Alexandra Constantin , Subject Matter Expert – Accounts Payable Dragos Balcu , Business Development Manager Madalin a Stoica , Key Account Deputy… [604274]

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GLOBAL COMPETI TIVENESS INDEX
ECONOMICS TEAM PROJECT

TEAM:

Alexandra Constantin , Subject Matter Expert – Accounts Payable
Dragos Balcu , Business Development Manager
Madalin a Stoica , Key Account Deputy Director
Maria Ursaciuc , Lead Procurement Category Manager
Paul Panaitescu , Inspector

December 2017

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CONTENT:
CHAPTER I: BRIEF LITERATURE REVIEW
1.1. Abstract – Dragos Balcu
1.2. Introduction – Dragos Balcu & Alexandra Constantin
1.3. Global Competitiveness Index Report 2017 – 2018 – Dragos Balcu & Paul Panaitescu
1.4. Romania – Maria Ursaciuc

CHAPTER II: BEST PRACTICE
2.1. Switzerland – Maria Ursaciuc
2.2. Case Study – Comparison – Madalina Stoica
2.3. Conclusions – Madalina Stoica

CHAPTER III: TEAM PROJECTS’ IMPROVEMENT PROPOSALS
CHAPTER IV: ANTIPLAGIARISM REPORT
References

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CHAPTER I: BRIEF LITERATURE REVIEW

1.1. Abstract
The concept of a country’s competitiveness still does not have a clear and straightforward meaning and
remains ambiguous. Various economists put an emphasis on various aspects of the concept and several
methods to evaluate how a country ’s competitiveness .
This paper focuses on the Global Competitiveness Index (GCI), regularly calculated by the World Economic
Forum (WFE ) and one of the most well-known measures of competitiveness computation .
The World Economic Forum defines the competitiveness of a country as a “set of institutions, policies and
factors that determine the level of productivity of a country” . It argues that productivity “is the main long –
run engine for growth, living standards and prosperity”.
This definition indicates that higher competiti veness ranking s show higher produc tivity of the country’s
economy. This should lead to a higher and more sustainable economic growth. In addition, economic
growth leads to higher living standards and prosperity of the country’s citizens.
1.2. Introduction
The concept of competitiveness differs according to the level of analysis: firm, industry or country.
A firm’s competitiveness can be assessed by its profitability, market share s or its share prices. Its GSP
share or its export ratios analyzes an industry’s competitiveness . However, a country’s competitiveness is
still undefined, e conomists having different notions on the concept.
In the opinion of c lassical and neo -classical economists , the competitiveness of a country represents solely
its ex porting capacity : using international trade to export cheap and low -cost production goods. From
their view a country’s competitiveness level was self-evident, defined as the ability to export any type of
resource .
After the introduction of M. E. Porter’s “ diamond” model, which offer s a multi -variable approach to
competitiveness , a country’s competitiveness , as a notion, was considered a complex concept with various
variables, not depending solely on exports but also considering a country’s overall economic success
(Porter, 1992). The notion’s elaboration allowed it to progress from an exclusive focus on export success
to broader concept s, such as a “country’s ability to provide an environment that enables companies to
improve and innovate faster than foreign rivals” (Cornelius, 2002). P. Aghion and P. Howitt claim that a
country’s economic conditions are the main components that determine the level of firm competition, its
impact on competitiveness and the efficiency of the legal environment (Aghion et al, 2005).

