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 15 th - 16 th, 2006

2 Assessing Law and Order Paris |December 15 th -16th, 2006  Presentation of the Global Competitiveness Network.  The Global Competitiveness Report and our data sources.  The Global Competitiveness Index (GCI).  The Institution pillar of the GCI and analysis.  A brief analysis of the Growth Competitiveness Index (Growth CI), and its Public Institution Index. Outline

3 Assessing Law and Order Paris |December 15 th -16th, 2006 Global Competitiveness Network  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

4 Assessing Law and Order Paris |December 15 th -16th, 2006 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  Global Information Technology Report 2007  Arab World Competitiveness Report 2007

5 Assessing Law and Order Paris |December 15 th -16th, 2006 Global Competitiveness Network Geographical coverage

6 Assessing Law and Order Paris |December 15 th -16th, 2006 Global Competitiveness Report  The most comprehensive data set on competitiveness  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

7 Assessing Law and Order Paris |December 15 th -16th, 2006 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 Global Competitiveness Report Which data do we use?

8 Assessing Law and Order Paris |December 15 th -16th, 2006  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. Global Competitiveness Report The Executive Opinion Survey

9 Assessing Law and Order Paris |December 15 th -16th, 2006 Global Competitiveness Report What are we trying to achieve?

10 Assessing Law and Order Paris |December 15 th -16th, 2006  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 Global Competitiveness Report What do we mean by competitiveness?

11 Assessing Law and Order Paris |December 15 th -16th, 2006 Three stages of development: The process of economic development evolves in three stages captured by the model: 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 Global Competitiveness Index

12 Assessing Law and Order Paris |December 15 th -16th, 2006 Key for efficiency-driven economies Key for factor-driven economies 1. Institutions 2. Infrastructure 3. Macroeconomy 4. Health and Primary Education 5. Higher Education and Training 6. Market Efficiency (goods, labour, financial) 7. Technological Readiness 8. Business Sophistication 9. Innovation Key for innovation-driven economies BASIC REQUIREMENTS EFFICIENCY ENHANCERS INNOVATION & SOPHISTICATIONS FACTORS Global Competitiveness Index

13 Assessing Law and Order Paris |December 15 th -16th, 2006  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  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  innovation- driven stage Global Competitiveness Index

14 Assessing Law and Order Paris |December 15 th -16th, 2006 Global Competitiveness Index Weights of the three main groups of pillars at each stage of development

15 Assessing Law and Order Paris |December 15 th -16th, 2006 Allocation of countries into stages:  Factor-driven stage: GDP per capita below $2,000  Efficiency-driven stage: GDP per capita between $3,000 and $9,000  Innovation-driven stage: GDP per capita above $17,000  Transition from factor  efficiency: GDP per capita between $2,000 and $3,000  Transition from efficiency  innovation: GDP per capita between $9,000 and $17,000 Global Competitiveness Index

16 Assessing Law and Order Paris |December 15 th -16th, 2006 Global Competitiveness Index Countries by stage of development

17 Assessing Law and Order Paris |December 15 th -16th, 2006 Global Competitiveness Rankings Top 20 and selected economies

18 Assessing Law and Order Paris |December 15 th -16th, 2006 Global Competitiveness Index Top performers in the nine pillars

19 Assessing Law and Order Paris |December 15 th -16th, 2006 Global Competitiveness Index Focus on the Institution pillar  Transparent and well-functioning institutions are one of the basic requirements for competitiveness, together with well- developed and efficient infrastructure, a sound macroeconomic environment and good levels of health and primary education.  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.

20 Assessing Law and Order Paris |December 15 th -16th, 2006 Institution Index Public Institutions 2/3 Private Institutions 1/3 Global Competitiveness Index Institution pillar: Composition Both the Public Institution and Private Institution sub-indexes are composed only by Survey data.

21 Assessing Law and Order Paris |December 15 th -16th, 2006 Public Institutions  Property rights  Ethics and corruption  Undue Influence  Government inefficiencies  Security Global Competitiveness Index Public Institution component: Composition All sub-components are given the same weight in the component’s computation

22 Assessing Law and Order Paris |December 15 th -16th, 2006 Private Institutions  Corporate Ethics  Accountability Global Competitiveness Index Private Institution component: Composition Both sub-components are given the same weight in the component’s computation

23 Assessing Law and Order Paris |December 15 th -16th, 2006 Institution Pillar Rankings Top 20 and selected economies

24 Assessing Law and Order Paris |December 15 th -16th, 2006 Global Competitiveness Index Institution pillar: Variables used & rankings

25 Assessing Law and Order Paris |December 15 th -16th, 2006 Global Competitiveness Index Institutions pillar: International comparisons

26 Assessing Law and Order Paris |December 15 th -16th, 2006 Sources: GCR , Kaufmann et al., 2005 The Global Competitiveness Index Competitiveness is associated to better governance

27 Assessing Law and Order Paris |December 15 th -16th, 2006 Growth Competitiveness Index Technology Index Macroeconomic Environment Index Public Institutions Index Contracts and law Sub-Index Corruption Sub- Index Technology Transfer Sub-Index Information & Communications Technology Subindex Innovation Sub-Index Macroeconomic stability Sub-Index Country Credit Rating Government Waste The Growth Competitiveness Index

28 Assessing Law and Order Paris |December 15 th -16th, 2006 Growth Competitiveness Index Technology Index 1/2 Macroeconomic Environment Index 1/4 Public Institutions Index 1/4 The Growth Competitiveness Index Composition : Core Innovators

29 Assessing Law and Order Paris |December 15 th -16th, 2006 Growth Competitiveness Index Technology Index 1/3 Macroeconomic Environment Index 1/3 Public Institutions Index 1/3 The Growth Competitiveness Index Composition : Non-Core Innovators

30 Assessing Law and Order Paris |December 15 th -16th, 2006 Public Institution Index Contract and Law Sub-index 1/2 Corruption Sub-Index 1/2 The Growth Competitiveness Index The Public Institution index: Composition

31 Assessing Law and Order Paris |December 15 th -16th, 2006 Contracts and Law Sub-Index Judicial independence Property rights Favoritism in decisions of govt officials Organised crime Corruption Sub-Index Irregular payments in exports/imports Irregular payments in public utilities Irregular payments in tax collection Both the Public Institution and Private Institution sub-indexes are composed only by Survey data. The Growth Competitiveness Index The Public Institution index: Variables used

32 Assessing Law and Order Paris |December 15 th -16th, 2006 France The most problematic factor for doing business Source: EOS The question asked to the firm was: “Select among the above 14 constraints the five most problematic factors for doing business in your country.”

33 Assessing Law and Order Paris |December 15 th -16th, 2006 THANK YOU FOR YOUR ATTENTION Visit our website: