Global Competitiveness Index

The Global Competitiveness Index (GCI) is a comprehensive metric designed to assess the macroeconomic and microeconomic foundations of a country's competitiveness. It evaluates a nation's level of productivity, which in turn determines its medium-term and current economic prosperity. The index is based on a combination of survey data and complex data, analyzing factors, institutions, and policies that influence a country's economic performance.

The GCI is released annually by the World Economic Forum (WEF). It aims to provide insights into the challenges and opportunities that countries face, especially in the context of the ongoing Fourth Industrial Revolution. The index serves as a tool for policymakers and stakeholders to identify areas for improvement and to track progress over time.

The Global Competitiveness Index (GCI) represents a set of factors, institutions, and policies that provide insights into a nation's productivity. Higher productivity leads to greater well-being and prosperity. The GCI uses 12 pillars to evaluate a nation's competitiveness, integrating microeconomic and macroeconomic aspects into a unified framework. It aims to offer a comprehensive representation of the drivers of long-term growth and productivity, assisting business leaders and policymakers in identifying priority areas for improvement.

The GCI serves as a benchmark for countries to enhance their competitiveness, which can lead to improved economic growth. It has become a crucial tool for international organizations, academic experts, and governments to make decisions. The Basel AML Index indirectly uses GCI data due to its robust reporting and auditing standards, judicial independence, and institutional quality in evaluating money laundering risks. Additionally, the GCI impacts investment decisions and financial markets by providing insights into the stability and competitiveness of economies.

Competitiveness comprises a set of elements such as policies, productivity levels, and institutions. The World Economic Forum's Global Competitiveness Index (GCI) data is divided into 12 pillars:

1. Institutions: This pillar includes administrative and legal frameworks that impact the behavior and efficacy of public and private institutions, affecting growth and competitiveness.
2. Infrastructure: This pillar covers the quality of telecommunications, electricity, and transportation, which are essential for the effective functioning of the economy through energy, trade, and communication.
3. Macroeconomic Environment: This pillar represents stable monetary and fiscal policies that are crucial for investor and business confidence.
4. Health and Primary Education: An educated and healthy workforce is critical for competitiveness.
5. Higher Education and Training: In a changing and evolving global economy, a highly educated, skilled, and trained workforce is necessary.
6. Goods Market Efficiency: The efficiency of the goods market determines the quantity and quality of domestic consumption.
7. Labor Market Efficiency: The allocation and incentivization of talent lead to an efficient and flexible labor market.
8. Financial Market Development: A well-developed financial system channels resources towards the most productive uses and provides ample investment opportunities.
9. Technological Readiness: A nation's ability to adopt and use new technologies is crucial for productivity growth.
10. Market Size: A large market provides opportunities to achieve economies of scale and enhance competitiveness.
11. Business Sophistication: High-quality business strategies and networks are significant for driving efficiency and innovation, particularly in developed economies.
12. Innovation: This pillar promotes a conducive environment for intellectual property protection, research and development, and collaboration among industry and universities.

The Global Competitiveness Index (GCI) ranks world economies based on their competitiveness, taking into account the various stages of development of a country to assign weights to the 12 pillars according to their relevance at each stage:

• Factor-driven stage (pillars 1 to 4): In this stage, competitiveness is determined by basic requirements such as institutions, infrastructure, macroeconomic stability, health, and primary education.
• Efficiency-driven stage (pillars 5 to 10): At this stage, factors such as higher education and training, goods market efficiency, labor market efficiency, financial market development, technological readiness, and market size become critical for competitiveness.
• Innovation-driven stage (pillars 11 and 12): In this stage, business sophistication and innovation drive competitiveness.

The GCI incorporates three subindexes: Basic Requirements, Efficiency Enhancers, and Innovation and Sophistication Factors. The weights assigned to each subindex vary depending on the country's stage of development:

• Basic Requirements: This subindex includes the first four pillars.
• Efficiency Enhancers: This subindex includes pillars 5 to 10.
• Innovation and Sophistication Factors: This subindex includes pillars 11 and 12.

The indicators within each pillar are aggregated using an arithmetic mean, with weights transitioning smoothly between stages of development. The GCI assigns specific weights to each subindex based on the country's stage of development, and the scores of each subindex are averaged to create the final GCI score.

The GCI effectively determines a nation's competitiveness relative to others, and the results are published in the World Economic Forum's Global Competitiveness Report.

Let us use a few examples to understand the topic. 

Example #1 

An online article published on the IMD World Competitiveness Ranking (WCR) discussed Singapore's rise to the top spot in terms of competitiveness in 2024, as ranked by IMD Business School. Significantly, Singapore reclaimed the top spot for the first time since 2020. The index considered business efficiency, economic performance, infrastructure, and government efficiency for the ranking.

The article highlighted that Hong Kong:

• Improved its economic performance to 11th place from the previous 36th spot.
• Experienced a slight decline in its government efficiency score.
• Saw improvements in business efficiency and infrastructure.

Additionally, the article noted that Switzerland achieved 2nd place while Denmark secured 3rd place.

In terms of the costliest cities, Hong Kong was named the most expensive city for international workers in 2024, followed by Singapore in second place and Zurich in third place.

Example #2

Let us assume an imaginary local competition index formulated and implemented by the Old York City Council. This index ranks various cities across America based on government efficacy, business efficiency, infrastructure, and economic performance. The list arranges the cities in ascending order according to their overall ranking based on these criteria. The data is as follows:

• Overall no. 1 ranked city: Elithiym
• Second best city: Neconia
• Third-ranking city: Britannia
• Best economically performing city: Rolexy
• Best business efficient city: Businyti
• Best infrastructure: Infratech
• Best government efficiency: Governia

The list highlights that Neconia, which had needed help to shed its 9th place ranking, succeeded in breaking the barrier and rising to become the number 2 city in the index. Despite a recent political breakdown that had pushed Governia to be the worst-governed city, the new government has achieved significant milestones, improving its standing on the index.

As per the latest report published by IMD World Competitiveness Ranking (WCR), the rankings are presented in the table below: