REACHING CONSENSUS ON THE DEFINITION AND MEASURING IMPACT
BRIEFING NOTE PREPARED FOR THE INTER-AMERICAN DEVELOPMENT BANK
Andrew Warner1
National Bureau of Economic Research Cambridge, Massachusetts
and
Center for Global Development Washington, D.C.
1 I thank Martin Chrisney for helpful comments.
1. Competitiveness: Definitions and Controversies...1
1.a Competitive Prices and Wagess...1
1.b The Expanding Universe of Competitiveness...1
1.c The Ultimate Goal – Sustained increased in value added...5
2 Evaluation National Rankings of Competitiveness...7
2.a Critiques of the GCI methodology...1
3 Summary...14
1. Competitiveness: Definitions and Controversies 1.a. Competitive Prices and Wages.
In its oldest and most common usage, the term competitiveness refers to the extent to which a county’s goods and services are priced to compete with the goods and services of other countries. A country is uncompetitive if its prices for finished goods or its wages and input costs that influence those prices are too high compared with
competing countries.
Debates about competitiveness so defined are as old as international trade itself. This kind of debate was, for example, prominent during the time of the Mercantilist writings of the mid sixteenth century. Mercantilists wished to maintain trade surpluses to accumulate foreign assets, principally gold to support foreign conquests, and a desired a competitive price level to achieve this goal. In one of the earliest recorded writings, Sir Thomas Smith (1581) warned his countrymen against setting prices too high: “we may not set the price of things at our pleasure but [must] follow the price of the universal market of the world.”2 Although the world has largely rejected the full set of Mercantilist trade policies, the concern about international price competitiveness remains prominent. Another example is the famous essay by Keynes on “The Economic Consequences of Mr. Churchill”. One of Keynes’ main arguments was that the restoration of the gold standard in the United Kingdom in 1925 at the pre-WWI exchange rate parity (which left prices about ten percent too high) would render British exporters uncompetitive in international markets. The oldest usage of the term therefore defines competitive countries as those whose exchange rates, and therefore domestic prices and wages, are set at levels that permit exports to grow and prosper.
1.b. The Expanding Universe of Competitiveness.
Although the term is still widely used in the sense above, competitiveness began to encompass a wider set of issues during the 1980’s and the 1990’s, often confusing and exasperating outside observers. The underlying cause of this widened focus was
increased international trade as a share of global output, coupled with the perception of poor performance in foreign trade. This perception of poor performance was prominent in developed economies with declining traditional manufactures as well as developing countries whose export growth was disappointing in comparison with the Asian tigers. In both groups of countries the sense of crisis was sufficiently pervasive to fuel widespread interest in competitiveness.
The remedy for poor trade performance continues to be a hotly contested
question. Most sides however tended to agree that the exclusive focus of competitiveness on prices and wages failed to do justice to the depth of the issues faced by firms in the foreign trade sector. Rather than adopt a new word, the existing word simply has been used in wider contexts. Increasingly, the phrase “improving a nations competitiveness” came to encompass at least three distinct aspects of trade performance. One is improved
export growth of traditional products. A second is commencing exports of entirely new products. And a third is upgrading of existing exports so that their production involves more complex processing. It is usually assumed that more complex processing means a larger share of value added for the home market, even though this is not always the case. Rightly or wrongly, it is widely believed that having competitive prices is not sufficient to achieve the second and third goals. Hence there has been a continuing search for new solutions and a broadening of the terms of the competitiveness debate3.
This search for new solutions broadened the subject matter covered by
competitiveness and also brought new participants into the debate. The wider group of participants inevitably brings about some intellectual disorganization, since different professional groups speak different professional languages. The institutional sponsors of the debate have also influenced the course of the debate. Among the most prominent of these have been advisory bodies called Competitiveness Councils.4 The purpose of these Councils is to convene meetings of political leaders, business leaders and academics to discuss national competitiveness issues and solutions. Inevitably, pressure for consensus at times leads the bodies to produce documents in which competitiveness is defined in a way that satisfies all the constituencies. The result is a hybrid definition of
competitiveness with a carrot for every group but no internal consistency. Furthermore, the search for greater export diversity naturally engenders an interest in business strategy since business strategists advise companies how to move into new markets and change their product lines. There is a natural incentive on the part of business analysts to differentiate their work from that of economists, which sometimes takes the form of simply a different language and emphasis rather than new solutions.
