Various organizations produce rankings of the competitiveness of countries. For example, IMD, a business school in Switzerland, produces a World Competitiveness Yearbook (WCY) every year. [***See “World Competitiveness Center,” IMD, accessed August 22, 2011,http://www.imd.org/research/centers/wcc/index.cfm.***] The World Economic Forum (WEF) produces an annual Global Competitiveness Report. [***See “Global Competitiveness Report,” World Economic Forum, accessed June 29, 2011,http://www.weforum.org/s?s=global+competitiveness.***] In 2010, the WEF judged Switzerland to be the most competitive economy in the world, followed by the United States and Singapore. According to IMD, the top three were Hong Kong, the United States, and Singapore. These rankings are covered extensively in the business press, and there is also a market for them—WCY resources cost over $1,000. Business and governments purchase these reports each year. National competitiveness is big business.
In their bid to measure competitiveness, the WEF and the WCY look at a combination of “hard” economic data and surveys of businesspeople. Each looks at hundreds of measures in their respective attempts to measure national competitiveness. If these two institutions are to be believed, national competitiveness is a very complicated animal indeed. Although we do not want to go through their measures in detail, a few themes emerge.
- Both the WEF and the WCY look at measures of human capital, such as the number of people enrolled in tertiary education.
- Technology and technological infrastructure feature prominently in both lists of data. The WEF and the WCY look at measures such as the penetration of computers, the Internet, and mobile phones and the granting of patents.
- The quality of public institutions and the prevalence of corruption feature prominently in both lists. Here, the WEF relies on survey data on corruption, bribes, and the extent to which the legal system is fair and transparent. The WCY includes survey information on management practices and “attitudes and values.”
Thus the items that we have identified as components of social infrastructure and human capital are included as key determinants of competitiveness. (Technological infrastructure is difficult to classify and measure. In part, it is captured by measures of capital stock because knowledge can be embodied in the capital stock.)
Countries that do better in terms of these rankings will tend to have higher levels of output because these are all inputs into the aggregate production function. The competitiveness of a country is not a matter of how much output it produces, however; we already have a perfectly good measure of that, called real gross domestic product (real GDP). Instead, competitiveness is the ability to attract foreign capital. If countries do not have enough domestic savings to fund investment, then they need to obtain capital from other countries. The amount of capital in the world is limited, so countries compete for this capital by trying to make their economies attractive places to invest. More human capital, better knowledge, or superior social infrastructure all serve to increase the return on investment. If workers are more skilled, then extra capital will generate more output. If firms have better processes in place, then extra capital will generate more output. If a country is free of corruption, then extra capital will generate more output.
This suggests that one good yet simple indicator of national competitiveness is the marginal product of capital. Country A is more competitive than country B if capital investment in country A is more productive than in country B. More exactly, a country is more competitive if it has a higher marginal product of capital.
- 778 reads
