Climbing up the competitiveness ladder

The development strategy of most Central and Eastern European countries involves the boosting of foreign direct investments (FDI). Even greater emphases have been put on FDI with the unfolding of the global economic crisis, as the lack of local development resources have become ever more obvious. Country competitiveness indices were created to measure the general well-being of a country’s economy. It is generally believed that the best business environment is offered by countries scoring well on these indices. The following logic is applied when calculating a competitiveness index: the factors that contribute most to the success of doing business are indentified first, and then these factors are quantified. The paper however takes a different approach to competitiveness indices. We will assume that decisions about FDI are at least partly based on the indices. Decision makers are faced with imperfect information, so they have to rely on easily accessible data – like a competitiveness index or ranking. So why don’t reverse the logic: identify and try to improve on the key elements of an index first, ensuring that the country scores well, or better; and then reaping the benefits of increased FDI thanks to the improved ranking in competitiveness. The paper focuses on one of the most well known indices, the Global Competitiveness Index (GCI), published by the World Economic Forum. It identifies some of its key element, that are the easiest to improve on, and then offers recommendations to decision makers.