Competitiveness indices: interpretation and limits

Abstract

Some competitiveness indices and the rankings of countries according to these indices are widely publicized. We discuss here how they should be interpreted and their empirical robustness, focusing on the indices published by the World Economic Forum (WEF). These indices suffer from several weaknesses. First, their theoretical basis is approximate. Second, they rest on many a priori assumptions regarding growth and competitiveness factors, which may be not empirically founded. Lastly, measurement of these factors is based on questionable indicators. Such weaknesses may lead to fragile indices and rankings. This is confirmed by an empirical analysis of the building of the main index (GCI) published by the WEF. We thus attempt to reproduce WEF's construction, on a more rigorous statistical basis. Starting from the same elementary indicators as the WEF's 2001 GCI index, we aggregate them with weights chosen to maximize the correlation between the aggregate index and GDP per capita growth for the retained countries, which is the supposed aim of the GCI index. The rankings we obtain differ, sometimes considerably, from WEF's rankings, although all the considered indices are similarly correlated with GDP per capita growth. The new indices do not however pretend to replace WEF's ones. They have obviously the same limits in terms of robustness, notably a weak capacity to account precisely for between countries growth discrepancies.