is presented in Appendix A to this chapter.It groups thefactors affecting competitiveness into nine pillars:
The institutional framework has a strong bearingon competitiveness and growth because it shapesincentives in an economy and affects how busi-ness,the political sphere,and the remaining soci-ety interact with each other.
Quality infrastructure reduces the cost of com-munication,transport,and energy.By renderingbusiness operations more efficient it contributesto lowering the cost of doing business and there-fore increases competitiveness.
Macroeconomic stability has come to be recog-nized as one of the basic preconditions for growth;this has been widely confirmed in theo-retical and empirical research.Soaring andvolatile prices render the business environmentunpredictable,and high interest rates—resulting,for example,from refinancing government debt— increase the cost of credit and investment.
4. Health and primary education
The importance of health for competitivenessbecomes clear when one considers some Africancountries,where the HIV/AIDS epidemic affectsone-quarter of the working-age population.Although these are extreme cases,almost all eco-nomic activity requires a healthy and literateworkforce.Prevalent lack of access to basic healthservices and education reduces not only the over-all growth potential,but also forecloses the bene-fits of economic growth for significant parts of the population.
5. Higher education and training
The availability of qualified staff is a preconditionnot only for innovation but also for adoptingtechnologies from abroad and improving businesspractice.All these aspects,which are reflected inthe structure of the Global CompetitivenessIndex,become even more crucial when a coun-try climbs up the value chain and moves awayfrom low-cost production and resource extractiontoward more efficient processes and more sophis-ticated products.
6. Market efficiency
This pillar assesses how far goods,labor,andfinancial resources are allocated to the most effi-cient use in an economy.In order to functionefficiently,goods markets need a certain level of competition,which directs goods toward their best use.Three components can contribute toincreasing competition in an economy:efficientantitrust regulation,openness to trade,and regula-tions that keep market distortions to a minimum.For labor markets,flexibility and efficiency arecritical for ensuring that businesses can maintaina workforce that suits their needs at all times.Factors such as flexibility of wage determinationand hiring and firing are essential in this respect.Finally,given the link between effective financialintermediation and growth,financial markets arevital for making available credit and other finan-cial products at an appropriate cost.
7. Technological readiness
This pillar measures the capacity of an economyto absorb latest technologies and to use them toenhance the productivity of its industries.Consequently,it encompasses the ability to adapttechnologies from abroad through technologytransfer but also the use and penetration of advanced information and communication tech-nologies,in particular Internet and mobiletelephony.
8. Business sophistication
The ability to manage a business efficiently isimperative for increasing productivity,particularlyat the top end of the value chain.Significant dif-ferences in company performance can beexplained by looking at the level of managementpractice.In this respect,supporting the clusteringof firms has proven an important vehicle of pub-lic policy to enhance the performance of firms.
While technological readiness refers to the adop-tion of technologies from abroad,the innovationpillar measures the extent to which countries areable to develop entirely new products and servic-es.This is particularly important for countries atthe most advanced stage of development becauseinnovation is the only self-sustaining driver of growth for countries that have reached the high-tech frontier,while less-advanced countries canstill improve their productivity by adopting tech-nologies from abroad.
1 . 1 : A s s e s s i n g C o m p e t i t i v e n e s s i n t h e A r a b W o r l d