Transcript Competitiveness of regions - E-SGH

Competitiveness of regions
HOW TO MEASURE THE
COMPETITIVENESS?
The concept of regional competitiveness
More and more popular recently
issue interesting for academics and politicians
It is neither microeconomic nor macroeconomic concept
A region is not a simple aggregation of firms nor a
smaller version of nations
 Therefore new patterns of competitiveness recognized:
geographical concentration of linked industries
(clusters), importance of knowledge based tools
 A broad definition: „the ability of a region to generate
high and rising incomes and improve the situation of
people living there”
 Stress not only on economic prosperity but on quality of
life as well




Determinants of competitiveness at different
levels
 Micro level: intra-firm efforts to increase efficiency,
quality, flexibility, business strategy using formal and
informal cooperation, networks, collective learning
 Mezzo level: policies to strengthen the competitiveness of
industries using industries policy, environment policy,
education policy, regional policy, promotion of export
 Macro level: stable, competition oriented political and
legal framework using antitrust policy, trade policy,
monetary policy, consumer protection, fiscal policy
 Meta level: development oriented patterns of political
and economic organization based on capacity to
formulate visions and strategies, collective memory,
social cohesion
The Global Competitiveness Index – World
Economic Forum
 Published yearly, covering many countries (148 in




2013)
Based on over 100 indicators which describe 12
pillars of competitiveness
Measures c. at the national level
Takes into account micro and macro foundations of
competitiveness
Defines competitiveness as the set of institutions,
policies and factors determining the level of
productivity. The level of productivity sets
sustainable level of prosperity of an economy
12 pillars of GCI
 1) institutions both private and public, provide legal
framework; 2) infrastructure; 3)macro-economy;
4)health and primary education key factors of an efficient
economy; 5) higher education and training; 6) goods
market efficiency; 7) labor market efficiency; 8) financial
market sophistication (easiness for accessing loans,
investor protection); 9) technological readiness: a
regulatory framework friendly to ICT (internet, mobile
phones subscribers, personal computers); 10) market
size (large market provides more possibilities of
exploiting scale economies; 11) business sophistication (
quality of business networks); 12) innovation

First pillar: institutions, both public and private
 Legal and administrative framework within which individuals, firms






and government interact to generate wealth
Increasing role of institutional environment during the last financial
crisis
Crucial for further recovery
Quality of institutions influences investment decisions, plays a key
role in distribution of benefits and costs of development policies
(example the role of owners property rights protection)
Institutional environment goes beyond legal framework:
bureaucracy, red tape, overregulation, corruption, lack of
transparency, low quality services for the business sector
Proper management of public finances
The importance of private sector transparency, ethical standards in
auditing and accounting practices
Second pillar: infrastructure
 Determines the location of economic activity and




sectors that can develop within the country
Well developed infrastructure reduces distance
between regions, integrates market and connects it
at low costs to markets in other regions and
countries
Reduces income inequalities and poverty
Important for the access of less developed
communities to growth centers
Not roads only but electricity supplies and
telecommunication network needed
Third pillar: macroeconomic environment
 Macroeconomic stability not enough to increase the




productivity
But macroeconomic disarray harms the economy
Running fiscal deficit limits government ability to to
intervene
High inflation an obstacle for firms to operate
Attention to macroeconomic stability due to the last
financial and economic crisis
Fourth pillar: health and primary education
fifth pillar higher education and training
 4. Poor health of workforce increases costs to business
 The role of basic education: increases the efficiency of




each individual worker
Helps to adapt to more advanced production processes
5. well educated workers necessary to perform complex
tasks and adapt faster to changing environment
5. pillar measures secondary and tertiary enrollment
rates and the quality of education evaluated by business
leaders
The role of vocational training and continuous on-the
job-training
Sixth pillar: goods market and efficiency
 The role of healthy market competition, both




domestic and foreign
A minimum of government intervention creates the
best possible environment?
What hinders competitiveness: burdensome taxes,
restrictive rules on FDI
Protectionists measures counterproductive
The role of demand conditions: customer orientation
and buyer sophistication : more demanding
customers may create competitive advantage as they
force firms to innovation
Seventh pillar: labor market efficiency
 The efficiency and flexibility of labor market crucial for




effective use of labor
Possibility to shift workers from one activity to another
rapidly and at the low cost
How to allow for wage fluctuations without much social
disruption
Rigid labor markets the cause of high youth
unemployment , the example of Arab countries and some
European countries
Efficient labor markets ensure strong incentive for
employees to provide equity in their business
environment (an example: equality between women and
men)
Eight pillar: financial market development
 Efficient financial sector crucial for resources
allocation (citizens savings) assessment to their best
use
 A key role of proper risk
 Importance of sophisticated financial markets:
possibility to use different sources of capital: loans
from banks, capital via well regulated securities
exchanges, venture capital, other financial products
 The role of trustworthy and transparent banking
sector and appropriate regulation to protect
investors
Ninth pillar: technological readiness
 Conduct research and develop innovation Analyzes





