The Global Competitiveness Report: The Global Competitiveness Report: A Tool for Fostering Better PoliciesA Tool for Fostering Better Policies

8th November, 2005

Augusto Lopez-ClarosChief Economist & Director

Global Competitiveness ProgrammeWorld Economic Forum

Geneva, Switzerland

2

Contents

Part I. Global Competitiveness Programme

• What do we mean by

“competitiveness” ?

Part II. The Growth Competitiveness Index

• Results and Analysis

Part III. Global Competitiveness Index

• Macroeconomy and Public Institutions

• Results and Analysis

3

Competitiveness is defined as the set of factors, policies and

institutions that determine the level of productivity of a

country

A more competitive economy is one that is likely to grow

faster over the medium to long run

We try to shed light on “the factors, policies and institutions”

that determine the sharply different growth experiences of

117 economies worldwide

Part I. Global Competitiveness Programme:What do we mean by “competitiveness” ?

4

Global Competitiveness Programme: What are we trying to achieve?

GDP per capita, PPP in international dollars

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

1955 1960 1965 1970 1975 1980 1985 1990 1995 2000

Sources: Penn World Tables, WEO Database, April 2005

Argentina

Ghana

Taiw an

5

The Global Competitiveness Programme

Key insights gained from competitiveness programme

1. The factors that determine the level of productivity of

a country are many and spread over a large number

of areas

2. These factors matter differently for different

countries depending on their stage of development

3. Their relative importance changes over time

6

Growth Competitiveness Index

Technology Transfer Sub-Index

Information & Communications

Technology Subindex

Technology IndexMacroeconomic

Environment IndexPublic Institutions

Index

Contracts and law Sub-Index

Corruption Sub-Index

Macroeconomic stability Sub-Index

Innovation Sub-Index

Country CreditRating

GovernmentWaste

Part II. The Growth Competitiveness Index

7

Growth Competitiveness Index Components(out of 117)

CountryGCI

overallTechnology

index

Public Institutions

indexMacroeconomy

indexFinland 1 2 5 4United States 2 1 18 23Sweden 3 4 17 12Denmark 4 5 2 3Iceland 7 9 3 11Japan 12 8 14 42United Kingdom 13 17 12 18

Germany 15 16 8 28

Chile 23 35 22 15

Spain 29 27 36 24

China 49 64 56 33

India 50 55 52 50

Mexico 55 57 71 43

Brazil 65 50 70 79

Turkey 66 53 61 87Argentina 72 59 74 86Russia 75 73 91 58

8

Public Institutions Rankings(out of 117)

Country

Public Institutions

Index

Contracts and Laws

subindexCorruption subindex

Singapore 4 5 3Finland 5 3 5Germany 8 6 20United Kingdom 12 12 12Japan 14 21 8Sweden 17 19 11United States 18 20 14Chile 22 34 13Taiwan 26 33 24Spain 36 47 28India 52 37 78China 56 62 50Turkey 61 59 64Brazil 70 77 62Mexico 71 79 60Argentina 74 100 57Russia 91 109 76

9

Public Institutions Ranking: Key Variables(out of 117)

CountriesProperty Rights

Judicial Independence

Government Favoritism

Burden of govt

regulationSingapore 6 19 3 1Finland 13 12 5 5Germany 1 1 13 80United Kingdom 7 9 16 51Japan 17 22 19 31Sweden 21 36 9 24United States 2 17 33 20Chile 31 47 20 18Taiwan 29 44 17 4Spain 33 55 52 25India 32 23 53 76China 71 65 59 30Turkey 58 57 64 65Brazil 60 72 69 115Mexico 66 60 71 96Argentina 110 105 97 101Russia 108 102 106 110

10

Macroeconomic Environment Rankings(out of 117)

Country

Macro. Environment

Index

Macro. Stability

subindexGovernment

WasteCountry Credit

RatingSingapore 1 10 1 15Finland 4 13 10 4Sweden 12 16 31 11Chile 15 3 19 32Taiwan 17 17 12 24United Kingdom 18 32 27 4United States 23 47 20 6Spain 24 31 24 17Germany 28 65 37 10China 33 27 44 37Japan 42 78 68 19Mexico 43 36 55 45India 50 41 63 53Russia 58 42 93 54Brazil 79 81 111 62Argentina 86 50 91 107Turkey 87 111 76 69

11

Macroeconomic Environment Rankings: Key Variables(out of 117)

