akanksha

ASSIGNMENT ON

VARIOUS GLOBAL INDEX WITH RESPECT

TO UNITED STATES

SUBMITTED BY:

AKANKSHA BHATNAGAR

PGDM (2014-16)

SECTION- B

ROLL NO. 22/003

GLOBAL COMPETITIVENESS INDEX

The Global Competitiveness Index is the accepted tool for evaluating a country's potential for

growth. By comparing most of the world's countries, it provides insight into the comparative

advantages of each. The "Global Competitiveness Index" (GCI) evaluates the productivity and

efficiency of countries. For each individual country, the GCI enables decision makers to estimate

the productivity of individual sectors and the economy as a whole.

The Global Competitiveness Report (GCR) is a yearly report published by the World Economic

Forum. Since 2004, the Global Competitiveness Report ranks countries based on the Global

Competitiveness Index, developed by Xavier Sala-i-Martin and Elsa V. Artadi. Before that, the

macroeconomic ranks were based on Jeffrey Sachs's Growth Development Index and the

microeconomic ranks were based on Michael Porter's Business Competitiveness Index. The Global

Competitiveness Index integrates the macroeconomic and the micro/business aspects of

competitiveness into a single index.

The report "assesses the ability of countries to provide high levels of prosperity to their citizens.

This in turn depends on how productively a country uses available resources. Therefore, the Global

Competitiveness Index measures the set of institutions, policies, and factors that set the sustainable

current and medium-term levels of economic prosperity. Since 2004, the report ranks the world's

nations according to the Global Competitiveness Index. The report states that it is based on the

latest theoretical and empirical research. It is made up of over 110 variables, of which two thirds

come from the Executive Opinion Survey, which is a survey of a representative sample of business

leaders in their respective countries, and one third comes from publicly available sources such as

the United Nations. The GCI uses statistical data such as enrollment rates, government debt, budget

deficit, and life expectancy. These data are obtained from internationally recognized agencies,

notably the United Nations Educational, Scientific and Cultural Organization (UNESCO), the

International Monetary Fund (IMF), and the World Health Organization (WHO).

The variables are organized into twelve pillars, with each pillar representing an area considered as

an important determinant of competitiveness. The report notes that as a nation develops, wages tend

to increase, and that in order to sustain this higher income, labor productivity must improve for the

nation to be competitive. Thus, the GCI organized these 12 pillars into three specific stages: basic

requirements, efficiency-enhancers, and innovation-driven, each implying a growing degree of

complexity in the operation of the economy.

BASIC REQUIREMENTS: This sub-index measures the degree to which the environment

enables factors of production (e.g. raw materials, physical and human capital) to participate

in the economic marketplace. The pillars within this sub-index are: macroeconomic

stability, the efficiency of private and public institutions, infrastructure, health and primary

education. The GCI recognizes these categories as the key contributors to development for

countries with GDP per capita less than $2,000, calculated at PPP.

EFFICIENCY-ENHANCERS: This sub-index measures the factors contributing to the

degree of productivity in the economy. The pillars within this sub-index are: higher

education and training, market efficiency (in terms of products, labor, and capital), and

technological readiness (an economy’s ability to adapt existing technologies).6 The GCI

recognizes these categories as the key contributors to development for countries with GDP

per capita between $3,000 and $9,000.

INNOVATION AND SOPHISTICATION: This sub-index measures the factors that

contribute to the development and manufacturing of new products. The pillars within this

sub-index are: business sophistication and innovation. The GCI recognizes these categories

as the key contributors to growth for countries with GDP per capita over $17,000.

The GCI ranks countries according to their overall performance and also provides scores by sub-

index, pillars, and variables.

GLOBAL COMPETITIVENESS INDEX WITH RESPECT

TO UNITED STATES

United States is one the country which is always mentioned in the global competitiveness index.

The following table shows the overall rank and score for the last 5 years. The table also shows the

rank and score of its 3 components- basic requirements, efficiency enhancers and innovation &

sophisticated factors.