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Other economists expanded on the concept even further , considering that a country’s internal prosperity
is essential to its competitiveness. J. Fagerberg (1988) expounds that a competitive country is defined as
one that establishes a high -level of social welfare for its citizens.
The concept of country’s competitiveness is, however, considered a “dangerous obsession” (Krugman,
1994). P. Krugman (1994) noted that despite the fact that the concept of a country’s competitiveness is
still undefi ned, it is extensively used. E valuations of several measures of competitiveness are often
calculated . According to P. Krugman (1994), the very concept of competitiveness is “elusive” and it cannot
be compared to a firm’s competitiveness, as “if a corporati on is uncompetitive, <…> unless it improves its
performance, it will cease to exist. Countries, on the other hand, do not go out of business. They may be
happy or unhappy with their economic performance, but they do not have a well -defined bottom line”.
Economists choose various approaches in an attempt to define and analyze the competitiveness of a
country. Some of them (such as P. Krugman) argue that a country’s competitiveness is dependent on its
productivity level. Others (such as B. Balassa) argue that a country’s ability to successfully export goods is
a mark of its competitiveness. The third ones ( such as the World Economic Forum, World Competitiveness
Centre, and so on ) compute comp lex indexes, which include a series of aspects related to the country’s
economic, cu ltural, and technological performances. Nonetheless , competitiveness is not completely
defined by any of these notions, though it is closely linked to all of them. Competitiveness is not to be
inferred from productivity, as productivity measure s the domestic input efficiency used to produce a given
level of output , while c ompetitiveness is more closely related to a competition among countries.
Competitiv eness cannot be completely defined by the country’s export capabilities either, as various
export measures , considered on their own, do not display the sustainability of the country’s economy nor
its citizens living -standards.
C. Gaglio (2015) claims that productivity is imp ortant in building internal company and industry effici ency
and competitiveness in the foreign markets by the reallocating resources to the most productive
companies and products . However, exports “are a link between a country’s external and internal
perfo rmance” (Gaglio, 2015), as exports display the capability of domestic companies, which use their
given domestic input to export to foreign markets.
The concept complexity determines that a country’s competitiveness is often measured by calculating
various complex in dexes. For example, t he World Economic F orum (WFE ) calculates the Global
Competitiveness Index, the World Co mpetitiveness Centre calculates the IMD index, the Centre for
International Compe titiveness calculates the World Knowledge Competitiveness Index, and so on .
Although econo mists (such as Xia, Liang, Zhand, Wu (2012)) criticize complex indexes of competitiveness
due to their lack of theoretical and methodological foundation s, they combine var ious points of view.
Thus a countries’ performance is thoroughly analyzed and a complex approach to i ts competitiveness may
be provided.

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1.3. Global Competitiveness Index Report 2017 – 2018
The Global Competitiveness Index ( GCI), calcula ted by the World Economic Forum (WEF ), replaced its
previous version, know n as the Growth Competitiveness Index.
Economist s belonging to the World Economic Forum ( WEF ) have argued the fact that the total factor
productivity growth permits a country’s more efficient use of resources and the primary motivation for
prosperity, as “the productivity level also determines the rates of return obtained by i nvestments in an
economy, which in turn are the fundamental drivers of its growth rates” (Schwab, 2015). The theoretical
basis of the Global Competitiveness Index is the idea of social competitiveness, because GCI’s theory is
based on the understanding that the ma in driver of competitiveness is economic prosperity of the country
and its citizens, i.e., a country’s competitiveness depends not only on the exports, but also on the
economic conditions inside the country.
The Global Compe titiveness Index is measured i n accordance with the theory of countries’ development
stages (Porter et al, 2001). GCI consists of 12 pillars of competitiveness, which are grouped in 3 groups:
1. Basic requirements are the most important for countries that are in the stage of factor -driven growth
(the first stage of de velopment, common in low -income countries. Their competitiveness depends on
cheap labou r force and natural resources). These factors are effective institutions , good infrastructure, a
stable macroeconomic environment, quality of health and primary education.
2. Efficiency enhancers are the most important for cou ntries that are in the stage of investment -driven
growth (the second stage of dev elopment common in medium income countries. Their compe titiveness
depends on infrastructure, foreign direct investment and modern technologies). The factors are higher
educatio n and training, efficient goods and labor markets, developed f inancial markets, technological
readiness and market size.
3. Innovation and sophistication are the most impo rtant for countries that are in the stage of innovation –
driven growth (the th ird stage of development common in high -income countries. Their competitiven ess
depends on R&D and a highly educated labor -force). These factor s are business sophistication and
innovation.