CountriesGovt surplus/

deficit Govt debt /GDP REER InflationSingapore 7 107 40 22Finland 15 38 76 7Sweden 23 58 69 13Chile 13 7 26 13Taiwan 76 31 25 21United Kingdom 73 41 87 17United States 92 76 49 40Spain 31 53 97 47Germany 86 78 82 23China 57 28 54 59Japan 113 114 48 6Mexico 49 15 50 68India 116 69 63 57Russia 9 19 111 103Brazil 68 59 8 83Argentina 78 111 2 63Turkey 117 89 109 102

12

Technology Index Rankings(out of 117)

CountryTechnology

IndexInnovation subindex

ICT subindex

Tech transfer subindex

United States 1 1 3 --Finland 2 2 5 --Sweden 4 4 4 --Denmark 5 10 1 --Japan 8 5 17 --Singapore 10 13 8 --Norway 13 12 14 --Germany 16 9 20 --United Kingdom 17 16 15 --Portugal 20 35 30 3Spain 27 28 32 13Chile 35 38 37 17Brazil 50 68 52 18Turkey 53 56 54 29India 55 76 67 6Mexico 57 73 57 27Argentina 59 34 59 39

13

Part III. The Global Competitiveness Index

The Growth Competitiveness Index is a simple structure which

captures some of the key drivers of growth.

It does not incorporate concepts which the theory or empirical

observation suggests are important determinants of competitiveness.

For instance, the functioning of labour markets, the quality of a country’s

infrastructure, the state of public health and the size of the market.

The Global Competitive Index tries to assess both the macroeconomic

and microeconomic determinants of competitiveness in one index

14

The Global Competitiveness Index

Three stages of development:

1. “Factor-driven stage”

Firms compete in prices, taking advantage of cheap factorse.g., India, China, Ukraine

2. “Efficiency-driven stage”

Efficient production practices to increase productivity

e.g., Poland, Brazil, Mexico

3. “Innovation-driven stage”

Economies need to produce innovative products using

sophisticated production methodse.g., Finland, Germany, Japan

15

The Global Competitiveness Index

The Nine Pillars of Competitiveness

1. Institutions

2. Infrastructure

3. Macroeconomy

4. Health and Primary Education

5. Higher Education and Training

6. Market Efficiency (goods, labour,

financial)

7. Technological Readiness

8. Business Sophistication

9. Innovation

Basic requirements

Key for factor-

driven economies

Efficiency enhancers

Key for efficiency-

driven economiesInnovation and

sophistication

factors

Key for innovation-

driven economies

16

Weights given to the groups of pillars (subindexes)

The Global Competitiveness Index

Weights Basic Requirements Efficiency Enhancers Innovation and

Sophistication Factors

Factor-Driven Stage 50% 40% 10%

Efficiency-Driven Stage 40% 50% 10%

Innovation-Driven Stage 30% 40% 30%

17

The Global Competitiveness IndexList of countries in each stage

18

Top performers in the nine pillars

The Global Competitiveness Index

Country Institutions InfrastructureMacro-

economy

Health and Primary

Education

Higher education and

trainingMarket

EfficiencyTechnological

ReadinessBusiness

Sophistication Innovation

Singapore 1 5 9 69 8 4 20 9

Denmark 2 16 23 3 5 2 4 10

Chile 27 34 25 42 24 36 31 41

Japan 26 9 93 16 16 17 2

Finland 3 10 10 10 12 12 12 4

United States 16 8 62 47 2 5 3

Turkey 56 64 116 93 55 57 50 41 51

1

1

1

1

1

1

1

1

1

19

The Global Competitiveness Index

Public Institutions

Property rights

Diversion of public funds

Public trust of politicians

Judicial independence

Favoritism in decision of government officials

Wastefulness of government spending

Burden of government regulation

Business costs of terrorism

Reliability of police services

Business costs of crime and violence

Organized crime

Macroeconomy

Government surplus/deficit

National savings rate

Inflation

Interest rate spread

Government debt / GDP ratio

Real effective exchange rate

Technology & Innovation

Country technological readiness

Capacity for innovation

Technology absorption by firms

FDI and technology transfer

Spending on R&D

Technology penetration (cell

phones, Internet users, PCs)

Quality of scientific research

institutions

Academic/Private sector research

collaboration

Availability of scientists and

engineers

Appropriate legal framework and

intellectual property protection