Economics for everyone: The crux of competitiveness

India Infoline News Service | Mumbai |

India has dropped in its global competitiveness ranking to the 50th place; while neighboring China has improved it’s ranking to the 30th spot in the latest list compiled by the World Economic Forum

India has dropped in its global competitiveness ranking to the 50th place; while neighboring China has improved it’s ranking to the 30th spot in the latest list compiled by the World Economic Forum. In the annual Global Competitiveness 2008-09 Report, India has dropped two places from last year’s 48th spot.


The main factor behind this slip is its instable macroeconomics, and according to the forum, "India's overall deficit is weakened with the government running one of the highest deficits in the world."


Even as the financial turmoil is ravaging the economy, the US has topped the league of 134 countries. In last year’s list, China was at the 34th place, whileIndia was ranked at the 48th position.


The rankings are calculated from both publicly available data and the Executive Opinion Survey a comprehensive annual survey conducted by the World Economic Forum together with its network of Partner Institutes in the countries covered by the report. This year, over 12,000business leaders were polled in a record 134 global economies. The survey is designed to capture a broad range of factors affecting an economy’s business climate, WEF said in a statement.


Other countries in the top 10 are Singapore (5th), Finland (6th), Germany (7th), Netherlands (8th), Japan (9th) and Canada (10th). According to the WEF report,India derives substantial advantages not only from its market size but also from its strong business sophistication. The country is endowed with strong business clusters and a large number of local suppliers, in addition to availability of scientists,

engineers and the quality of its research institutions, it added.


Among the BRIC economies, China has the highest rank, followed by India, Russia (51st) and Brazil (64th). Further, only India has dropped in the ranking, while Russia and Brazil have jumped from last year’s 58th and 72ndpositions, respectively. The top four countries in the index-US, Switzerland,

Denmark and Sweden-have retained their respective positions from last year.


This year’s Global Competitiveness Report is being released at a time of multiple shocks to the global economy. The sub prime mortgage crisis and the ensuing credit crunch, combined with rising inflation worldwide and the consequent slowdown in demand in many advanced economies, has engendered significant uncertainty about the short-term outlook for the world economy.Global growth is slowing, and it is not yet clear when the effects of the present crisis will subside The financial market crisis that began in early 2007 is almost unprecedented in its impact, having resulted not only in losses in markets and forfinancial institutions, but also in an erosion of public confidence in the financial sector and among the institutions themselves across the industrialized world. In the meantime, rising energy and commodity prices are having a dual effect on emerging and developing economies: on the one hand, boosting growth; on the other hand creating inflationary pressures that raise the basic cost of living, thus increasing poverty levels. More generally, although the present slowdown was originally expected to be confined mainly to the United States, it is now spreading to other industrialized economies and it is not yet clear what the future will bring for emerging markets.


The concept of competitiveness:


The report, define competitiveness as the set of institutions, policies, and factors that determine the level of productivity of a country. The level of productivity, in turn, sets the sustainable level of prosperity that can be earned by an economy. In other words, more competitive economies tend to be able to produce higher levels of income for their citizens. The productivity level also determines the rates of return obtained by investments in an economy. Because the rates of return are the fundamental drivers of the growth rates of the economy, a more competitive economy is one that is likely to grow faster over the medium to long run. The concept ofcompetitiveness thus involves static and dynamic components: although the productivity of a country clearly determines its ability to sustain a high level of income, it is also one of the central determinants of the returns to investment, which is one of the key factors explaining an economy’s growth potential.


Analysis:

The Report is a contribution to enhancing our understanding of the key factors determining economic growth, and explaining why some countries are much more successful than others in raising income levels and opportunities for their respective populations, offering policymakers andbusiness leaders an important tool in the formulation of improved economic policies and institutional reforms. This year’s Report is characterized by the continued expansion of country coverage. Currently featuring a total of 134 economies, it remains the most comprehensive assessment of its kind. The Report contains a detailed profile for each of the economies featured in the study as well as an extensive section of data tables withglobal rankings covering over 100 indicators.


After several years of rapid and almost unhampered growth, the global economic landscape is changing. Rising food and energy prices, a major international financial crisis, and the related slowdown in the world’s leading economies are confronting policymakers with new economic management challenges. Today’s volatility underscores the importance of acompetitiveness supporting economic environment that can help national economies to weather these types of shocks in order to ensure solid economic performance going into the future. A nation’s level ofcompetitiveness reflects the extent to which it is able to provide rising prosperity to its citizens. Since 1979, the World Economic Forum’s annualGlobal Competitiveness Reports have examined the many factors enabling national economies to achieve sustained economic growth and long-term prosperity. Our goal over the years has been to provide benchmarking tools forbusiness leaders and policymakers to identify obstacles to improved competitiveness, stimulating discussion on strategies to overcome them. For the past several years, the World Economic Forum has based its competitiveness analysis on the Global Competitiveness Index (GCI), a highly comprehensive index for measuring national competitiveness, which captures the microeconomic and macroeconomic foundations of national competitiveness.


Measurement


The 12 pillars of competitiveness


The determinants of competitiveness are many and complex. For hundreds of years, economists have tried to understand what determines the wealth of nations. This attempt has ranged from Adam Smith’s focus on specialization and the division of labor to neoclassical economists’ emphasis on investment in physical capital and infrastructure, and, more recently, to interest in other mechanisms such as education and training, technological progress (whether created within the country or adopted from abroad), macroeconomic stability, good governance, the rule of law, transparent and well-functioning institutions, firm sophistication, demand conditions, market size, and many others. Each of these conjectures rests on solid theoretical foundations and makes common sense. The

 

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