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Tuesday, September 14, 2010

How The Global Competitiveness Index Is Calculated?

I posted something on The Global Competitiveness Report 2010-2011 last week and get a comment from a reader named Aaron asking on how the Global Competitiveness Index is calculated by the World Economic Forum. The following is his comment

aaron said...

So how is the Global Competitiveness Index calculated and what does this say about the economy, as I see that Canada has slipped down one place too?

As we all know, all these reports and indexes are just number that the World Economic Forum put in based on their perception using some of the guidelines from the forum.

To me, the drop of a country in the Global Competitiveness Index means one and only thing - too many red tapes which makes it difficult to do a business with the nation. Well, that is just my opinion. Anyway after getting the comment from Aaron, I feel that it is also good for me to learn new stuff by learning how the Global Competitiveness Index is calculated by the World Economic Forum, thus I do a search from the World Economic Forum website.

The following is what I get from the World Economic Forum FAQ regarding how the Global Competitiveness Index is calculated:-

The Global Competitiveness Index or in short GCI is made up of over 113 variables, of which approximately one two thirds come from the Executive Opinion Survey, and one third comes from publicly available sources. The variables are organized into 12 pillars, with each pillar representing an area considered as an important determinant of competitiveness:

* Institutions
* Infrastructure
* Macroeconomic stability
* Health and primary education
* Higher education and training
* Goods market efficiency
* Labor market efficiency
* Financial market sophistication
* Technological readiness
* Market size
* Business sophistication
* Innovation

The impact of each pillar on competitiveness varies across countries, in function of their stages of economic development. In order to take this reality into account in the calculation of the GCI, pillars are given different weights.

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