The stages of economic development The Pillars
Innovation -driven economy
Efficiency -driven economy 12. Innovation
11. producing new and different goods using the most
Factor -driven economy sophistic ated production processes
10. market size, both domestic and international
9. the ability to harn ess the benefits of existing technologies

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8. developed financial markets
7. efficient labor market s
6. efficient goods markets
5. higher education and training

4. good health and primary education
3. a stable macroeconomic framework
2. appropriate infrastructure
1. well -functioning public and private institutions

Based on the development stages theory, the calculat ion of GCI slightly differs for countries depending on
their stage of development. For t he countries that currently are in the first stage of development (factor –
driven), the lio n’s share of GCI (60 %) is made of basic requirements, 35 % of GCI is made of efficie ncy
enhancers, leaving only 5 % for innovation and sophistication. For the countries that are in the second
stage of dev elopment (investment -driven), WEF takes efficiency enhancers as the most important factors
for growth (50 %), then basic requirements (40 %) and, finally, innovation and sophistication (10 %). Last,
for the countries that are in t he highest stage of develo pment (innovation -driven), efficiency enhancers
still make up 5 0 % of GCI; however, innovation and sophistication consist of 30 %, leaving only 2 0 % for
basic requirements. For the countries that currently are in any of the transition st ages, these shares are
modified according to their actual development level .
One of the points of critique for the GCI’s predeces sor, the Growth Competitiveness Index, was that the
countries were divided in only 2 group s: innovative and non -innovative countries (among the la tter were
the ones th at had less than 15 patents for 1 million of its citizens last year). The Global Competiti veness
Index solved the problem by increasing the number of country groups from 2 to 5. Hence, the countries’
level of competitiveness can be eva luated more precisely by measuring their current level of
development.
However, this change does not solve all the problems of the method. On the one hand, different ways to
calculate GCI for the countries that are in different stages of development allows to avoid punishing any
country for in vesting in the factors that are needed in its’ particular development stage. On the ot her
hand, this method makes the Global Competitiveness Indexes different for different count ries. Hence, it
is questionable if index es that are calculated in 5 different ways could be compared among eac h other.
GCI includes 2 types of data: statistical (from IMF, UN an d other international agencies) and survey (made
annually by WEF itself in order t o capture respondents’ opinions about their country and to fill the gaps
in statistical data). Using not on ly statistical, but also survey data is widely criticized by the economists
(Zinnes et al, 2001), who believe that opinions are subjective and depend upon the cultures and attitudes
of the countries.

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Hence, survey data is not a good basis for comparing coun tries and judging which country is more or less
competitive. However, WEF economi sts believe that survey data is essential to get qualitative assessment
(e. g., the govern ment’s positio n, success of the countries’ economic policy, common business practice,
level of competition, expectations etc.) or data that is not easily evaluated or comparable.

1.4. Romania
Romania ranks 68th in the 137 top most competitive countries in the world, facing troubles on corruption,
red tape and taxes. The country ranked 62 nd last year and 53 rd the year before.
Romania ranks low in innovation and business sophistication, taking the 106th rank worldly. In addition,
it also ranks low for health and primary education (taking the 92nd position) for institutions (86th
position), and in infrastructure (83rd). However, Romania has ranked much better on a macroecon omic
environment level (38th), market size (41st) and technological readiness (51st).
The direst issues that impede local businesses are taxes, inefficient government bureaucracy, financing
access, poorly educated workforce, corruption and inadequate infr astructure, the report reads.
Romania has a competitiveness index of 4.3 on a scale from 1 to 7.

CHAPTER II: BEST PRACTICE
2.1. Switzerland
The top three countries in order are Switzerland , the United States, and Singapore out of 137 countries.
This is the ninth consecutive year where Switzerland has topped this list.

