Global Competitiveness Index (GCI) vs Unemployment Rate CHONG Ngok Ki, Nathan PENG Fei, Rick NG Sze Ho, Stephen ZHANG Yifei, Kelvin

Content Introduction of GCI Stage of the economy Introduction to 3 sub-sections and relative ranking Classification of 12 pillars Key competitive advantages of Hong Kong and China & Suggestions for achieving higher GCI Comparison between GCI (overall) and unemployment rate

Introduction to GCI The Global Competitiveness Index measures the set of institutions, policies factors that set the sustainable current and medium- term levels of economic prosperity.”

Different Stages of Economy

Weights of the three main groups of pillars at each stage of development

Criteria of deciding the stages Percent of specific types of goods allocated in total export Level of GDP per capita at market exchange rates

Basic Requirement

Institution Divided into two major parts Public institutions Private Institution

Public institutions Property rights Public trust of politicians Wastefulness of government spending Reliability of police services

Private institutions Ethical behavior of firms Corporate Governance Protection of minority shareholders’ interests Strength of auditing and accounting standards

Infrastructure Transportation System Telecommunication System Electricity Supply

Transportation System Transport for goods, people Efficiency of roads, railways, ports and airports will be taken into account Get the good to the market in a timely manner Facilitate movement of workers

Telecommunication System Rapid, free flow of information (fast) Solid and extensive network (board & stable) Enhance wiser decision making, by taking all relevant information into account

Electricity Supply Electricity supply in a reasonable price Free of interruption and shortages Business and factories can run smoothly

Marcoeconomy Relative passive factor Stable Marcoeconomy alone not able to increase productivity Only when macroeconomy disarray harms productivity (in a reverse way)

Example Inflation too high Government spending too high (deficit) Bad economic environment Lower living standard Motivation

Health and primary education Impact of health on productivity Importance of basic education

Impact of health on productivity Ill worker cannot function in full potential Business operation in a low efficiency Productivity decreases enhances the country less competitive

Importance of basic education Basic education will increase efficiency of individuals Much easier to be adapted to new technique and technology Administrative staff requires basic education

Efficiency Enhancer

What is competitiveness? The most intuitive definition of competitiveness is a country’s share of world markets for its products. In fact, it is still often said that lower wages or devaluation “make a nation more competitive.”

What is competitiveness? The most intuitive definition of competitiveness is a country’s share of world markets for its products. Prosperity is determined by the productivity of an economy

is measured by the value of goods and services produced per unit of the nation’s human, capital, and natural resources. Value of a nation’s products and services, measured by the prices they can command in open markets Efficiency with which they can be produced

Countries begin to develop more Efficient production processes and increase product Quality. Production F(K,L,Tech) Market  Goods Market Efficiency  Labor Market Efficiency  Financial Market Sophistication  Higher Education and Training  Technological readiness  Market Size

Higher Education and Training: Move up the value chain Adapt rapidly to changing the environment Measurement Secondary and Tertiary enrollment rates Quality of education Vocational and continuous on-the job training Technological Readiness : Ability to adopt existing technologies to enhance the productivity Increasing relative importance of technology adoption to national competitiveness

Goods Market Efficiency: produce the right mix of products and services given supply-and-demand conditions Healthy domestic and foreign market competition best possible environment for the exchange of goods demand conditions such as customer orientation and buyer sophistication

Labor Market Efficiency: Workers are allocated to their most efficient use in the economy Ensure a clear relationship between worker incentives and their efforts Workers are allocated appropriately and provided with incentives to give their best effort in their jobs Labor markets must have the flexibility to shift workers from one economic activity to another quickly Allow for wage fluctuations without much social disruption

Financial Market Sophistication: Channels resources to the best entrepreneurs or investment projects rather than to the politically connected Develop products and methods so that small innovators with good ideas can implement them Provide risk capital and loans and be trustworthy and transparent Sophisticated financial markets that can make capital available for private-sector investment from such sources as loans from a sound banking sector, well- regulated securities exchanges, and venture capital

Market Size: The size of the market affects productivity because large markets allow firms to exploit economies of scale International trade as a substitute for domestic demand in determining the size of the market for the firms of a country