The main argument here is that the competitiveness movement should re-focus on the issues that underpin the interest in competitiveness in the first place. These include how to achieve faster trade growth, increased trade diversity, and deeper processing and upgrading -- and through these means faster economic growth. Where new solutions (such as promotion of business clusters) are proposed to remedy this, we should expect more evidence that these efforts are indeed paying off. Instead of this focus too much of the recent discussion has bogged down in less important points.
One example is the debate about the extent to which strategic insights that are relevant for individual firms can be transferred to national economic policy. Some competitiveness writers do indeed use this logic. If its good for a firm, so the argument goes, it must be good for the entire economy since the economy is just the sum total of all firms. The problem is, while sometimes valid, these arguments may also fall prey to the fallacy of composition. Krugman (1994) reacted strongly against simple analogies
3 The sense of urgency is well conveyed by the following: “We are caught between India and China... We have lost about 500,000 manufacturing jobs. It is very difficult for us to compete with the Chinese, except with high-value-added industries. Where we should be competing, in the services area, we are hit by the Indians with their back offices and call centers. . . ..” Comments by former Foreign Minister of Mexico, Jorge Casteñeda, N.Y. Times 4/1/04 Thomas Friedman editorial.
4 Examples include the US Council, established by Congress during the Reagan administration and the Irish
between firms and nations (“Competitiveness: A Dangerous Obsession”5). The main point was that such analogies were too often misleading. He further objected to the tendency of competitiveness writers to assume that success on world markets solely determined national economic performance; to the implicit misunderstanding of international trade theory by those that asserted that nations were locked in a zero-sum economic game; and to the excessive focus on the trade balance as the sole indicator of a nation’s economic performance. It is also noteworthy that in Krugman’s article all of these points of view were lumped together under the single term “competitiveness”. In other words, if proof is ever needed of the dizzying variety of assertions that have fallen under the rubric of competitiveness, look no further than Krugman (1994).
A second debate that has bogged-down the competitiveness movement is the perennial search for a definition of “what competitiveness really is”. The
competitiveness movement has never had a single widely accepted criterion to gauge competitiveness. In one sense there has never been an easy solution. Competitiveness has historically been about foreign trade. Yet as soon as foreign trade criteria such as export growth are advanced as the ultimate criterion, the objection is that such things are not valuable in themselves but only to the extent that they serve broader goals such as higher national productivity. If instead higher national productivity is proposed, then competitiveness looses its distinctiveness. In reply to this kind of objection groups such as the U.S. Council on Competitiveness have simply taken two pills instead of one and swallowed hard: joining trade performance and overall productivity in one sentence. In what is often cited as the consensus definition, competitiveness is defined as:
“our ability to produce goods and services that meet the test of international competition while our citizens enjoy a standard of living that is both rising and sustainable.” 6
Such a formulation that combines the two elements is probably the best workable definition available. No amount of counter-definitions will ever strip competitiveness of its roots in foreign trade performance. Yet to stop there and limit the definition to trade performance would fail to acknowledge that better trade performance is not intrinsically desirable except to the extent that it contributes to overall productivity improvement. A plausible case can be made that improved trade performance is a necessary condition for improved productivity performance overall of low-income countries. This indeed seems to be an implicit assumption of many competitiveness advocates, however this
proposition has not been proven sufficiently to satisfy all comers. We are left with the fact that competitiveness is inevitably about improved trade performance and at the same time that most authors, when pressed for a single definition, will ultimately define the goal of competitiveness as higher economic growth and productivity. As table 1 makes clear, many of the attempts to define competitiveness ultimately have settled on some variant of higher economic growth or productivity.
5 (Foreign Affairs March/April 1994 Volume 73 Number 2)
Table 1
Alternative Definitions of Competitiveness7
The ability of a country to achieve sustained high rates of growth in GDP per capita.
Source: World Economic Forum, Global Competitiveness Report, 1996, pg. 19.
“Competitiveness of Nations is a field of Economic knowledge, which analyses the facts and policies that shape the ability of a nation to create and maintain an environment that sustains more value creation for its enterprises and more prosperity for its people.”
“Competitiveness of nations looks at how nations create and maintain an environment which sustains the competitiveness of its enterprises”.
