Global Competitiveness Index Essay ⋆ Business Essay Examples ⋆ EssayEmpire

The Global Competitiveness Index (GCI) is an aggregate measure of the set of critical factors that, as a group, determine the degree to which countries are expected to achieve levels of economic prosperity in the short and medium term. The GCI, introduced in 2004, was developed by Columbia University professor Xavier Sala-i-Martin for the World Economic Forum (WEF). The WEF, incorporated as a foundation in 1971, is a nonprofit, independent international organization based in Geneva, Switzerland. It publishes the annual competitiveness ranking of countries in its Global Competitiveness Report (GCR) based on the GCI. The report also includes comprehensive listings of the main strengths and weaknesses of countries, making it possible to identify critical areas in need of policy reform. While there are other similar reports published using their own competitiveness measures (e.g., Ease of Doing Business Index and the Indices of Economic Freedom), economists generally consider the WEF’s index and rankings as representing the most competitiveness.

The GCI rankings are calculated from both publicly available data—such as that provided by the United Nations—and the Executive Opinion Survey (EOS). The EOS is a comprehensive annual survey conducted by the WEF, together with its network of “Partner Institutes” (leading research institutes and business organizations) in the countries covered by the GCR. The EOS is designed to measure a wide range of factors that impact a country’s current and future business climate. For the 2007–08 EOS, approximately 11,000 business executives—deemed as representative leaders in their field—were polled in 131 countries. This represents the most comprehensive report to date in terms of number of countries included (the 2006–07 EOS covered 123 countries). Countries added to the 2007–08 EOS, and in turn the GCI, include Puerto Rico, Libya, Oman, Saudi Arabia, Senegal, Syria, and Uzbekistan. In addition, Serbia and Montenegro, previously analyzed as a single country, are now included separately. The theoretical empirical model used to determine the GCI rankings incorporates over 90 variables that relate to a country’s current and prospective economic profile. Two thirds of these variables come from the EOS and the remaining one-third from publicly available sources.

Pillars And Stages

The GCI is based on 12 categories—referred to in the GCR as “pillars”—of competitiveness. These categories as a whole provide a comprehensive picture of the competitiveness landscape in countries around the world at all stages of development. These categories are Institutions, Infrastructure, Macroeconomic Stability, Health and Primary Education, Higher Education and Training, Goods Market Efficiency, Labor Market Efficiency, Financial Market Sophistication, Technological Readiness, Market Size, Business Sophistication, and Innovation. Certain categories are more important than others within different countries in determining their degree of competitiveness. For example, what generates productivity in Denmark significantly differs from what drives it in Cameroon. This is because the two countries are in different stages of economic development. Accordingly, the GCI separates countries into three specific economic stages according to per capita income. These stages—designated “factor-driven,” “efficiency driven,” and “innovation-driven”—reflect a growing measure of complexity with regard to how a country’s particular economy operates.

In the factor-driven stage, countries compete based on their factor endowments, which are mainly unskilled labor and natural resources. Companies compete on the basis of prices of basic products or commodities and low productivity is accompanied by low wages. At this stage of development, competitiveness depends on a country having decent public and private institutions, acceptable infrastructure, a strong macroeconomic framework and good healthcare and basic education for its population.

As wages rise with growing development, countries move into the efficiency-driven stage of development. In this stage, they must begin to develop more efficient production processes and increase the quality of products they already make. At this point, competitiveness becomes increasingly driven by higher education and training, efficient markets, and the ability to harness the benefits of existing (or impacted) technologies. As countries eventually begin to compete through innovation, they are only able to support higher wages and a higher standard of living if their businesses are able to compete through product innovation as well as novel productivity-enhancing innovations.

Depending on which stage a country is in, the GCI for that country is calculated by giving greater weights to the more relevant pillars. The weights used are the values that best explain growth in recent years. For example, the sophistication and innovation factors contribute 10 percent to the final score in factor and efficiency-driven economies, but 30 percent in innovation-driven economies (values between 10 percent and 30 percent are applied for those economies in transition between stages).

GPI For 2007–08

The United States heads the GCI ranking for 2007–08. The GCR attributes this to its competitive economy, efficiency of its markets, sophistication of its business community, capacity for technological innovation, and its high-quality system of universities and research centers. Despite this ranking, the GCR notes that the United States has serious weaknesses in its macroeconomic structure as evidenced by the sub-prime mortgage crisis and the resulting credit crunch and shocks to the stock market. These problems can pose a risk to the country’s future overall competitive potential.

Switzerland and the Scandinavian countries of Denmark and Sweden follow the United States in the GPI ranking. The major European economies—Germany, United Kingdom (UK), and France—rank 5th, 9th, and 15th, respectively. While Germany moved up in the rankings compared to 2006–07, both the UK and France fell, suggesting that the United States has been moving ahead of western Europe in terms of overall competitiveness.

Estonia ranks the highest in eastern Europe (27th), followed by the Czech Republic (33rd). Hungry and Poland rank 44th and 48th, respectively. A number of important eastern European economies have seen their 2006–07 standing erode, including the Czech Republic, Hungary, and Poland, indicating a loss of competitiveness in this region. However, the Baltic region has continued to progress competitively. Estonia, Lithuania, and Latvia have all advanced in their GCI rankings, reflecting their growing integration into the western European economy.

Within Latin America, Chile (26th) ranks the highest. The rest of Latin America trails far behind and, for the most part, in the bottom half of all countries in competitiveness. The highest ranking Latin American countries in terms of competitiveness after Chile are Mexico (52nd), Costa Rica (63rd), El Salvador (67th), Colombia (69th), Brazil (72nd), and Uruguay (75th). Venezuela’s competitiveness slipped from 85th in 2006–07 to 90th in 2007–08, testifying to that country’s continuing and deep-seated economic and political problems. Within Asia, China (34th) and India (45th) continue to lead the way among large developing economies. However, both countries slipped competitively from their 2006–07 rankings. Indonesia at 54th place also remains formidable as a competitive force in the region. Several countries in the Middle East and North Africa are in the upper half of the rankings. Israel (17th) remains the dominant competitive economy in the region. The remaining countries, while ranking far lower than Israel, still reside comfortably in the top third of all GCI countries, including Kuwait (30th), Qatar (31st), Tunisia (32nd), Saudi Arabia (35th), and the United Arab Emirates (37th). In sub-Saharan Africa, only South Africa and Mauritius stand in the top half of the rankings, with several countries from the region positioned at the very bottom of the GCI, reflecting the persistent economic troubles and political and social dislocations that hinder the region’s global competitiveness.

Bibliography:

Robert Albritton, Political Economy and Global Capitalism: The 21st Century, Present and Future (Anthem Press, 2007);
European Commission, European Competitiveness Report: Staff Working Document (Office for Official Publications of the European Communities, 2002);
Sanford L. Moskowitz, The Advanced Materials Revolution: Technology and Economic Growth in the Age of Globalization (John Wiley & Sons, 2009);
Michael Porter, The Competitive Advantage of Nations (Free Press, 1991);
Brian Snowdon, Globalisation, Development and Transition: Conversations with Eminent Economists (Edward Elgar, 2007);
Richard H. K. Vietor, How Countries Compete: Strategy, Structure, and Government in the Global Economy (Harvard Business School Press, 2007).

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