YEAR

RANK SCORE RANK SCORE RANK SCORE RANK SCORE

2010-2011 (OUT

OF 139) 4 5.43 32 5.21 3 5.46 4 5.53

2011-12 (OUT OF

142) 5 5.43 36 5.21 3 5.49 6 5.46

2012-13 (OUT OF

144) 7 5.47 33 5.12 2 5.63 7 5.42

2013-14 (OUT OF

148) 5 5.48 36 5.12 1 5.66 6 5.43

2014-15 (OUT OF

144) 3 5.54 33 5.15 1 5.71 5 5.54

OVERALL INDEX BASIC REQUIREMENTS EFFICIENCY ENHANCERS INNOVATION & SOPHISTICATION FACTORS

SUBINDEX

0 1 2 3 4 5 6 7 8

OVERALL INDEX RANK

OVERALL INDEX SCORE

The United States continues the decline that began in 2009-10, falling two more places to 4th

position. While many structural features that make its economy extremely productive, a number of

escalating weaknesses have lowered the US ranking over the past two years. There are some

weaknesses in particular areas that have deepened since our last assessment. The evaluation of

institutions has continued to decline, falling from 34th to 40th this year. The public does not

demonstrate strong trust of politicians (54th), and the business community remains concerned about

the government’s ability to maintain arms-length relationships with the private sector (55th) and

considers that the government spends its resources relatively wastefully (68th). A lack of

macroeconomic stability continues to be the United States’ greatest area of weakness.

Also in 2012-13, the downfall continues because of the same reasons.

But in 2013-14, the United States goes up in the ranking and continues to raise its ranking in the

year 2014-15 and regains the 3rd position on the back of improvements in a number of areas,

including some aspects of the institutional framework (up from 35th to 30th), and more positive

perceptions regarding business sophistication (from 6th to 4th) and innovation (from 7th to 5th). As

it recovers from the crisis, the United States can build on the many structural features that make its

economy extremely productive. US companies are highly sophisticated and innovative, and they are

supported by an excellent university system that collaborates admirably with the business sector in

R&D. Combined with flexible labor markets and the scale opportunities afforded by the sheer size

of its domestic economy—the largest in the world by far—these qualities make the United States

very competitive.

ECONOMIC FREEDOM INDEX

The Index of Economic Freedom is an annual index and ranking created by The Heritage

Foundation and The Wall Street Journal in 1995 to measure the degree of economic freedom in the

world’s nations. The index published in Economic Freedom of the World measures the degree to

which the policies and institutions of countries are supportive of economic freedom.

The cornerstones of economic freedom are (1) personal choice, (2) voluntary exchange coordinated

by markets, (3) freedom to enter and compete in markets, and (4) protection of persons and their

property from aggression by others. Economic freedom is present when individuals are permitted to

choose for themselves and engage in voluntary transactions as long as they do not harm the person

or property of others. Individuals have a right to their own time, talents, and resources, but they do

not have a right to take things from others or demand that others provide things for them. The use of

violence, theft, fraud, and physical invasions are not permissible in an economically free society,

but otherwise, individuals are free to choose, trade, and cooperate with others, and compete as they

see fit.

In an economically free society, the primary role of government is to protect individuals and their

property from aggression by others. The EFW index is designed to measure the extent to which the

institutions and policies of a nation are consistent with this protective function. The EFW measure

is an effort to identify how closely the institutions and policies of a country correspond with a

limited government ideal, where the government protects property rights and arranges for the

provision of a limited set of “public goods” such as national defense and access to money of sound

value, but little beyond these core functions. In order to receive a high EFW rating, a country must

provide secure protection of privately owned property, even-handed enforcement of contracts, and a

stable monetary environment. It also must keep taxes low, refrain from creating barriers to both

domestic and international trade, and rely more fully on markets rather than government spending

and regulation to allocate goods and resources.

Milton Friedman believed that, if economic freedom could be measured with greater accuracy, this

would enhance the ability of researchers to identify more clearly the key elements affecting the

performance of economies. Political, legal, and cultural factors on the growth and development of

economies. The EFW data set provides the most comprehensive measure of the degree to which

countries rely on voluntary exchange and market institutions to allocate resources. A quality

measure of differences in economic freedom across countries and over time is essential for the

ongoing scholarly research in this important area.

The index measures the degree of economic freedom present in five major areas: [1] Size of

Government; [2] Legal System and Security of Property Rights; [3] Sound Money; [4] Freedom to

Trade Internationally; [5] Regulation.

Within the five major areas, there are 24 components in the index. Many of those components are

themselves made up of several sub-components. In total, the index comprises 42 distinct variables.

Each component and sub-component is placed on a scale from 0 to 10 that reflects the distribution

of the underlying data. When subcomponents are present, the sub-component ratings are averaged

to derive the component rating. The component ratings within each area are then averaged to derive

ratings for each of the five areas. In turn, the five area ratings are averaged to derive the summary

rating for each country. The following section provides an overview of the five major areas.