Source: World Competitiveness Yearbook, IMD 2003 .
“The only meaningful concept of competitiveness at the national level is national productivity.”
Source: Michael Porter The Competitiveness Advantage of Nations, Chapter1. Free Press June 1998.
“Competitiveness implies elements of productivity, efficiency and profitability. But it is not an end in itself or a target. It is a powerful means to achieve rising living standards and increasing social welfare - a tool for achieving targets. Globally, by increasing productivity and efficiency in the context of international specialization, competitiveness provides the basis for raising peoples’ earnings in a non-inflationary way. Competitiveness should be seen as a basic means to raise the standard of living, provide jobs to the unemployed and eradicate poverty.”
Competitiveness Advisory Group, (Ciampi Group). “Enhancing European Competitiveness”. First report to the President of the Commission, the Prime Ministers and the Heads of State, June 1995.
A firm is competitive if it can produce products and services of superior quality and lower costs than its domestic and international competitors. Competitiveness is synonymous with a firm’s long-run profit performance and its ability to compensate its employees and provide superior returns to its owners.
Report of the Select Committee of the House of Lords on Overseas Trade, 1985
The ability to produce goods and services that meet the test of international markets while citizens earn a standard of living that is both rising and sustainable over the long-run.
The First Report to the President and Congress, 1992. US Competitiveness Policy Council.
Competitiveness is the degree to which a nation can, under free trade and fair market conditions, produce goods and services which meet the test of international markets, while simultaneously maintaining and expanding the real incomes of its people over the long-term.
OECD 1996 “Benchmarking Business Environments in the Global Economy.”
While there is little harm in being tolerant of hybrid definitions when the purpose is to communicate the basic idea, it is another matter when it comes to performance criteria. Here there is need for greater logical clarity. Fortunately there is more agreement about this than is initially apparent. When it comes to criteria for national
competitiveness, the definitions in the table above refer to “GDP per-capita”, “national
productivity”, “standard of living” and “real incomes”. These are closely related concepts that in practice tend to be measured by data that are highly correlated across countries, if not identical. For example, the best measure of labor productivity is GDP per-hour worked, yet since high-quality data on hours is not available for a large number of countries, this tends to be measured instead by GDP per-capita when authors deal with many countries. So in this case “productivity” and “GDP per-capita” boil down to the same thing. For a second example consider the definition from the select committee of the House of Lords in 19958. This definition states that competitiveness is synonymous with higher profit performance and employee compensation. Yet GDP is measured by summing value added across all firms in an economy, and value added of any firm is simply the sum of profits and wages (or “compensation”). So here again the definition is pointing to GDP as the fundamental criterion. Since value added is the fundamental building block to measure GDP or labor productivity, the competitiveness movement should accept that higher value added is indeed the implicit criterion of higher competitiveness and move past this sterile debate about definitions.
1.c. The Ultimate Goal – Sustained increased in value added.
It is clear then that competitiveness has widened its scope, but the competitiveness movement is ultimately about achieving and sustaining rapid economic growth, with a recognition that trade performance plays an important role. All competitiveness analysts recognize that to maintain growth in the face of low-wage external competition, nations must continually upgrade or shift to new products. This is true virtually by definition since higher growth means that domestic labor costs must be rising relative to slower-growing countries, unless the growing economy experienced an unusual rise in the national profit share. The real heart of the issue in competitiveness is therefore about the relative role of the market, government policy, and private initiatives such as cluster development in this upgrading process. This is one clear substantive issue on which the diverse voices in the competitiveness movement could be judged: do they provide a plausible and proven path towards higher GDP through upgrading?
What is sometimes labeled the neoclassical “comparative advantage” perspective is the view that the normal evolution of prices and wages as growth proceeds will create the right incentives for upgrading. Empirical evidence shows that real wages for all occupations rise as economies grow, and usually at approximately the same percentage rate as the whole economy. This means that although wages do not rise relative to returns to capital within the growing economy, they do rise significantly relative to wages in other non-growing economies. This creates incentives for exporting businesses to upgrade by investing in activities with higher labor productivity so that they can afford the higher wages. Coupled with this view is that related view that public intervention to pick favored sectors rarely improves upon a random coin flip and usually wastes resources in ill-advised subsidies (other than the provision of essential public goods such as research and development, infrastructure and education). Critics of this view claim that the market fails to promote upgrading sufficiently, because the required investments are beyond the scope of any single firm. They point specifically to natural resource exporting countries that rarely diversify and chronically slow-growing economies9.