methods used to adapt existing technologies in the
economy
Special emphasis on information and communication
technologies ICTs
ICTs evolved into „general purpose technology” of our
time given their spillovers to other economic sectors
ICT access and usage key factor of technological
readiness
Key role of FDI as the source of new technologies
The level of technology available to firms does not equal
the country’s ability to
Tenth pillar: market size
 Large markets allow firms to benefit from economies
of scale
 Globalization: international markets substitute for
domestic markets
 Trade openness stimulates growth, especially for
countries with small domestic markets
 Benefits of the European Union single common
market
Eleventh pillar: business sophistication
 Sophisticated business practices stimulate higher
efficiency
 Two elements important: the quality of business
network and quality of firms operations and
strategies
 Their role increases with the country’s stage of
development when basic sources of productivity have
been exhausted
 The quality of business network measured by the
quantity and quality of local suppliers and the extent
of their interaction (clusters)
Twelfth pillar: innovation
 Can emerge from new technological and non-technological




knowledge
Non-technological innovations related to the know-how, skills
and working conditions
The role of technological innovation: gains can be obtained
from other 11 factors (pillars) but all of them run into
diminishing returns
Innovations not only transform the way things are being done
but are opening a whole range of new possibilities
Environment friendly to innovation: sufficient investment in
research and development, , especially by the private sector,
high quality scientific research institutions, extensive
collaboration between industry and universities, the
protection of intellectual property, access to venture capital
The interrelation of 12 pillars
 They tend to reinforce each other
 Weakness in one area has an negative impact in
others. Examples: a strong innovation capacity (12)
requires a healthy and well educated workforce (4
and 5; sufficient financing (9) for R&D and efficient
goods market (6)
 Pillars aggregated into a single index but measures
reported for 12 pillars separately
Global competitiveness index
Basic requirements
subindex
efficiency enhancers
subindex
Innovation and
sophistication factors
subindex
Pillar 1 institutions
Pillar 5 higher education
and training
Pillar 11 business
sophistication
Pillar 2 infrastructure
Pillar 6 goods market
efficiency
Pillar 12 innovation
Pillar 3 macroeconomic
environment
Pillar 7 labor market
efficiency
Pillar 4 health and
primiary education
Pillar 8 financial market
deveopment
↓
Key for factor driven
economies
Pillar 9 technological
readiness
Pillar 10 market size
↓
Key for efficiency driven
economies
↓
Key for innovation driven
economies
 Cambodia should improve its competitiveness differently




than France
Both countries in different stages of development
First stage: factor driven economy; countries compete
based on factor endowments and companies compete on
the base of price, low productivity reflects in low wages
Second stage: efficiency driven economy; higher
productivity and wages, increase of product quality
Third stage: innovation driven economy; companies
compete by producing new and different goods using the
most sophisticated technologies
Different weights given to the 3 pillar groups at
different development stage
Pillar group
Pillars
included in
the group
Weight for
1st stage %
Weight for
2nd stage %
Weight for
3rd stage%
Factor driven
1-4
60
40
20
Efficiency
driven
5-10
35
50
50
Innovation
driven
11-12
5
10
30
Implementation of stages of development
 Two criteria used to allocate countries into stages of




development:
1) level of GDP per capita at market exchange rates; it is a
proxy for wages because internationally comparable data
on wages not available
2) share of exports of mineral goods in total exports.
Countries which export more than 70% of mineral
products are to a large extent factor driven
Countries resource driven and significantly wealthy
classified in the innovation driven stage
Any countries failing between two or three stages are
considered to be in transition from one stage to another
Regional Competitiveness Index
 Shows the weaknesses and strenghts of each of EU





NUTS2 regions
NUTS : Nomenclature of Territorial Units for Statistics geocode standard for subdivision of countries for
statistical purposes. The standard regulated by the EU
3 NUTS levels for each EU country established by
EUROSTAT
NUTS 1: 97 provinces, states or regions
NUTS2: 273 basic regions for application of regional
policies
NUTS3: 1294 small regions used for specific diagnoses
RCI – general information
 It started in 2008, first published in 2010
 Uses the methodology developed by the World Economic






