Global Competitiveness Index
Some Basic Facts
- Released by Global Competitiveness Network (GCN) of the World Economic Forum (WEF) in collaboration with Columbia University.
- Assesses and ranks the countries for economic competitiveness with particular focus on macroeconomic environment. quality of the country’s institutions, and the state of the country’s technology and supporting infrastructure.
- Competitiveness has been defined as “the set of institutions, policies, and factors that determine the level of productivity of a country”.
- The GCI was officially launched in 2006, and is a more comprehensive version of the previously used Growth Competitiveness Index (GCR). GCR was first released in 1979.
The GCI measures “the set of institutions, factors and policies that set the sustainable current and medium-term levels of economic prosperity” (in other words, those factors that facilitate or drive productivity).
The index is composed of nine pillars and takes into account countries’ different stages of economic development, and organizes the nine pillars into three specific sub-indices:
- Macroeconomic Stability
- Health and Primary Education
- Higher Education and Training
- Goods Market Efficiency
- Labor Market Efficiency
- Financial Market Sophistication
- Technological Readiness
- Market Size
Innovation and sophistication factors:
- Business Sophistication
The pillars and their significance:
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 goods markets (pillar 6), efficient labor markets (pillar 7), developed financial markets (pillar 8), the ability to harness the benefits of existing technologies (pillar 9), and its market size, both domestic and international (pillar 10).
Finally, as countries move into the innovation-driven stage, they are only able to sustain higher wages and a higher standard of living if their businesses are able to compete by providing new or unique products. At this stage, companies must compete by producing new and different goods using the most sophisticated production processes (pillar 11) and through innovation (pillar 12).
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 income of the nation. The weights used are the values that best explain growth in recent years 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.
Components of GCI
- The GCI provides a weighted average of over 100 different variables, where each variable is considered to reflect one aspect of competitiveness. Approximately two-thirds of these come from the Executive Opinion Survey (EOS), and one third comes from publicly available sources (i.e. The World Bank, The World Health Organization, and UNESCO).
- The geographical coverage varies, with the latest index covering more than 130 countries.
- Uses a 1-7 scale (higher average score means higher degree of competitiveness).
The Global Competitiveness Index is somewhat similar annual reports are the Ease of Doing Business Index and the Indices of Economic Freedom. They also look at factors that affect economic growth, but not as many as the Global Competitiveness Report.
GCI for 2012-2013:
India Ranks 59 for 2012-13 and slipped three places down compared to 2011-12.
India’s ranking declined by three places owing to “disappointing performance” in the basic factors underpinning competitiveness. India was once ahead of Brazil and South Africa, now trails them by some 10 places and lags behind China by a margin of 30 positions. According to the report, India continues to be penalised for its disappointing performance in the areas considered to be the basic factors underpinning competitiveness. The report notes that India’s infrastructure is largely “insufficient” and “ill-adapted” to the needs of the economy. Moreover the country also faces problem areas such as corruption and bureaucracy.