Assessing Law and Order
The Lesson from the Global Competitiveness Index
and the Growth Competitiveness Index

Irene Mia


Senior Economist
Global Competitiveness Network

“Measuring Law”- Workshop

Paris, December 15th- 16th, 2006
Outline
 Presentation of the Global Competitiveness Network.
 The Global Competitiveness Report and our data sources.
 The Global Competitiveness Index (GCI).
Paris |December 15th-16th , 2006
Assessing Law and Order
 The Institution pillar of the GCI and analysis.
 A brief analysis of the Growth Competitiveness Index (Growth
CI), and its Public Institution Index.
2
Global Competitiveness Network
Paris |December 15th-16th , 2006
Assessing Law and Order
 Flagship product: Global Competitiveness Report
 Launched in 1979 covering 16 countries
 The Report has since expanded its coverage to 125 countries.
 2006 marks our 27th anniversary of measuring competitiveness
3
Global Competitiveness Network
Regional and special topic reports in the coming months:
Gender Gap Study 2006
Lisbon Review 2006
Travel and Tourism Competitiveness Report 2007
Paris |December 15th-16th , 2006
Assessing Law and Order
Global Information Technology Report 2007
Arab World Competitiveness Report 2007
4
Paris |December 15th-16th , 2006
Assessing Law and Order
Global Competitiveness Network
Geographical coverage
5
Global Competitiveness Report
 The most comprehensive data set on competitiveness
Paris |December 15th-16th , 2006
Assessing Law and Order
 Assesses the comparative strengths and weakness of a
large number of economies
 Produced in collaboration with leading academics
worldwide and a global network of partner (research)
institutes
6
Global Competitiveness Report
Which data do we use?
Paris |December 15th-16th , 2006
Assessing Law and Order
A) Executive Opinion Survey :

It records the perspectives of business leaders around
the world; Survey data is indispensable, particularly for
variables where no reliable hard data sources exist

Respondents compare their own operating
environments with global standards on a wide range of
dimensions
B) Hard data generally available from international
sources
7
Global Competitiveness Report
The Executive Opinion Survey
Paris |December 15th-16th , 2006
Assessing Law and Order
The sample of respondents is carefully selected in each
country by the Partner Institute to reflect the structure of a
country’s business environment.
 It is structured around eleven major issue areas, each of
significant relevance to the current state of an economy’s
business environment, the Survey asks participants to respond
to a total of 150 questions based on their own experiences of
operating a business in the country in which they are based
 The Survey is translated into over 20 languages.
 The Survey is also available online.
 Record response rate this year of over 11,000 responses.
8
Global Competitiveness Report
What are we trying to achieve?
Gr os s dom e s tic pr oduc t ba s e d on pur c ha s ing-pow e r -pa r ity pe r c a pita , 1 9 8 0 -2 0 0 6
35,000
30,000
A r gentina
A us tr alia
25,000
Kor ea
Malay s ia
20,000
Paris |December 15th-16th , 2006
Assessing Law and Order
15,000
10,000
5,000
0
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
Sour c e: Inter national Monetar y Fund, W or ld Ec onomic Outlook, September 2006
9
Paris |December 15th-16th , 2006
Assessing Law and Order
Global Competitiveness Report
What do we mean by competitiveness?

Competitiveness is defined as the set of factors, policies and
institutions that determine the level of productivity of a
country

Because productivity is the main driver of investment in an
economy and investment, in turn, unambiguously determines
the rate of growth of the economy, we say that:

A more competitive economy is one that is likely to grow
faster over the medium to long run