A second perspective on the path to upgrading is that of business analysts10. They suggest that an important missing ingredient in national development is better business strategy on the part of firms in low wage countries and deeper cluster development. They also advocate improved business environments (as do many other analysts, so this is not their distinguishing feature). Business strategists tend to contrast their position against what they term the “comparative advantage low wage strategy”: the view that low wage countries should try to compete solely on the basis of low wages with exports of undifferentiated, commodity exports. This perspective relies extensively on a body of case studies whose major conclusion is that modern firms survive best if they avoid competition on the basis of low costs and instead pursue, product differentiation, innovation and upgrading. Cost-based competition is seen to lead to firms “eating each other’s lunch” or “racing to the bottom”.
The differences on strategy between these perspectives are sometimes overplayed. In Michael Porter’s work there is a recognition that competitive costs are part of the equation: “[firms]…must possess a competitive advantage in the form of either lower costs or differentiated products that command premium prices. To sustain advantage, firms must achieve more sophisticated competitive advantages over time, through providing higher-quality products and services or producing more efficiently. This translates directly into productivity growth." (Porter, p 10, 1990). There would probably be little objection from either group to a combined strategy that said pursue cost cutting strategies where there is scope for cost cutting and innovation and upgrading where there is scope for innovation and upgrading.
Two other areas where the differences between these groups loom larger are the attitude towards industrial policy and the extent of supporting evidence. While both sides reject
9 See for example the recent writings on the curse of natural resources (Sachs and Warner (2001), Maloney (2001), Warner (2002).
the notion that governments should subsidize production costs or protect industries to gain competitiveness, there is some divergence on the role of public policy vis-a-vis enterprise development.11 Where most economists would reject any form of “industrial policy”, business strategists are more inclined to promote joint public-private sector action, sector policies, and promote cluster development. There are groups in developing countries in favor of industry subsidies that regard the competitiveness movement as an opportunity to wrap their views in the cloak of respectability. On the supporting
evidence, there is considerable evidence that competitive exchange rates (and therefore competitive domestic prices and wages) have supported growth in some countries through export-led growth. A similar body of compelling evidence should be developed to test the extent to which upgrading strategies or active efforts to promote clusters lead to sustained higher economic growth, at either the project level or the national level.
2. Evaluating National Competitiveness Indexes.
Rankings and indexes measuring a nation’s economic performance have attracted a large following over the past decade. This section shows performance tests of the rankings themselves where the performance standard will be correlation with economic growth.
Such a test against economic growth is not the only possible way to test the rankings, but all would probably agree that the growth standard is important. What is also significant for independent observers is that in the construction of the rankings, the authors have implicitly taken a stand on what attributes of economies are important for economic performance. In other words, if nothing else, authors have been forced to make choices about what variables to include when developing an index. The indexes therefore provide a forum for testing the disputes between different schools of competitiveness and other schools in a regression framework.
The tests will include the indexes of competitiveness published by the World Economic Forum (WEF) and the Institute for Management and Development (IMD), as well as related indexes released by the Heritage Foundation (HF), and the World Bank (WB).
The components of each index are summarized in table 2. The “growth competitiveness index” (GCI) of the WEF’s Global Competitiveness Report (GCR) gives roughly equal weighting to three components: macroeconomic conditions, institutions and technological development. The “current competitiveness index” (CCI) in the GCR has two components: the quality of the local business environment and the quality of company operations and strategy12. The Index of Economic Freedom of the Heritage foundation is composed of data organized into ten categories, including tax rates, monetary policy, inflation, property rights and regulation. The competitiveness index in IMD’s World Competitiveness Yearbook (WCY) is composed of four sub-indexes: economic performance; government efficiency; business efficiency and infrastructure. An index called the “Startup Index” is constructed using an average of the four “cost of doing business” variables released by the World Bank.
