Assessing Law and Order Assessing Law and Order The Lesson from the Global The Lesson from the Global Competitiveness Index and the Growth Competitiveness Index and the Growth Competitiveness IndexCompetitiveness Index

Irene Mia Senior Economist Global Competitiveness Network

“Measuring Law”- Workshop

Paris, December 15th- 16th, 2006

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Presentation of the Global Competitiveness Network.

The Global Competitiveness Report and our data sources.

The Global Competitiveness Index (GCI).

The Institution pillar of the GCI and analysis.

A brief analysis of the Growth Competitiveness Index (Growth

CI), and its Public Institution Index.

Outline

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Global Competitiveness Network

Flagship product: Global Competitiveness Report

Launched in 1979 covering 16 countries

The Report has since expanded its coverage to 125 countries.

2006 marks our 27th anniversary of measuring competitiveness

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Global Competitiveness Network

Regional and special topic reports in the coming months:

Gender Gap Study 2006

Lisbon Review 2006

Travel and Tourism Competitiveness Report 2007

Global Information Technology Report 2007

Arab World Competitiveness Report 2007

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Global Competitiveness NetworkGeographical coverage

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Global Competitiveness Report

The most comprehensive data set on competitiveness

Assesses the comparative strengths and weakness of a

large number of economies

Produced in collaboration with leading academics

worldwide and a global network of partner (research)

institutes

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A) Executive Opinion Survey :

It records the perspectives of business leaders around

the world; Survey data is indispensable, particularly for

variables where no reliable hard data sources exist

Respondents compare their own operating

environments with global standards on a wide range of

dimensions

B) Hard data generally available from international

sources

Global Competitiveness Report Which data do we use?

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The sample of respondents is carefully selected in each

country by the Partner Institute to reflect the structure of a

country’s business environment.

It is structured around eleven major issue areas, each of

significant relevance to the current state of an economy’s

business environment, the Survey asks participants to respond

to a total of 150 questions based on their own experiences of

operating a business in the country in which they are based

The Survey is translated into over 20 languages.

The Survey is also available online.

Record response rate this year of over 11,000 responses.

Global Competitiveness ReportThe Executive Opinion Survey

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Global Competitiveness ReportWhat are we trying to achieve?

Gross domestic product based on purchasing-power-parity per capita, 1980-2006

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006

Argentina

Australia

Korea

Malaysia

Source: International Monetary Fund, World Economic Outlook, September 2006

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Competitiveness is defined as the set of factors, policies and institutions that determine the level of productivity of a country

Because productivity is the main driver of investment in an economy and investment, in turn, unambiguously determines the rate of growth of the economy, we say that:

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

Global Competitiveness ReportWhat do we mean by competitiveness?

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Three stages of development:

The process of economic development evolves in three

stages captured by the model:

1. “Factor-driven stage”

Firms compete in prices, taking advantage of cheap factors

2. “Efficiency-driven stage”

Efficient production practices to increase productivity

3. “Innovation-driven stage”

Economies need to produce innovative products using

sophisticated production methods

Global Competitiveness Index

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Key for

efficiency-driven economies

Key for

factor-driven economies

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

Key for

innovation-driven economies

BASIC REQUIREMENTS

EFFICIENCY ENHANCERS

INNOVATION & SOPHISTICATIONS FACTORS

Global Competitiveness Index

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All pillars matter to a certain extent for all countries

However, the importance of each pillar depends on a

country’s particular stage of development

The pillars are organized into 3 subindexes, each critical to

one particular stage:

1. Basic requirements factor-driven stage

2. Efficiency enhancers efficiency-driven stage

3. Innovation and sophistication factors innovation-

driven stage

Global Competitiveness Index

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Global Competitiveness Index

Weights of the three main groups of pillars at each stage of development

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%

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6Global Competitiveness Rankings 2006-2007Top 20 and selected economies

