Economics Stack Exchange Archive

How to measure competitiveness without conducting a survey?

• posted by: PGR on 2012-01-29
• tagged: growth, trade, productivity
• score: 1

How should we measure competitiveness without conducting a survey? Surely, not just looking at the ratio of exports to GDP, or even it’s technological content.

Answer 893

• posted by: Turukawa on 2012-01-30
• score: 2

Competitiveness requires measurement and measurement implies that you know what the conditions for "victory" would be. That isn't clear when one considers countries.

I will avoid getting too philosophical, but one should rather speak of different levels of efficiency than competitiveness. Victory implies that others must lose and in economics we prefer positive-sum gains in which participants to a transaction both "win".

That said, investors must prioritise the limited resources at their disposal for investment and must seek the highest returns for such investment. How then to prioritise the most appropriate markets?

It depends on a number of factors:

• Who is doing the asking? Investment banks are different from resource extractors are different from manufacturers and will have different requirements; governments seeking optimal economic policies have different objectives still.
• What constitutes "success"? What is a good set of indicators (or proxies, if those indicators aren't available without costly primary research) which reflects your definition? A good place to start is with this question: What are the most useful sources of economics data?
• How stable does this rating need to be?

Here are a list of different league tables all useful in establishing different aspects of competitiveness:

• Doing Business - World Bank and IFC league tables; very good
• Index of Economic Freedom - Heritage Foundation
• Press Freedom Index - Reporters Without Borders
• Corruption Perceptions Index - Transparency International
• Whyqd - disclosure, I wrote this and it is a work-in-progress, but it is a data search-engine which permits you to select any combination of factors and create your own ratings;

And that's just a small sample of the range and variety of global league tables out there.

But consider some of the factors that make a country interesting which have nothing to do with finance or even economics:

• Population size: neither of India or China would be viable investment destinations, given their terrible legal and social problems, if it weren't for their tremendous populations;
• Proximity: Singapore, Hong Kong are tremendously open and free economies but tiny as local market plays. It is their proximity to other giants AND their benevolent business environments which make them interesting. Mauritius, just as open, is too far away.

All of which is to indicate that measuring competitiveness can be rather more complex than simply getting a sovereign rating from S&P, Moodeys or Fitch.

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