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Germany, the United Kingdom and Japan occupy the 5th, 8th, and 9th positions in the G20 economy. Among
the five major emerging national economies (BRICS), China occupies the highest rankin g, having climbed
up a rank to the 27th from 2016.
A jump in tech savviness – making it the most technologically prepared country – meant Switzerland
achieved the highest competitiveness score since WEF introduced a new ranking system in 2007.
“Switzerland arguably possesses one of the world’s most fertile innovation ecosystems, combining a very
conducive policy environment and infrastructure, academic excellence, an unmatched capacity to attract
the best talent, and large multinationals that ar e often leaders in their sector as well as a dense network
of small – and medium -sized enterprises,” WEF said in its report.
Switzerland continues to lead the overall rankings, occupying the first position. Strong results are balanced
across several competi tiveness components. The extremely strong fundamentals such as public health,
strong education and a solid macroeconomic environment contribute to economic performance benefits.
The economy benefits from a high level of flexibility, its labor market globa lly ranked as the most efficient.
Its capacity for new technology absorption is high, ranking on the 2nd place for its citizen and business tech
readiness.
Furthermore, Switzerland continues to improve its score for business sector sophistication and
inno vation, solidifying its global ranking.

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2.2. Case Study – Comparison

2.3. Conclusions
vs
• Even if there is a GCI gap between Romania and Bulgaria (68 vs 49), the two countries have high
similarities:
• 4 out of 5 most problematic factors for doing business are common
• 4 out of 5 most performant pillars are common
• Innovation is one of the least performing pillars in both countries.
Unfortunately, this Innovation has the highest increase potential for th e GDP per capita (translated by
the well being of the people)

vs
• Ranked no. 1 for the last 9 years, Switzerland has as most performing pillars Business
Sophistication and Innovation (unlike Romania where these are the least performing)
• These performance indicators are relevant for country’s productivity and for population’s
wellbeing . Rising competitiveness means rising prosperity.
• Optimistically: Romania has a huge potential to grow its prosperity by:
• solving the problematic parts (e.g .: Tax rates, Bureaucracy, Corruption , …)
Country Rank GDP /capita Top 5 most problematic factors for doing business
1 $79.242,30 Inefficient
Government
BureaucracyRestrictive Labor
RegulationsInadequately Educated
Work ForceTax Regulations Insufficient Capacity to
Innovate
49 $7.368,50 Corruption Inneficient Government
BureaucracyTax Rates Poor Work Ethic Access to Financing
68 $9.465,40 Tax Rates Inneficient Government
BureaucracyAccess to Financing Inadequately Educated
Work ForceCorruption
Country Rank GDP /capita Top 5 most problematic factors for doing business
1 $79.242,30 Inefficient
Government
BureaucracyRestrictive Labor
RegulationsInadequately Educated
Work ForceTax Regulations Insufficient Capacity to
Innovate
49 $7.368,50 Corruption Inneficient Government
BureaucracyTax Rates Poor Work Ethic Access to Financing
68 $9.465,40 Tax Rates Inneficient Government
BureaucracyAccess to Financing Inadequately Educated
Work ForceCorruption

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• improving Innovation and Business sophistication ( based on a higher investment
especially in education);

Other:
• financial vulnerabilities pose a threat to competitiveness and to economies’ ability to finance
innovation and technological adoption;
• merging economies are becoming better at innovation but more can be done to spread the
benefits;
• labor market flexibility and worker protection are needed for competitiveness and shared
prosperity in the Fourth Indust rial Revolution

CHAPTER III: TEAM PROJECTS’ IMPROVEMENT PROPOSALS

By all accounts , GCI has two threats to its suitability . First, it may not be a stable measure for
competitiveness over time. Second, it has not succeeded in predicting short -term and lon g-term economic
growth.
WEF should continue to refine GCI so that GCI can become a much better predictor of economic growth.
Since its key purpose is to serve as a key measurement of economic growth, GCI can only be meaningful
when it can better predict economic growth than other variables.

The team encourage s for further refinement of the GCI index by including entrepreneurial activities and
national culture components in the index so that it can become a more reliable index .
Culture is also co ntributing to the well being and stimulating prosperity. It’s about the people’s material
and spiritual values expressed in different forms like: rituals, religion, art, music, dance, literature, science,
clothes, even gastronomy .

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CHAPTER IV: ANTIPLAGIARISM REPORT

[to be included once we will have the final version of the report]

References

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Schumpeter Lecture, delivered to the 20th Annual Congress of the European Economic Association,
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374.
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