2006 2005 2006 2005Rank Country Score rank change Rank Country Score Rank change

1 Switzerland 5.81 4 3 21 Ireland 5.21 21 0

2 Finland 5.76 2 0 28 Spain 4.77 28 0

3 Sweden 5.74 7 4 24 Korea, Rep. 5.13 19 -5

4 Denmark 5.70 3 -1 25 Estonia 5.12 26 1

5 Singapore 5.63 5 0 35 Thailand 4.60 33 -2

6 United States 5.61 1 -5 43 India 4.44 45 2

7 Japan 5.60 10 3 70 Morocco 4.01 76 6

8 Germany 5.58 6 -2 54 China 4.24 48 -6

9 Netherlands 5.56 11 2 42 Italy 4.46 38 -4

10 United Kingdom 5.54 9 -1 59 Turkey 4.14 71 12

11 Hong Kong SAR 5.46 14 3 62 Russia 4.08 53 -9

12 Norway 5.42 17 5 66 Brazil 4.03 57 -9

13 Taiwan, China 5.41 8 -5 30 Tunisia 4.71 37 7

14 Iceland 5.40 16 2 48 Poland 4.30 43 -5

15 Israel 5.38 23 8

16 Canada 5.37 13 -3

17 Austria 5.32 15 -2

18 France 5.31 12 -6

19 Australia 5.29 18 -1

20 Belgium 5.27 20 0

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6Global Competitiveness Index 2006-2007 Top performers in the nine pillars

Economy Inst

itutio

ns

Infr

ast

ruct

ure

Ma

cro

eco

no

my

He

alth

an

d p

rim

ary

e

du

catio

n

Hig

he

r e

du

catio

n

an

d t

rain

ing

Ma

rke

t e

ffic

ien

cy

Te

chn

olo

gic

al

rea

din

ess

Bu

sin

ess

so

ph

istic

atio

n

Inn

ova

tion

Finland 1 10 12 7 1 17 12 11 4

Denmark 2 5 14 4 2 6 10 9 10

Iceland 3 20 58 3 13 8 4 14 19

Germany 7 1 63 71 18 20 20 1 5

Switzerland 5 2 18 29 6 5 5 3 3

Hong Kong SAR 10 3 9 35 25 1 13 13 22

Algeria 58 78 1 45 84 96 100 103 76

Kuwait 38 45 2 76 59 29 46 33 81

Qatar 16 41 3 37 46 30 39 69 41

Japan 22 7 91 1 15 10 19 2 1

Canada 21 13 32 2 17 7 17 18 13

Sweden 12 9 15 9 3 19 1 5 6

United States 27 12 69 40 5 2 8 8 2

United Kingdom 15 14 48 14 11 3 6 6 12

Singapore 4 6 8 20 10 4 2 23 9

Israel 29 24 50 17 20 14 3 17 7

France 24 4 56 12 12 28 25 10 14

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6Global Competitiveness Index 2006-2007Focus on the Institution pillar

Transparent and well-functioning institutions are one of the basic requirements for competitiveness, together with well-developed and efficient infrastructure, a sound macroeconomic environment and good levels of health and primary education.

Basic requirements are key for countries placed in stage 1, competing on cheap factors.

Although France has progressed already to a higher stage of development, institutions remain very important for the country’s overall sustained competitiveness.

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Institution Index

Public Institutions

2/3

Private Institutions

1/3

Global Competitiveness Index 2006-2007Institution pillar: Composition

Both the Public Institution and Private Institution sub-indexes are composed only by Survey data.

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Public Institutions

Property rights

Ethics and corruption

Undue Influence

Government inefficiencies

Security

Global Competitiveness Index 2006-2007Public Institution component: Composition

All sub-components are given the same weight in the component’s computation

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Private Institutions

Corporate Ethics Accountability

Global Competitiveness Index 2006-2007Private Institution component: Composition

Both sub-components are given the same weight in the component’s computation

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Institution Pillar Rankings 2006-2007Top 20 and selected economies

2006 2006Rank Country Score Rank Country Score

1 Finland 6.05 24 France 4.91

2 Denmark 5.98 30 Estonia 4.70

3 Iceland 5.98 34 India 4.55

4 Singapore 5.90 36 South Africa 4.49

5 Switzerland 5.73 39 Spain 4.37

6 Norway 5.71 40 Thailand 4.37

7 Germany 5.69 51 Turkey 4.05

8 New Zealand 5.65 57 Morocco 3.87

9 Netherlands 5.60 69 Mexico 3.68

10 Hong Kong SAR 5.54 71 Italy 3.66

11 Australia 5.51 73 Poland 3.62

12 Sweden 5.51 80 China 3.51

13 Austria 5.45 91 Brazil 3.29

14 Luxembourg 5.45 114 Russia 2.97

15 United Kingdom 5.38

16 Qatar 5.16

17 Ireland 5.15

18 Malaysia 5.12

19 Tunisia 5.09

20 United Arab Emirates 5.05

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Global Competitiveness Index 2006-2007Institution pillar: Variables used & rankings