1. Size of Government

A. Government consumption

B. Transfers and subsidies

C. Government enterprises and investment

D. Top marginal tax rate

(i) Top marginal income tax rate

(ii) Top marginal income and payroll tax rate

2. Legal System and Property Rights

A. Judicial independence

B. Impartial courts

C. Protection of property rights

D. Military interference in rule of law and politics

E. Integrity of the legal system

F. Legal enforcement of contracts

G. Regulatory restrictions on the sale of real property

H. Reliability of police

I. Business costs of crime

3. Sound Money

A. Money growth

B. Standard deviation of inflation

C. Inflation: most recent year

D. Freedom to own foreign currency bank accounts

4. Freedom to Trade Internationally

A. Tariffs

(i) Revenue from trade taxes (% of trade sector)

(ii) Mean tariff rate

(iii) Standard deviation of tariff rates

B. Regulatory trade barriers

(i) Non-tariff trade barriers

(ii) Compliance costs of importing and exporting

C. Black-market exchange rates

D. Controls of the movement of capital and people

(i) Foreign ownership/investment restrictions

(ii) Capital controls

(iii) Freedom of foreigners to visit

5. Regulation

A. Credit market regulations

(i) Ownership of banks

(ii) Private sector credit

(iii) Interest rate controls/negative real interest rates

B. Labor market regulations

(i) Hiring regulations and minimum wage

(ii) Hiring and firing regulations

(iii) Centralized collective bargaining

(iv) Hours regulations

(v) Mandated cost of worker dismissal

(vi) Conscription

C. Business regulations

(i) Administrative requirements

(ii) Bureaucracy costs

(iii) Starting a business

(iv) Extra payments/bribes/favoritism

(v) Licensing restrictions

(vi) Cost of tax compliance

EONOMIC FREEDOM INDEX WITH RESPECT TO

UNITED STATES

United States is one the country which is always mentioned in the Economic Freedom index. The

following table shows the overall ratings (rank) for the last 5 years. The table also shows the ratings

(rank) of its 5 components- size of government, legal system & property rights, sound money,

freedom to trade internationally and regulations.

SIZE OF GOVT.

LEGAL SYSTEM

&PROPERTY RIGHTS

SOUND MONEY

FREEDOM TO TRADE

INTERNATIONALLY REGULATIONS

OVERALL RATINGS (RANK)

2008 7.13 (43) 7.50 (21) 9.69 (2) 7.57 (26) 7.89 (16) 7.81 (10)

2009 6.5 (65) 7.3 (24) 9.6 (11) 7.0 (48) 7.6 (27) 7.60 (10)

2010 6.43 (73) 7.14 (28) 9.68 (7) 7.46 (57) 7.76 (31) 7.69 (18)

2011 6.8 (59) 7.0 (30) 9.3 (37) 7.7 (43) 7.9 (28) 7.73 (17)

2012 7.0 (62) 7.0 (28) 9.3 (41) 7.7 (40) 8.1 (21) 7.81 (12)

7.45

7.5

7.55

7.6

7.65

7.7

7.75

7.8

7.85

1 2 3 4 5



Throughout most of the period from 1980 to 2000, the United States ranked as the world’s third

freest economy, behind Hong Kong and Singapore. The rating of the United States in 2000 was

8.65, second only to Hong Kong. By 2005, the US rating had slipped to 8.20 and its ranking fallen

to 9th. The slide has continued. The United States placed 15th in 2010 and 16th in 2011 before

rebounding slightly to 14th in 2012. The 7.81 chain linked rating of the United States in 2012 is

more than 8/10 of a point lower than the 2000 rating.

While US ratings and rankings have fallen in all five areas of the EFW index, the reductions have

been largest in the Legal System and Protection of Property Rights (Area 2), Freedom to Trade

Internationally (Area 4), and Regulation (Area 5). The plunge in Area 2 has been huge. In 2000, the

9.23 rating of the United States was the 9th highest in the world. But by 2012, the area rating had

plummeted to 6.99, placing it 36th worldwide. The increased use of eminent domain to transfer

property to powerful political interests, the ramifications of the wars on terrorism and drugs, and the

violation of the property rights of bondholders in the auto-bailout case have weakened the tradition

of strong adherence to the rule of law in United States. The expanded use of regulation in the

United States has resulted in sharp rating reductions for components such as independence of the

judiciary, impartiality of the courts, and regulatory favoritism.

This implies that, unless policies undermining economic freedom are reversed, the future annual

growth of the US economy will be only about half its historic average of 3%.

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