Table 2
Comparison of Competitiveness Measures
World Economic Forum (WEF) 1/
Institute for Management and Development (IMD) 3/
The Heritage
Foundation 2/ World Bank 4/
Main Index:
Growth
Competitiveness Index
(GCI)
Current Competitiveness Index
(CCI)
Competitiveness Index (IMD)
Index of Economic Freedom (EF) Business Conditions Index (BCI) Sub-indexes: Technology Index Public Institutions Index Macroeconomic Environment Index Company Operations/Strategy Index
Quality of the Business Environment Index Physical infrastructure Administrative infrastructure Human resources Technology
Capital markets
Demand conditions Supporting industries Competition Economic Performance Government Efficiency Business Efficiency Infrastructure Trade Policy
Fiscal Burden of Government
Government
Intervention in the Economy
Monetary Policy Capital Flows and Foreign Investment Banking and Finance Wages and Prices Property Rights Regulation
Informal Market Activity
Number of Procedures Average time spent doing each procedure
Official cost of each procedure
Minimum capital required
1/ See Global Competitiveness Report (GCR) or www.weforum.org
2/ See Heritage Foundation or www.heritage.org/research/features/index/
3/ See World Competitiveness Yearbook or www01.imd.ch/wcy/
4/ See rru.worldbank.org/DoingBUsiness/
about the level of GDP both today and in the future. It is in this sense that the growth index provides a forecast of future potential levels of GDP.
Figure 1
Figure 2
-4
-2
0
2
4
G
ro
w
th
: 1
99
2-20
02
-1 -.5 0 .5 1
Current Competitiveness Index
coef = -.57828035, se = .56749601, t = -1.02
The CCI does not Correlate with Economic Growth
A similar result is found for the cost of doing business (COB) indicators of the World Bank (Annex 2). The author created an index by standardizing the four COB variables and averaging them together into one index. The empirical results show that this index does not correlate strongly with growth after controlling for the GCI and CCI of the World Economic Forum. It is of course still possible that the COB variables affect growth through other variables or in combination with other variables. While this should not be taken as a definitive result nor should it diminish the value of the COB indicators for other purposes, it does establish that there is no simple association between these variables and economic growth rates. These appear to be strong results in favor of the GCI in the Global Competitiveness Report. Some may claim that this is little surprise given that the WEF index was designed to correlate with growth in the first place. What is shown beyond this is that the other indexes don’t correlate positively with growth after controlling for the WEF Index. Moreover the WEF’s growth index is the only one that survives in a direct competition between all of the indexes.
We confirm in the first regression in annex 3 that the CCI does indeed correlate with levels of GDP across the world, as expected given its design. But the second regression in annex 3 shows, rather surprisingly, that the WEF’s growth index actually correlates more strongly with levels of GDP than the CCI, even though the CCI was designed to do this job and the GCI was not. According to this second regression, both indexes play a role statistically in explaining GDP levels but the CCI is only marginally statistically significant while the CGI is strongly significant.
We now attempt to dig a little deeper and ask which of the ingredients of the CCI are responsible for it’s positive association with GDP. Given that the CCI is an average of many sub-indexes, can we learn anything about which of these are more significant than others? In the first regression in Annex 4 we divide the CCI into its first two component parts: the business environment index (BEI) and the company strategy index (CSI). At first blush, without controlling for the GCI, the results suggest that the BEI component exhibits the stronger association of the two (see regression 1). However, this is reversed in regression 2 after controlling for the GCI: all the explanatory power resides with the CSI not the BEI. Regression 3 shows further that a single component of the CSI is alone responsible for its positive correlation with GDP. This component is the data that measures the extent to which businesses of the country employ best-practice technologies. This is seen by the fact that in regression 3 neither the BEI nor CSI are statistically significant while the GCI and the use-of-best-practice-techniques variable are both statistically significant. In other words, one can make a very good guess of a country’s income level or GDP by knowing how it scores on the GCI and the best-practice variable. Additional information on the country’s business environment or other aspects of company strategy in the country does not add any explanatory power.
Can it really be the case that several elements of the Diamond of Competitiveness are not empirically correlated with productivity after controlling for the GCI and the use-of-best-practice-technology variable? To show this more explicitly Annex 5 shows regressions that control one-by-one for the other elements of the Diamond. Recall that each of the variables considered are sub-indexes of the business environment part of the CCI, which in turn is based on the Diamond. The results indicate that of all sub-indexes, only physical infrastructure exhibits any association with productivity after controlling for the GCI and use-of-best-practice technologies. All the other sub-indexes, from administrative infrastructure to demand conditions to related and supporting industries, exhibit no evidence of a significant relation with GDP per-capita. Of course, while no empirical result such as this is definitive all by itself, these results do raise questions about the empirical underpinnings of the full Diamond of Competitiveness. Only a small fraction of the Diamond or only those parts already included in the GCI seem to correlate with levels of income around the world13.
