1. Global Competitiveness Index (GCI) vs Unemployment Rate CHONG Ngok Ki, Nathan07000820 PENG Fei, Rick06050654 NG Sze Ho, Stephen05014778 ZHANG Yifei, Kelvin05051584

2. 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

3. 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.”

4. Different Stages of Economy

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

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

9. Basic Requirement

10. Institution Divided into two major parts Public institutions Private Institution

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

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

13. Infrastructure Transportation System Telecommunication System Electricity Supply

14. 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

15. 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

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

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

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

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

20. 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

21. 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

22. Efficiency Enhancer

23. 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.”

24. 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

25. 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

26. 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

27. 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

28. 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

29. 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

30. 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

31. 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

32. Innovation and Sophistication factors

33. 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

34. 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

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

37. 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

38. 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

39. 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

40. 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

41. Statistical Analysis By SAS Software

42. 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

43. Descriptive Statistics Number of countries: 89 VariableMeanStd DevMinMax Unemployment rate8.1%6.97%0.7%48% GCI4.290.693.075.77

44. 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.

45. Unemployment Rate VS GCI

46. Regression Results Summary R-Square 0.1580 VariableParameter Estimates Standard Error 95% Confidence Limits ߺ25.20143 4.28689 (16.68077, 33.72208) ߹-3.990420.98756(-5.95331, -2.02754)

47. Normal PP Plot of Residual

48. 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

49. Residual VS GCI

50. Residual VS Predicted

51. 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

52. Unemployment Rate VS GCI

53. 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

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

55. 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

56. Revised Sample

57. Regression Results Summary R-Square 0.182 VariableParameter Estimates Standard Error ߺ18.7112.713 ߹-2.6890.622

58. Regression Results Summary Intuition regarding to the slope ߹ change from -3.99042 to -2.689 ߺ change from 25.20143 to 18.711

59. Final Model Unemployment Rate = 18.711 – 2.689 * GCI Remark: Negative Relation Increase on GCI by 1 unit, the Unemployment Rate will decrease up to 2.7 percentage.

60. 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