We try to shed light on “the factors, policies and institutions”
that determine the sharply different growth experiences of 117
economies worldwide
10
Global Competitiveness Index
Three stages of development:
The process of economic development evolves in three
stages captured by the model:
Paris |December 15th-16th , 2006
Assessing Law and Order
1. “Factor-driven stage”
Firms compete in prices, taking advantage of cheap factors
2. “Efficiency-driven stage”
Efficient production practices to increase productivity
3. “Innovation-driven stage”
Economies need to produce innovative products using
sophisticated production methods
11
Global Competitiveness Index
BASIC REQUIREMENTS
1.
2.
3.
4.
Institutions
Infrastructure
Macroeconomy
Key for
factor-driven
economies
Health and Primary Education
Paris |December 15th-16th , 2006
Assessing Law and Order
EFFICIENCY ENHANCERS
5.
6.
7.
Higher Education and Training
Market Efficiency (goods, labour, financial)
Technological Readiness
INNOVATION & SOPHISTICATIONS FACTORS
8.
9.
Business Sophistication
Innovation
Key for
efficiency-driven
economies
Key for
innovation-driven
economies
12
Global Competitiveness Index
 All pillars matter to a certain extent for all countries
 However, the importance of each pillar depends on a
country’s particular stage of development
Paris |December 15th-16th , 2006
Assessing Law and Order
 The pillars are organized into 3 subindexes, each critical to
one particular stage:
1. Basic requirements  factor-driven stage
2. Efficiency enhancers  efficiency-driven stage
3. Innovation and sophistication factors  innovationdriven stage
13
Global Competitiveness Index
Paris |December 15th-16th , 2006
Assessing Law and Order
Weights of the three main groups of pillars at each stage
of development
B a sic
re q u ire m e n ts
E fficie n cy
e n h a n ce rs
In n o va tio n a n d
so p h istica tio n fa cto rs
F a cto r-d rive n sta g e
50%
40%
10%
E fficie n cy-d rive n sta g e
40%
50%
10%
In n o va tio n -d rive n sta g e
30%
40%
30%
14
Global Competitiveness Rankings 2006-2007
Top 20 and selected economies
Paris |December 15th-16th , 2006
Assessing Law and Order
2006
R ank
C o u n try
S c o re
2005
ra n k
change
2006
R a n k C o u n try
S c o re
2005
R ank
change
1
S w itz e rla n d
5 .8 1
4
3
21
Ire la n d
5 .2 1
21
0
2
F in la n d
5 .7 6
2
0
28
S p a in
4 .7 7
28
0
3
Sw eden
5 .7 4
7
4
24
K o re a , R e p .
5 .1 3
19
-5
4
D e n m a rk
5 .7 0
3
-1
25
E s to n ia
5 .1 2
26
1
5
S in g a p o re
5 .6 3
5
0
35
T h a ila n d
4 .6 0
33
-2
6
U n ite d S ta te s
5 .6 1
1
-5
43
In d ia
4 .4 4
45
2
7
Japan
5 .6 0
10
3
70
M o ro c c o
4 .0 1
76
6
8
G e rm a n y
5 .5 8
6
-2
54
C h in a
4 .2 4
48
-6
9
N e th e rla n d s
5 .5 6
11
2
42
Ita ly
4 .4 6
38
-4
10
U n ite d K in g d o m
5 .5 4
9
-1
59
T u rk e y
4 .1 4
71
12
11
H ong K ong SAR
5 .4 6
14
3
62
R u s s ia
4 .0 8
53
-9
12
N o rw a y
5 .4 2
17
5
66
B ra z il
4 .0 3
57
-9
13
T a iw a n , C h in a
5 .4 1
8
-5
30
T u n is ia
4 .7 1
37
7
14
Ic e la n d
5 .4 0
16
2
48
P o la n d
4 .3 0
43
-5
