XAVIER SALA I MARTIN Columbia University and Universitat Pompeu Fabra The fundamental objective of the Global Competitiveness Report GCR is to evaluate the economic competitiveness of a large sample of countries Traditionally the GCR has focused on two complementary approaches to analyzing competitiveness The first called the Growth Competitiveness Index GCI was developed by Jeffrey D Sachs of Columbia University and John W McArthur of The Earth Institute and was presented in The Global Competitiveness Report 2001 2002 The second index now labeled the Business Competitiveness Index BCI was developed by Michael Porter of Harvard University and was first introduced in The Global Competitiveness Report 2000 The two indexes combine available hard data and data from the Executive Opinion Survey Survey conducted annually by the World Economic Forum see Chapter 3 1 for additional analysis of Survey results and methodology The Survey is conducted in the first half of every year Input is contributed exclusively by leading business executives and entrepreneurs whose current perceptions of the business environment in which they work are captured in their responses to a comprehensive and scientifically constructed questionnaire By participating respondents are also provided with the opportunity to identify key obstacles to economic growth in their own countries and thus contribute to assessing the quality of the business environment in the countries where their companies operate This in turn may help precipitate an internal debate within the country between government officials business leaders organizations of civil society and the academic community on key problem areas and how best to address them The Survey was carried out this year in collaboration with 104 Partner Institutes of the World Economic Forum s Global Competitiveness Programme Partner Institutes are typically leading national research or academic institutes committed to contributing to the growth potential of their respective economies Under the direction of the World Economic Forum their collaboration involves conducting the Survey according to common guidelines in order to ensure that the sample of respondents is representative of the economies in question and that the Survey method used remains consistent across all countries The number of countries surveyed this year increased significantly from 80 to 102 The countries added are mainly from the developing world especially Africa The coverage in that region of the world has increased from 8 to 25 and now also includes Algeria Angola Cameroon Chad Egypt Ethiopia Gambia Ghana Kenya Madagascar Malawi Mali Mozambique Senegal Tanzania Uganda and Zambia Newly added countries also embrace non African nations including Luxembourg Macedonia Malta Pakistan and Serbia The countries included in this year s Report account for 97 8 percent of Executive Summary Executive Summary 1 Executive Summary 2 world s GDP The Global Competitiveness Report 2003 2004 therefore provides comprehensive coverage of the global economy The Growth Competitiveness Index The GCI s main goal is to analyze the potential for the world s economies to attain sustained economic growth over the medium and long term The index is based on economists current understanding of the determinants of the complex process of economic growth and development It summarizes the set of institutions policies and structures driving the growth process of 102 heterogeneous countries The GCI is founded on three central ideas The first one is that the process of economic growth can be analyzed within three important broad categories the macroeconomic environment the quality of public institutions and technology Although it is certainly not true that macroeconomic stability alone can increase the growth rate of a nation it is no less true that macroeconomic disarray kills its growth prospects Informed decisions cannot be made in environments where the inflation rate is in the hundreds The banking system cannot function if the government runs gigantic deficits The government cannot provide services efficiently if it has to pay enormous interest rates on its past debts And wasted taxation hurts the business sector unnecessarily In sum sustained growth is hard to achieve in nonfavorable macro environments The second pillar underlying the GCI relates to public institutions In a market economy wealth is ultimately created by private businesses However these businesses have to operate within a country and have to deal with its institutions It is important for example that property rights are guaranteed by a legal and judicial system It is hard for private companies to operate efficiently in countries where the rule of law is nonexistent or where contracts cannot be enforced Firms may find it too expensive to do business where corruption is rampant Thus the GCI measures the soundness of the public institutions and it introduces this soundness as the second of the three pillars of economic growth and development The third channel is technological progress Perhaps the main lesson of neoclassical growth theory is that the ultimate source of long run economic growth is technological progress The reason for this is that the other potential determinants of growth must run into diminishing returns For example institutions and the macroeconomic policy can have important effects on growth in countries with terrible environments But once institutions are more or less right and once the macroeconomy is more or less stable additional improvements along these lines will probably have little or no effect on economic growth This is not true for technological progress there do not seem to be good reasons that would suggest that there are diminishing returns to ideas In fact the contrary might be true given that humanity seems to generate new ideas at accelerating rates The GCI uses both hard publicly available data and data from the World Economic Forum s Survey to estimate three component indexes that capture the three pillars of growth mentioned above The three components are called the technology index the public institutions index and the macroeconomic environment index The three components are then combined to calculate the overall GCI The second idea underlying the GCI is that although technological advance is the ultimate source of growth its origin may be different across countries In particular for economies that are already close to the
View Full Document
Unlocking...