Forum for GCI
RCI 2013 – a second edition of the index
May serve as a tool to help EU regions to set right
priorities to further increase their competitiveness
Useful to pick priorities for their development strategies
The guide to what each region should focus
Can play a crucial role in the discussion on the future of
cohesion policy
Based on a set of 73 indicators
Pillar: institutions
 Based on survey data on quality of governance (QoG)
 The survey measures quality of governance at the
sub-national level and is the largest one ever
undertaken
 It includes 34 000 EU citizens for 172 regions either
at the NUTS1 or NUTS2 level
 Survey questions focused on 4 aspects related to 3
public services (education, health care, and law
enforcement); corruption, rule of law, government
effectiveness and voice & accountability
Pillar: macroeconomic stability
 At the country level only
 2013 data: government surplus not present any




longer,
Sweden the only country with a zero balance
All other countries show deficits
Inflation not consistent with the other indicators
Indicators reflect the economic and financial crisis
Pillar: infrastructure
 3 indicators: motorway potential accessibility,
railway potential accessibility, number of passengers
flights
 The computation of potential accessibility based on
the assumption the attraction of destination
increases with size and declines with travel time
 Destination size represented by population
 Value of potential accessibility of each region
calculated by summing up the population in all other
regions weighted by the travel time to go there.
Pillar: health
 Indicators: road fatalities, healthy life expectancy,
infant mortality, cancer disease death rate, hearth
disease, suicide
 In 2013 edition indicator „hospitals beds per 100
000 inhabitants discarded as not consistent with thr
rest of the indicators
 Suicide indicators can be biased as more related to
religious commitment than to people’s wellbeing and
happiness (higher levels of religiosity inversely
associated with suicide)
Pillar: basic education
 OECD PISA (Programme for International Student
Assessment) on low achievers in reading, math and
science included at the country level
 No regional description for this pillar due to the lack
of data at sub-national level
 Indicators: % of pupils 15 year old lower in reading,
of pupils 15 year old, lower in math, % of pupils 15
year old, lower in science
Pillar: higher education and lifelong learning
 The attempt to include an indicator on gender
balance but excluded from further computation as
misfitting with the rest of indicators
 The reason of misfitting: different preferences of
men and women to different education fields
(science and ICT sectors preferred by men and
human sciences by women)
 Indicators: % population 25-64 with higher
education, % population 25-64 in education and
training, % population with less than 60 minutes
from the nearest university)
Pillar: labor market efficiency
 New indicator: % population 15-24 not in education,
employment or training
 Other indicators: employment rate, long-term
employment, unemployment, labor productivity,
gender balance unemploment, gender balance
employment, (difference between male and female
unemployment or employment rate) female
unemployment
Pillar: market size
 New edition: discard the GDP index and the
compensation of employees
 Disosable income per capita included
 Indicators: gross adjusted disposable income in
PPSS per capita index, potential market size
expressed in GDP index, potential market size
expressed in population index
Pillar: technological readiness
 Split into 2 sub-pillars:
 - one at the regional level refers to individual and
household
 - one at the national level refers to enterprises
 3 indicators included in the regional sub-pillar: %
total households with access to broadband, %
individuals who ordered goods or services over the
internet for private use, % total households with
internet access
Pillar: business sophistication
 Indicators:
 - % employment in the „financial and insurance
activities, real estate, professional scientific and
technical activities, administration activities,
 - gross value added in the same sectors,
 Workers in foreign owned firms in % of total
employment excluding agriculture
Pillar: innovation
 Indicators:
 - total patent application
 - core creative class employment as % of population








aged15-64
- knowledge
- scientific publications
- total R&D expenditure as % of GDP
- human resources in science and technology
- high-tech patent application
- ICT patent application
- % share of employees in strong clusters
- % share of total payroll in strong high-tech clusters
Overview of national factors of competitiveness
Infrastructure and
accessibility
Human resources
Productive
environment
Basic infrastructure:
Labor force charcteristics:
Productivity and flexibility
Enterpreneurial culture:- - low barriers to
entry
- risk taking culture
- road
Management skills:
Internalisation:
-export/global sales
- investment
- business culture
- rail
- internationalised
Technology:
- application
-mangement-
- air
-levels of professionalism
- levels of efficiency
Innovation:
- patents
-R&D levels
-research institutes and universities
- linkages between companies and
research
Technological infrastructure:
High participation rates in post school
education:
Capital availability
-ICT
-Tertiary education
-Vocatioal training
Nature of competition
- telecoms
Educational infrastructure
Sectoral balance
- internet
Overview of regional factors of competitiveness
Infrastructure and accessibility
Human resources
Productive environment
Basic infrastructure:
Road, rail, air, property
Human resources:
Migration of skilled workers, diversity
Enterpreneurial culture:
Low bariers of entry, risk taking culture
Technological infrastructure:
ICT, telecom, internet
High skilled workforce:
Knowledge-intensive skills
Sectoral concentration:
Balance/dependency, employment
concentration, high value added
activities
Knowledge infrastructure:
Educational facilities
Internalisation:
Export/globalisation, business culture,
nature of FDI
Quality of place:
Housing, natural surroundings,
cultural amenities, safety
Innovation:
Patens, R&D levels,research institutes
and universities, linkages between
copanies and research
Governance and instututional capacity,
Nature of competition
Capital availability
Specialization