2.a Critiques of the methodology behind country rankings
The Growth Competitiveness Index of the World Economic Forum was first developed in its current guise in 1996 in reply to criticism that global competitiveness rankings lacked intellectual and empirical justification14. The decision was taken then to base the index on economic growth. The authors of other indexes, while not explicitly designing their indexes around the concept of correlation with growth, nevertheless do claim that countries that score high on their indexes will grow faster.15 So in one way or another, correlation with growth does seem to be one prime justification behind many country rankings. The single exception here may be the IMD competitiveness ranking, which makes no explicit claim that the index correlates with economic growth.
Although the growth standard seems to have obtained wide acceptance, the methodology of the country-rankings remains subject to criticism. Part of the controversy is due to the fact that the GCI and many other indices are based partly on surveys of business executives, and these raise criticisms about the reliability of the data (see Lall 2001). However, such surveys are valuable in collecting data on issues for which there will never be hard data. In addition, there are cases where the survey data can be checked for accuracy by comparing the country-rankings of survey data and hard data when they are about similar subjects.
Figure 3 below shows a graph comparing these two sources for research and development spending. On the vertical axis the graph displays research and development spending as a percent of each countries gross national investment spending (from World Bank sources). On the horizontal axis the graph displays the rating of the extent of R&D spending derived from the GCR’s survey of executives. The graph shows that in this case the survey-based data correlates closely with the alternative data (the R-squared is 83 percent).
Figure 3
14 Sachs and Warner (1996) made the original decision to base the GCI index on economic growth. Warner (2000) substantially revised the methodology (see also Porter, Sachs and Warner (2000)). Sachs and McArthur (2001) made further revisions. The CCI originated in Porter (1998) and has remained essentially unchanged even though the name changed from MICI to CCI to BCI between 1998 and 2004.
15 In one example the author of the CCI index emphasizes that micro-economic reforms, meaning greater
Australia Austria Belgium Brazil Canada Chile China Denmark Egypt Finland France Germany Hungary Iceland India Indonesia Ireland Israel Italy Japan Korea Malaysia Mexico Netherlands Poland Spain Turkey United Kingdom United States Bulgaria Ecuador
R-squared = 83 percent
0 1 2 3 R & D S pe nd in g - % o f G N I
2.00 3.00 4.00 5.00 6.00
R&D Spending - GCR Data
Source: World Development Indicators 2002 and Global Competitiveness Report 1999 World Bank Data and GCR Survey Data
Comparing two indicators for R&D Spending
Of course survey data is nevertheless subject to error (as is the so-called hard data). The accuracy of the survey data is however helped by the fact that responses are averaged across individuals within a country – so that much of the random errors cancel out. Also, in practice the sample means from survey data are not sensitive to sample size beyond a sample size of approximately 40 respondents. The best practice is to use both kinds of data in complement to each other since neither survey data nor hard data are likely to be fully accurate. Usually simple examination of survey data and hard data together suggests that they measure different aspects of phenomena rather than one being a more accurate version of the other.
4. Summary
This note also investigated the extent to which some of the alternative rankings of competitiveness or related rankings correlate with recent growth rates (specifically the ten year period 1992-2002). This evaluation considered the growth competitiveness index of the World Economic Forum’s Global Competitiveness Report, the Current Competitiveness Index in the same report (renamed in 2004 to the Business Competitiveness Index), the Heritage foundation index of economic freedom, the IMD competitiveness index, and an index constructed by the author based on the World Bank’s cost of doing business indicators. It was found that the growth competitiveness index exhibits a consistently strong association with economic growth. After controlling for this index, none of the rival indexes correlate strongly with growth over this ten-year period.