15
Is ra e l
5 .3 8
23
8
16
C anada
5 .3 7
13
-3
17
A u s tria
5 .3 2
15
-2
18
F ra n c e
5 .3 1
12
-6
19
A u s tra lia
5 .2 9
18
-1
20
B e lg iu m
5 .2 7
20
0
17
Econom y
In s titu tio n s
In fra s tru c tu re
M a c ro e c o n o m y
H e a lth a n d p rim a ry
e d u c a tio n
H ig h e r e d u c a tio n
a n d tra in in g
M a rk e t e ffic ie n c y
T e c h n o lo g ic a l
re a d in e s s
B u s in e s s
s o p h is tic a tio n
In n o v a tio n
Paris |December 15th-16th , 2006
Assessing Law and Order
Global Competitiveness Index 2006-2007
Top performers in the nine pillars
F in la n d
1
10
12
7
1
17
12
11
4
D e n m a rk
2
5
14
4
2
6
10
9
10
Ic e la n d
3
20
58
3
13
8
4
14
19
G e rm a n y
7
1
63
71
18
20
20
1
5
S w itze rla n d
5
2
18
29
6
5
5
3
3
Hong Kong SAR
10
3
9
35
25
1
13
13
22
A lg e ria
58
78
1
45
84
96
100
103
76
K u w a it
38
45
2
76
59
29
46
33
81
Q a ta r
16
41
3
37
46
30
39
69
41
Japan
22
7
91
1
15
10
19
2
1
Canada
21
13
32
2
17
7
17
18
13
Sweden
12
9
15
9
3
19
1
5
6
U n ite d S ta te s
27
12
69
40
5
2
8
8
2
U n ite d K in g d o m
15
14
48
14
11
3
6
6
12
4
6
8
20
10
4
2
23
9
Is ra e l
29
24
50
17
20
14
3
17
7
F ra n c e
24
4
56
12
12
28
25
10
14
S in g a p o re
18
Global Competitiveness Index 2006-2007
Focus on the Institution pillar
Transparent and well-functioning institutions are one of the
basic requirements for competitiveness, together with welldeveloped
and
efficient
infrastructure,
a
sound
macroeconomic environment and good levels of health and
primary education.
Paris |December 15th-16th , 2006
Assessing Law and Order
Basic requirements are key for countries placed in stage 1,
competing on cheap factors.
Although France has progressed already to a higher stage
of development, institutions remain very important for the
country’s overall sustained competitiveness.
19
Global Competitiveness Index 2006-2007
Institution pillar: Composition
Institution Index
Paris |December 15th-16th , 2006
Assessing Law and Order
2/3
Public Institutions
1/3
Private
Institutions
Both the Public Institution and Private Institution sub-indexes are
composed only by Survey data.
20
Global Competitiveness Index 2006-2007
Public Institution component: Composition
Property
Paris |December 15th-16th , 2006
and
corruption
Assessing Law and Order
Ethics
Undue
Government
rights
inefficiencies
Public
Institutions
Security
Influence
All sub-components are given the same weight in the component’s
computation
21
Global Competitiveness Index 2006-2007
Private Institution component: Composition
Paris |December 15th-16th , 2006
Assessing Law and Order
Corporate
Ethics
Private
Institutions
Accountability
Both sub-components are given the same weight in the component’s
computation
22
Paris |December 15th-16th , 2006
Assessing Law and Order
Institution Pillar Rankings 2006-2007
Top 20 and selected economies
2006
R ank
C o u n tr y
S c o re
2006
R a n k C o u n tr y
1
F in la n d
6 .0 5
24
F ra n c e
4 .9 1
2
D e n m a rk
5 .9 8
30
E s t o n ia
4 .7 0
3
Ic e la n d
5 .9 8
34
In d ia
4 .5 5
4
S in g a p o r e
