Download We look at the 6th pillar, market efficiency

Global Competitiveness Index
(GCI)
vs
Unemployment Rate
CHONG Ngok Ki, Nathan
07000820
PENG Fei, Rick
06050654
NG Sze Ho, Stephen
05014778
ZHANG Yifei, Kelvin
05051584
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 <Regression>
Introduction to GCI

The Global Competitiveness Index measures

the set of institutions,


policies
factors that set the sustainable current and mediumterm 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
Value of a nation’s products
and services, measured
by the prices they can
command in open markets
is measured by
the value of goods and services produced
per unit of the nation’s human, capital, and
natural resources.
Efficiency with which
they can be produced
Countries begin to develop more Efficient
production processes and increase product Quality.
 Higher Education and Training
 Market Size
 Technological readiness
Production
F(K,L,Tech)
Market
 Goods Market Efficiency
 Labor Market Efficiency
 Financial Market Sophistication
Higher Education and Training:
Technological Readiness :
 Move up the value chain
Ability to adopt existing technologies
to enhance the productivity
 Adapt rapidly to changing the
environment
Measurement
Secondary and Tertiary enrollment rates
 Quality of education
 Vocational and continuous on-the job
training
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, wellregulated 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)
Pillars
Ranking Sub section
ranking
(1) Institutions
12
(1) Infrastructure
5
(1) Macroeconomic stability
5
(1) Health and primary education
28
(2) Higher education and training
26
(2) Goods market efficiency
1
(2) Labor market efficiency
4
5
3
(2) Financial market sophistication 1
(2) Technological readiness
6
(2) Market Size
27
(3) Business sophistication
15
(3) Innovation
23
21
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)
Pillars
Ranking Sub section
ranking
(1) Institutions
77
(1) Infrastructure
52
(1) Macroeconomic stability
7
(1) Health and primary education
61
(2) Higher education and training
78
(2) Goods market efficiency
58
(2) Labor market efficiency
55
44
45
(2) Financial market sophistication 118
(2) Technological readiness
73
(2) Market Size
2
(3) Business sophistication
57
(3) Innovation
38
50
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
Variable
Mean
Std Dev
Min
Max
Unemployment rate
8.1%
6.97%
0.7%
48%
GCI
4.29
0.69
3.07
5.77
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
0.1580
Variable
Parameter
Estimates
Standard
Error
95% Confidence
Limits
ߺ
25.20143
4.28689
(16.68077,
33.72208)
ß¹
-3.99042
0.98756
(-5.95331,
-2.02754)
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
Senegal
Unemployme GCI
nt
Rate
48%
3.33
Macedonia
35%
South Africa 24.2%
3.45
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
0.182
Variable
Parameter
Estimates
Standard Error
ߺ
18.711
2.713
ß¹
-2.689
0.622
Regression Results Summary

Intuition regarding to the slope

ß¹ change from -3.99042 to -2.689
ߺ change from 25.20143 to 18.711

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.

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