Innovation and Sophistication factors

Business sophistication Business sophistication is conducive to higher efficiency in the production of goods and services. This leads to increased productivity, thus enhancing a nation’s competitiveness. A. Networks and supporting industries Local supplier quantity Local supplier quality B. Sophistication of firms’ operations and strategy Production process sophistication Extent of marketing Control of international distribution Nature of competitive advantage Value-chain presence

Innovation Basic requirements and efficiency enhancers like building infrastructure and improving the human capital eventually seem to run into diminishing returns. In the long run, therefore, when all the other factors run into diminishing returns, standards of living can be expanded only by technological innovation. Quality of scientific research institutions Company spending on research and development University/industry research collaboration Government procurement of advanced technology products Availability of scientists and engineers Utility patents (hard data) Intellectual property protection Capacity for innovation

Key competitive advantages of Hong Kong and China Suggestions for achieving higher GCI

Ranking in different pillars (Hong Kong) PillarsRankingSub section ranking (1) Institutions125 (1) Infrastructure5 (1) Macroeconomic stability5 (1) Health and primary education28 (2) Higher education and training263 (2) Goods market efficiency1 (2) Labor market efficiency4 (2) Financial market sophistication1 (2) Technological readiness6 (2) Market Size27 (3) Business sophistication1521 (3) Innovation23 Overall: 12

Key competitive advantages and suggestions for Hong Kong Advantages *Financial market sophistication *Goods market efficiency Labor market efficiency Infrastructure Macroeconomic stability Suggestions Increasing enrollment rates at all levels of the educational ladder Allocating more resources on R&D / Innovations * Rank No.1 around he world

Ranking in different pillars (China) PillarsRankingSub section ranking (1) Institutions7744 (1) Infrastructure52 (1) Macroeconomic stability7 (1) Health and primary education61 (2) Higher education and training7845 (2) Goods market efficiency58 (2) Labor market efficiency55 (2) Financial market sophistication118 (2) Technological readiness73 (2) Market Size2 (3) Business sophistication5750 (3) Innovation38 Overall: 34

Key competitive advantages and suggestions for China Advantages Domestic and *foreign market size Macroeconomic stability Suggestions Optimizing the financial markets Boosting the higher education and training Improving the quality of public and private institutions * Rank No.1 around he world

Statistical Analysis By SAS Software

Statistics Methodology Plot and deal with the raw data Check assumptions: - Normality assumption - Random assumption Detection of outliers Run regression with the preprocessed data Explanation of the results

Descriptive Statistics Number of countries: 89 VariableMeanStd DevMinMax Unemployment rate8.1%6.97%0.7%48% GCI

Simple Linear Regression Model: (For any country) Unemployment = f (GCI, ß) + є Where ß is a parameter vector, and є is uncorrelated random error that follows the normal distribution.

Unemployment Rate VS GCI

Regression Results Summary R-Square VariableParameter Estimates Standard Error 95% Confidence Limits ߺ ( , ) ߹ ( , )

Normal PP Plot of Residual

Statistics Methodology Plot and deal with the raw data Check assumptions: - Normality assumption - Random assumption Detection of outliers Run regression with the preprocessed data Explanation of the results

Residual VS GCI

Residual VS Predicted

Statistics Methodology Plot and deal with the raw data Check assumptions: - Normality assumption - Random assumption Detection of outliers Run regression with the preprocessed data Explanation of the results

Unemployment Rate VS GCI

Statistics Methodology Plot and deal with the raw data Check assumptions: - Normality assumption - Random assumption Detection of outliers Run regression with the preprocessed data Explanation of the results

Outliers by Hat Matrix Country/Regi on Unemployme nt Rate GCI Senegal48%3.33 Macedonia35%3.45 South Africa24.2%4.44

Statistics Methodology Plot and deal with the raw data Check assumptions: - Normality assumption - Random assumption Detection of outliers Run regression with the preprocessed data Explanation of the results

Revised Sample

Regression Results Summary R-Square VariableParameter Estimates Standard Error ߺ ߹

Regression Results Summary Intuition regarding to the slope ߹ change from to ߺ change from to

Final Model Unemployment Rate = – * GCI Remark: Negative Relation Increase on GCI by 1 unit, the Unemployment Rate will decrease up to 2.7 percentage.

Further Study Possibility Introduce high order variable (Polynomial) Times series model replace regression model - Autocorrelation among the GCI and unemployment rate is strong. - Suitable Models could be: ARMA or ARIMA model