5 .9 0
36
S o u t h A f r ic a
4 .4 9
5
S w it z e r la n d
5 .7 3
39
S p a in
4 .3 7
6
N o rw a y
5 .7 1
40
T h a ila n d
4 .3 7
7
G e rm a n y
5 .6 9
51
T u rk e y
4 .0 5
8
N e w Z e a la n d
5 .6 5
57
M o ro c c o
3 .8 7
9
N e t h e r la n d s
5 .6 0
69
M e x ic o
3 .6 8
10
H ong K ong SAR
5 .5 4
71
It a ly
3 .6 6
11
A u s t r a lia
5 .5 1
73
P o la n d
3 .6 2
12
Sw eden
5 .5 1
80
C h in a
3 .5 1
13
A u s t r ia
5 .4 5
91
B r a z il
3 .2 9
14
L u x e m b o u rg
5 .4 5
114
R u s s ia
2 .9 7
15
U n it e d K in g d o m
5 .3 8
16
Q a ta r
5 .1 6
17
Ir e la n d
5 .1 5
18
M a la y s ia
5 .1 2
19
T u n is ia
5 .0 9
20
U n it e d A r a b E m ir a t e s
5 .0 5
S c o re
23
Global Competitiveness Index 2006-2007
Institution pillar: Variables used & rankings
2 0 0 6 -2 0 0 7
2 0 0 5 -2 0 0 6
F ra n c e
F ra n c e
Paris |December 15th-16th , 2006
Assessing Law and Order
ra nskc o re
s c* o re
ra n k
s c o re
1 s t P illa r : In s titu tio n s
24
4 .9 1
20
4 .9 6
A . P u b lic in s titu tio n s
25
4 .6 8
24
4 .7 3
1 . P ro p e rty rig h ts
18
6 .0 8
16
5 .9 9
P ro p e rty rig h ts
18
6 .0 8
16
5 .9 9
2 . E th ic s a n d c o rru p tio n
27
4 .2 6
25
4 .2 3
D iv e rs io n o f p u b lic fu n d s
21
5 .3 3
21
5 .0 3
P u b lic tru s t o f p o litic ia n s
30
3 .2 0
27
3 .4 3
3 . U n d u e In flu e n c e
26
4 .5 6
20
4 .6 3
J u d ic ia l in d e p e n d e n c e
35
5 .0 6
29
5 .1 3
F a v o ritis m in d e c is io n s g o v e rn m e n t o ffic ia ls
21
4 .0 5
21
4 .1 3
4 . G o v e rn m e n t In e ffic ie n c y (re d ta p e , b u re a u c ra c y a n d w a s te )
57
3 .1 1
39
3 .3 6
W a s te fu ln e s s o f g o v e rn m e n t s p e n d in g
40
3 .5 8
29
3 .8 8
B u rd e n o f g o v e rn m e n t c o m p lia n c e
91
2 .6 5
68
2 .8 3
5 . S e c u rity
27
5 .3 8
22
5 .4 7
B u s in e s s c o s ts o f te rro ris m
68
5 .1 0
61
5 .0 9
R e lia b ility o f p o lic e s e rv ic e s
18
5 .6 1
17
5 .5 1
B u s in e s s c o s ts o f c rim e a n d v io le n c e
45
4 .9 5
32
5 .3 1
O rg a n iz e d c rim e
24
5 .8 6
19
5 .9 6
B . P r iv a te in s titu tio n s
18
5 .6 0
15
5 .6 5
1 . C o rp o ra te E th ic s
20
5 .6 0
17
5 .7 3
E th ic a l b e h a v io r o f firm s
20
5 .6 0
17
5 .7 3
2 . A c c o u n ta b ility
18
5 .6 1
16
5 .5 8
E ffic a c y o f c o rp o ra te b o a rd s
21
5 .3 4
16
5 .3 6
P ro te c tio n o f m in o rity s h a re h o ld e rs ' in te re s ts
27
5 .1 9
22
5 .2 5
S tre n g th o f a u d itin g a n d re p o rtin g s ta n d a rd s
6
6 .3 0
11
6 .1 3
24
U
S
nc
e
15
hi
na
Br
az
il
C
In
di
Ac
a
ce
ss
io
n
10
Fr
a
EU
Fi
nl
an
d
Paris |December 15th-16th , 2006
Assessing Law and Order
Global Competitiveness Index
Institutions pillar: International comparisons
Institutions
7
6
5
4
3
2
1
25
The Global Competitiveness Index
Competitiveness is associated to better
governance
6
FI N
Global Competitiveness Index
Paris |December 15th-16th , 2006
Assessing Law and Order
US A
S WE
TWN
CHE
N OR
JPN
K OR
M YS
ISR
K WTC YP S VN
BHR
C ZE
H
U
N
TU N
LTU
S VKZA FGR C
LVA
J OR
I TA
B WA
TH A
4
QA T
ARE
P RT
M LT
CHL IRL
ES AP H K G
FR
B EL
A UNSLD
N R
D EUC AGB
A ULU
T X
DNK
ISSGP
L
N ZL
CHN
IND
P OL M U S
EGY
M EX
URY
C OL
B GR
GH
A
TTO
KAZ
H
R
V
N
A
M
OMRB R A
A ZE
J A M P ERRTU
P AN
I D N R U S TZA A R G
MAR
P HDLZA
U KM
R
YU G
P ADKA VN M
M
K
D
N GA VEN
GEO
U
GA
LIN G
K ENM OZ
H N DGMBM
BM
IH
GTM
LK A
B OL
A LB
D OM N I C
TJ K
ETH
M WIEC U
TM P M D G
ZWE
B GD
PKRHYM C M R
B ENY
GU
K GZ
S LV
CRI
TC D
2
-1.5
-1.0
-0.5
0.0
0.5
1.0
Control of Corruption
1.5
2.0
2.5
3.0
Sources: GCR 2005-2006, Kaufmann et al., 2005
26
The Growth Competitiveness Index
Paris |December 15th-16th , 2006
Assessing Law and Order
Growth Competitiveness
Index
Technology Index
Macroeconomic
Environment Index
Public Institutions
Index
Innovation Sub-Index
Macroeconomic
stability Sub-Index
Contracts and
law Sub-Index
Technology
Transfer Sub-Index
Country Credit
Rating
Corruption SubIndex
Information &
Communications
Technology Subindex
Government
Waste
27
The Growth Competitiveness Index
Composition : Core Innovators
Growth Competitiveness Index
Paris |December 15th-16th , 2006
Assessing Law and Order
1/2
Technology
Index
1/4
Macroeconomic
Environment Index
1/4
Public Institutions
Index
28
The Growth Competitiveness Index
Composition : Non-Core Innovators
Growth Competitiveness Index
Paris |December 15th-16th , 2006
Assessing Law and Order
1/3
Technology
Index
1/3
Macroeconomic
Environment Index
1/3
Public
Institutions Index
29
The Growth Competitiveness Index
The Public Institution index: Composition
Public Institution Index
Paris |December 15th-16th , 2006
Assessing Law and Order
1/2
Contract and Law
Sub-index
1/2
Corruption
Sub-Index
30
The Growth Competitiveness Index
The Public Institution index: Variables used
Both the Public Institution and Private Institution sub-indexes are
composed only by Survey data.
Contracts and Law Sub-Index
Judicial independence
Corruption Sub-Index
Irregular payments in exports/imports
Irregular payments in public utilities
Paris |December 15th-16th , 2006
Assessing Law and Order
Property rights
Irregular payments in tax collection
Favoritism in decisions of govt officials
Organised crime
31
France
The most problematic factor for doing business
Per c ent of r es pons es
0
5
10
15
20
Res tr ic tiv e labour r egulations
17.2
Tax r egulations
15.0
A c c es s to f inanc ing
13.2
Inef f ic ient gov er nment bur eauc r ac y
11.1
Polic y ins tability
5.1
Inadequately educ ated w or kf or c e
3.6
Paris |December 15th-16th , 2006
Poor w or k ethic in national labour f or c e
Assessing Law and Order
30
25.8
Tax r ates
2.5
For eign c ur r enc y r egulations
1.5
Inadequate s upply of inf r as tr uc tur e
1.3
Inf lation
1.2
Gov er nment ins tability /c oups
1.1
Cor r uption
1.0
Cr ime and thef t
25
0.6
Source: EOS 2006. The question asked to the firm was: “Select among the above 14 constraints the five
most problematic factors for doing business in your country.”
32
Paris |December 15th-16th , 2006
Assessing Law and Order
THANK YOU FOR YOUR
ATTENTION
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