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 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, measuredby 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 ofHong Kong and China

Suggestions for achieving higher GCI

Ranking in different pillars (Hong Kong)

Pillars Ranking Sub section ranking

(1) Institutions 12 5

(1) Infrastructure 5

(1) Macroeconomic stability 5

(1) Health and primary education 28

(2) Higher education and training 26 3

(2) Goods market efficiency 1

(2) Labor market efficiency 4

(2) Financial market sophistication

1

(2) Technological readiness 6

(2) Market Size 27

(3) Business sophistication 15 21

(3) Innovation 23

Overall: 12Overall: 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 44

(1) Infrastructure 52

(1) Macroeconomic stability 7

(1) Health and primary education 61

(2) Higher education and training 78 45

(2) Goods market efficiency 58

(2) Labor market efficiency 55

(2) Financial market sophistication

118

(2) Technological readiness 73

(2) Market Size 2

(3) Business sophistication 57 50

(3) Innovation 38

Overall: 34Overall: 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/Region

Unemployment

Rate

GCI

Senegal 48% 3.33

Macedonia 35% 3.45

South Africa 24.2% 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 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 ߹ 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