Annex Data
World Economic Forum
Growth Competitiveness Index GCI
Current Competitiveness Index 16 CCI
Business Environment Index BEI
Corporate Strategy Index CSI
IMD
Competitiveness Index IMD
Heritage Foundation
Economic Freedom Index EFI
World Bank
Business Conditions Index BCI
Annex 1
Dependent Variable: Growth of GDP per person, 1992-2002
(1) (2) (3) (4) (5)
GDP 1992 -2.25 -2.26 -2.34 -2.28 -2.38
(5.82)** (5.86)** (4.99)** (5.64)** (4.88)**
GCI 2001 3.57 3.68 2.68 3.32 2.53
(5.32)** (5.25)** (3.65)** (4.39)** (2.96)**
CCI 2002 -0.58 0.13 -0.57 0.14
(1.02) (0.19) (0.98) (0.19)
CCI 2001 -0.66
(1.14)
IMD 0.03 0.03
(0.88) (0.84)
EFI 2004 -0.42 -0.19
(0.90) (0.34)
Constant 5.88 5.40 10.30 8.44 11.86
(1.50) (1.36) (2.18)* (1.55) (1.78)
Observations 69 69 46 68 46
R-squared 0.50 0.50 0.46 0.51 0.46
Absolute value of t-statistics in parentheses
Annex 2
Dependent Variable: Growth of GDP per person, 1992-2002
(1) (2)
GDP 1992 -2.23 -2.29
(5.37)** (5.72)**
GCI 2001 3.21 2.86
(4.21)** (5.89)**
CCI 2002 -0.36
(0.59)
BCI 0.29 0.28
(0.55) (0.55)
Constant 7.24 9.32
(1.73) (4.16)**
Observations 64 64
R-squared 0.52 0.51
Absolute value of t-statistics in parentheses
Annex 3
Dependent Variable: Log of GDP per person in 2001, PPP adjusted
(1) (2)
CCI 2002 0.79 0.28
(16.54)** (1.98)
GCI 2001 0.64
(3.80)**
Constant 9.13 6.26
(194.50)** (8.30)**
Observations 80 71
R-squared 0.78 0.82
Absolute value of t-statistics in parentheses
Annex 4
Dependent Variable: Log of GDP per person in 2001, PPP adjusted
(1) (2)
(3)
BEI 0.57 -0.35 -0.31
(3.52)** (1.41) (1.40)
CSI 0.22 0.44 -0.16
(1.33) (2.80)** (0.82)
GCI 2001 0.88 0.59
(4.51)** (3.21)**
USE OF GLOBAL BEST PRACTICE TECH. 0.66
(4.35)**
What is this variable above??
Constant 9.13 5.17 3.83
(193.53)** (5.90)** (4.58)**
Observations 80 71 71
R-square 0.78 0.83 0.87
Absolute value of t-statistics in parentheses
Annex 5
Dependent Variable: Log of GDP per person in 2001, PPP adjusted
(1) (2) (3) (4) (5) (6) (7) (8)
GCI 0.11 0.81 0.35 0.50 0.45 0.45 0.39 0.50
(0.75) (5.16)**(2.68)**(3.89)**(3.21)**(2.89)** (3.14)** (3.18)**
CSI -0.34 -0.18 -0.30 -0.16 -0.26 -0.26 -0.25 -0.26
(2.23)* (1.17) (1.87) (0.93) (1.46) (1.24) (1.35) (1.51)
BEST PRACTICE 0.55 0.53 0.63 0.70 0.64 0.66 0.67 0.66
(3.78)** (3.66)** (4.00)** (4.69)** (4.09)** (4.31)** (4.37)** (4.31)**
PHYSICAL INFRASTRUC. 0.42
(3.37)**
AMINISTRATIVE INFRA. -0.35
(3.74)**
HUMAN RESOURCES 0.09
(1.04)
TECHNOLOGY INFRASTRUCTURE -0.29
(2.16)*
CAPTAL MARKETS -0.07
(0.74)
DEMAND CONDITIONS -0.10
(0.50)
RELATED AND SUPPORTING INDUSTRIES -0.07
(0.72)
COMPETITION -0.14
(1.03)
Constant 6.44 3.38 5.05 4.11 4.56 4.48 4.72 4.26
(8.51)** (5.30)** (7.32)** (6.54)** (7.50)** (6.40)** (7.97)** (5.97)**
Observations 71 71 71 71 71 71 71 71
R-squared 0.88 0.89 0.87 0.87 0.87 0.87 0.87 0.87
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