the sophistication and innovation factors contribute 10% to the final score in factor and efficiency-driven economies, but 30% in innovation-driven economies. Intermediate values are used for economies in transition between stages.

2008-2009 Rankings

The following are the top 30 countries in the 2008-2009 Report.

1. 5.74


2. 5.61


3. 5.58


4. 5.53


5. 5.53


6. 5.50


7. 5.46


8. 5.41


9. 5.38


10. 5.37

11. SAR 5.33


12. 5.30


13. 5.28


14. 5.23


15. 5.22


16. 5.22


17. 5.22


18. 5.20


19. 5.14


20. 5.05

21. Malaysia 5.04


22. 4.99


23. 4.97


24. 4.93


25. 4.85


26. 4.83


27. 4.72


28. 4.72


29. 4.72


30. 4.70

Variables

1. Institutions

A. Public institutions

1. Property rights

1.01 Property rights

2. Ethics and corruption

1.02 Diversion of publics funds

1.03 Public trust of politicians

3. Undue influence

1.04 Judicial independence

1.05 Favoritism in decisions of government officials

4. Government inefficiency (red tape, bureaucracy and waste)

1.06 Wastefulness of government spending

1.07 Burden of government regulation

5. Security

1.08 Business costs of terrorism

1.09 Reliability of police services

1.10 Business costs of crime and violence

1.11 Organized crime

B. Private institutions

1. Corporate ethics

1.12 Ethical behavior of firms

2. Accountability

1.13 Efficacy of corporate boards

1.14 Protection of minority shareholders’ interests

1.15 Strength of auditing and accounting standards

2. Infrastructure

2.01 Overall infrastructure quality

2.02 Railroad infrastructure development

2.03 Quality of port infrastructure

2.04 Quality of air transport infrastructure

2.05 Quality of electricity supply

2.06 Telephone lines (hard data)

3. Macroeconomy

3.01 Government surplus/deficit (hard data)

3.02 National savings rate (hard data)

3.03 Inflation (hard data)

3.04 Interest rate spread (hard data)

3.05 Government debt (hard data)

3.06 Real effective exchange rate

Trade weighted index

The Trade Weighted Index, also known as the effective exchange rate, is a multilateral exchange rate which is a weighted average of exchange rates of home and foreign currencies, with the weight for each foreign country equal to its share in trade...

(hard data)

4. Health and primary education

A. Health

4.01 Medium-term business impact of malaria

4.02 Medium-term business impact of tuberculosis

4.03 Medium-term business impact of HIV/AIDS

4.04 Infant mortality (hard data)

4.05 Life expectancy (hard data)

4.06 Tuberculosis prevalence (hard data)

4.07 Malaria prevalence (hard data)

4.08 HIV prevalence (hard data)

B. Primary education

4.09 Primary enrolment (hard data)

5. Higher education and training

A. Quantity of education

5.01 Secondary enrolment ratio (hard data)

5.02 Tertiary enrolment ratio (hard data)

B. Quality of education

5.03 Quality of the educational system

5.04 Quality of math and science education

5.05 Quality of management schools

C. On-the-job training

5.06 Local availability of specialized research and training services

5.07 Extent of staff training

6. Market efficiency

A. Good markets: Distortions, competition, and size

1. Distortions

6.01 Agricultural policy costs

6.02 Efficiency of legal framework

6.03 Extent and effect of taxation

6.04 Number of procedures required to start a business (hard data)

6.05 Time required to start a business (hard data)

2. Competition

6.06 Intensity of local competition

6.07 Effectiveness of antitrust policy

6.08 Imports (hard data)

6.09 Prevalence of trade barriers

6.10 Foreign ownership restrictions

3. Size

0.00 GDP – exports + imports (hard data)

6.11 Exports (hard data)

B. Labor markets: Flexibility and efficiency

1. Flexibility

6.12 Hiring and firing practices

6.13 Flexibility of wage determination

6.14 Cooperation in labor-employer relations

2. Efficiency

6.15 Reliance on professional management

6.16 Pay and productivity

6.17 Brain drain

6.18 Private sector employment of women

C. Financial markets: Sophistication and openness

6.19 Financial market sophistication

6.20 Ease of access to loans

6.21 Venture capital availability

6.22 Soundness of banks

6.23 Local equity market access

7. Technological readiness

7.01 Technological readiness

7.02 Firm-level technology absorption

7.03 Laws relating to ICT

7.04 FDI and technology transfer

7.05 Cellular telephones (hard data)

7.06 Internet users (hard data)

7.07 Personal computers (hard data)

8. Business sophistication

A. Networks and supporting industries

8.01 Local supplier quantity

8.02 Local supplier quality

B. Sophistication of firms’ operations and strategy

8.03 Production process sophistication

8.04 Extent of marketing

8.05 Control of international distribution

8.06 Willingness to delegate authority

8.07 Nature of competitive advantage

8.08 Value-chain presence

9. Innovation

9.01 Quality of scientific research institutions

9.02 Company spending on research and development

9.03 University/industry research collaboration

9.04 Government procurement of advanced technology products

9.05 Availability of scientists and engineers

9.06 Utility patents (hard data)

9.07 Intellectual property protection

9.08 Capacity for innovation http://www.weforum.org/pdf/Global_Competitiveness_Reports/Reports/gcr_2006/chapter_1_1.pdf

External links

• Global Competitiveness Report