AUGUSTO LOPEZ CLAROS World Economic Forum For well over two decades the World Economic Forum has been trying to shed light on the question of why some countries are able to grow on a sustained basis for prolonged periods of time in the process pulling large segments of the population out of poverty while others remain stagnant or worse actually see an erosion of living standards Through its flagship publication The Global Competitiveness Report the World Economic Forum has led the way in assessing the competitiveness of nations The Forum may be in a singularly advantageous position for at least two reasons to contribute meaningfully to the debate on the key building blocks of successful economic development and improved competitiveness First it brings key representatives from the private sector and the corporate world together with a broad spectrum of senior policymakers in government creating opportunities for the thoughtful exchange of ideas and experiences on best practices This exchange may be an important catalyst in identifying the most critical factors in the development process The role of corruption in delaying the development process the central importance of women s education for boosting per capita incomes the interplay between political and civil rights and the willingness of the public to engage in economic activity the role of a free press and the type of safety net arrangements that governments put in place to enhance the ability of economic agents to participate in the life of the nation are but some of the topics that have been at the centre of the agenda in many of the summits and other interactions organized by the World Economic Forum Second the Forum has developed a vehicle the Executive Opinion Survey EOS which annually conveys a wealth of information about the obstacles to growth in more than 100 countries accounting for the lion s share of global GNP Through the Survey business executives in these countries assess the importance of a broad range of factors central to creating a healthy business environment in support of successful and productive economic activity The tax and regulatory environment labor market legislation the overall macroeconomic environment the prevalence of corruption and other irregular practices in the economy at large the quality of the country s infrastructure and education are but a few of the areas covered by the EOS Over the years the Survey has continued to deliver a treasure trove of information about both country specific strengths and weaknesses and the challenges faced by the business community On the basis of the information provided by the EOS the Country Profiles prepared by the Forum offer extremely valuable information for policymakers aid agencies and others working to improve economic performance and the quality of people s lives Executive Summary Executive Summary xi Executive Summary xii The methodology used by the Forum to assess national competitiveness has evolved over time taking into account the latest thinking on the factors driving competitiveness and growth The Forum first introduced the Growth Competitiveness Index GCI three years ago in collaboration with Professors Jeffrey Sachs and John McArthur in the Global Competitiveness Report 2001 2002 The GCI aims specifically to gauge the ability of the world s economies to achieve sustained economic growth over the medium to long term It primarily assesses the impact of those factors that economic theory and the accumulated experience of policymakers in a broad range of countries have shown to be critical for growth whether narrowly focused on elements of the macroeconomic environment or reflecting the latest insights in the economics literature institutional and other factors Professor Michael Porter s Business Competitiveness Index presented in Chapter 1 2 in this volume is an especially useful complement to the GCI with its special emphasis on a range of company specific factors conducive to improved efficiency and productivity at the micro level The Growth Competitiveness Index The GCI is composed of three pillars all of which are widely accepted as being critical to economic growth the quality of the macroeconomic environment the state of a country s public institutions and given the increasing importance of technology in the development process a country s technological readiness Using a combination of publicly available hard data and information provided in the Forum s Executive Opinion Survey which provides more textured qualitative information on difficult tomeasure concepts these three pillars are brought together in the three indexes of the GCI the macroeconomic environment index the public institutions index and the technology index Sachs and McArthur strongly emphasized that the role of technology in the growth process differs for countries depending on their particular stage of development It is widely understood that technological innovation is relatively more important for growth in countries close to the technological frontier Innovation will be key in Sweden but the adoption of foreign technologies or the kind of technology transfer frequently associated with foreign direct investment will be relatively more important in a country such as the Czech Republic For this reason in estimating the GCI economies are separated into two groups the core economies i e those for which technological innovation is critical for growth and non core economies i e those which can still grow by adopting technologies developed abroad The critical importance of technological innovation for core economies is taken into account in the technology index Specifically more weight is given to innovation by means of the innovation subindex for the core economies than for the non core To make a further distinction an additional measure is used of the ability of non core economies to adopt technology from abroad the technology transfer subindex Finally since the determinants of economic competitiveness vary for core and non core economies the weighting of the three indexes in the overall GCI differs between the two groups For the non core economies more weight is given to the quality of institutions and the macroeconomic environment since these countries can still make progress in achieving higher growth by getting their fundamentals in order On the other hand for the core economies that are closer to the technological frontier more weight is placed on technology It is of
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