1st Pillar: Institutions 24 4.91 20 4.96

A. Public institutions 25 4.68 24 4.73

1. Property rights 18 6.08 16 5.99

Property rights 18 6.08 16 5.99

2. Ethics and corruption 27 4.26 25 4.23

Diversion of public funds 21 5.33 21 5.03

Public trust of politicians 30 3.20 27 3.43

3. Undue Influence 26 4.56 20 4.63

Judicial independence 35 5.06 29 5.13

Favoritism in decisions government officials 21 4.05 21 4.13

4. Government Inefficiency (red tape, bureaucracy and waste) 57 3.11 39 3.36

Wastefulness of government spending 40 3.58 29 3.88

Burden of government compliance 91 2.65 68 2.83

5. Security 27 5.38 22 5.47

Business costs of terrorism 68 5.10 61 5.09

Reliability of police services 18 5.61 17 5.51

Business costs of crime and violence 45 4.95 32 5.31

Organized crime 24 5.86 19 5.96

B. Private institutions 18 5.60 15 5.65

1. Corporate Ethics 20 5.60 17 5.73

Ethical behavior of firms 20 5.60 17 5.73

2. Accountability 18 5.61 16 5.58

Efficacy of corporate boards 21 5.34 16 5.36

Protection of minority shareholders' interests 27 5.19 22 5.25

Strength of auditing and reporting standards 6 6.30 11 6.13

rankscore*score rank score

2006-2007 2005-2006France France

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6Global Competitiveness IndexInstitutions pillar: International comparisons

Institutions

1

2

3

4

5

6

7

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ALB

DZAARG

AUS

AUT

AZE

BHR

BGD

BEL

BEN

BOLBIH

BWA

BRABGR

KHM CMR

CAN

TCD

CHL

CHN

COLCRIHRV

CYPCZE

DNK

DOMTMP

ECU

EGYSLV

ETH

FIN

FRA

GMBGEO

DEU

GHA

GRC

GTM

GUY

HND

HKG

HUN

ISL

IND

IDN

IRLISR

ITA

J AM

J PN

J OR

KAZ

KEN

KOR

KWT

KGZ

LVA LTU

LUX

MKD

MDGMWI

MYS

MLI

MLT

MUSMEX

MDA

MNG

MAR

MOZ

NAM

NLDNZL

NICNGA

NOR

PAK

PAN

PRY

PER

PHL

POL

PRTQAT

ROMRUS

YUG

SGP

SVK

SVN

ZAF

ESP

LKA

SWE

CHETWN

TJ K

TZA

THA

TTO

TUN

TUR

UGAUKR

AREGBR

USA

URY

VENVNM

ZWE

2

4

6

-1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0Control of Corruption

Glo

bal C

ompe

titiv

enes

s In

dex

Sources: GCR 2005-2006, Kaufmann et al., 2005

The Global Competitiveness IndexCompetitiveness is associated to better governance

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Growth Competitiveness

Index

Technology IndexMacroeconomic

Environment IndexPublic Institutions

Index

Contracts and law Sub-Index

Corruption Sub-Index

Technology Transfer Sub-Index

Information & Communications

Technology Subindex

Innovation Sub-Index Macroeconomic stability Sub-Index

Country CreditRating

GovernmentWaste

The Growth Competitiveness Index

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Growth Competitiveness Index

Technology

Index

1/2

Macroeconomic

Environment Index

1/4

Public Institutions

Index

1/4

The Growth Competitiveness IndexComposition : Core Innovators

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Growth Competitiveness Index

Technology

Index

1/3

Macroeconomic

Environment Index

1/3

Public

Institutions Index

1/3

The Growth Competitiveness IndexComposition : Non-Core Innovators

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Public Institution Index

Contract and Law Sub-index

1/2

Corruption

Sub-Index

1/2

The Growth Competitiveness IndexThe Public Institution index: Composition

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Contracts and Law Sub-Index

Judicial independence

Property rights

Favoritism in decisions of govt officials

Organised crime

Corruption Sub-Index

Irregular payments in exports/imports

Irregular payments in public utilities

Irregular payments in tax collection

Both the Public Institution and Private Institution sub-indexes are composed only by Survey data.

The Growth Competitiveness IndexThe Public Institution index: Variables used

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25.8

17.2

15.0

13.2

11.1

5.1

3.6

2.5

1.5

1.3

1.2

1.1

1.0

0.6

0 5 10 15 20 25 30

Restrictive labour regulations

Tax rates

Tax regulations

Access to f inancing

Ineff icient government bureaucracy

Policy instability

Inadequately educated w orkforce

Poor w ork ethic in national labour force

Foreign currency regulations

Inadequate supply of infrastructure

Inflation

Government instability/coups

Corruption

Crime and theft

Percent of responses

FranceThe most problematic factor for doing business

Source: EOS 2006. The question asked to the firm was: “Select among the above 14 constraints the five most problematic factors for doing business in your country.”

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