How does IMD World Competitiveness Center Prepare Data for the Competitiveness Rankings

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1 How does IMD World Competitiveness Center Prepare Data for the Competitiveness Rankings Arturo Bris, Director, IMD World Competitiveness Center Christos Cabolis, Chief Economist, IMD World Competitiveness Center IMD World Competitiveness Center

value creation is the long term capacity of enterprises to remain profitable,

2 IMD Definition of Competitiveness the ability of a country to facilitate an environment in which enterprises can generate sustainable value, sustainable value creation is the long term capacity of enterprises to remain profitable, create fulfilling jobs, while minimizing the environmental impact of their activities

Competitiveness Breakdown Methodology / Overall Ranking 346 Criteria 20 Sub-Factors 4

The emphasis on HARD FACTS ensures objectivity and transparency Domestic Economy

Policy Institutional Framework Business Legislation Societal Framework Economic

Finance Management Practices Attitudes and Values Business Efficiency Competitiveness

3 Competitiveness Breakdown Methodology / Overall Ranking 346 Criteria 20 Sub-Factors 4 Factors Overall Ranking 2/3s Statistics Competitiveness that can be measured! The emphasis on HARD FACTS ensures objectivity and transparency Domestic Economy International Trade International Investment Employment Prices Public Finance Fiscal Policy Institutional Framework Business Legislation Societal Framework Economic Performance Government Efficiency OVERALL RANKING 1/3 Survey Productivity Labor Market Finance Management Practices Attitudes and Values Business Efficiency Competitiveness as it is perceived! Over 6,200 respondents Basic Technological Scientific Health & Environment Education Infrastructure

criteria 261 Countries 63 Partner institutes 57 Survey

4 WCY Data 2017 Some general numbers Hard data criteria 143 Soft data (survey) criteria 118 TOTAL ranked criteria 261 Countries 63 Partner institutes 57 Survey respondents Background criteria 85 TOTAL number of criteria 346

Hard Data: international and national statistics

5 Hard Data: international and national statistics Statistical indicators are acquired from international, national and regional organizations, private institutions and our Partner Institutes. These statistics are referred to in the WCY as hard data. Examples: GDP per capita (PPP), Foreign Direct Investments, Total R&D Expenditure. The hard data represent a weight of two-thirds in the overall ranking. Additional criteria are drawn from our annual Executive Opinion Survey and are referred to in the WCY as survey data. They represents a weight of one-third in the overall ranking.

6 Soft data: Executive Opinion Survey I Our Executive Opinion Survey measures competitiveness as it is perceived by market participants. The survey is designed to quantify issues that are not easily measured, for example: management practices, corruption, adaptive attitudes and the agility of companies. The survey responses reflect present and future perceptions of competitiveness by business executives who are dealing with international business situations. Their responses are more recent and closer to reality since there is no time lag with the year under consideration, which is often a problem with hard data, which show a picture of the past.

Soft data: Executive Opinion Survey II The sample of respondents is representative of the entire economy, covering a cross-section of the business

The survey respondents are nationals or expatriates, in domestic or international enterprises who have resided at least a year in the economy under

7 Soft data: Executive Opinion Survey II The sample of respondents is representative of the entire economy, covering a cross-section of the business community in all economic sectors. The survey respondents are nationals or expatriates, in domestic or international enterprises who have resided at least a year in the economy under consideration. The questionnaires are sent in February and are returned in April. All responses are returned to IMD and are treated as confidential. On average, we receive around 100 responses per country every year. In 2017, we received 146 responses to our survey from Thailand.

8 Measuring Competitiveness: CCC Consistency Completeness Continuity

9 Consistency Rankings provide a snapshot of a performance of an economy at a specific time (mid-may) We use the best data we have at that time. Of course, the on-line data is adjusted at different but regular times throughout the year. This implies that: there is a difference between WCO and WCY there is a difference between WCO data and Sources data

10 Consistency in measuring Competitiveness: A simple example Answer: IMD WCC does not make any adjustment, the data used is as it was in April The original source for criteria and is indeed the WTO database. We have downloaded all data used in our 2017 edition of the WCY on April 13, Data have obviously been updated by WTO later in May or in June. We will include these updates in IMD World Competitiveness Online.

11 Consistency in measuring Competitiveness Answer: We choose the most recent year where data are available for most of the countries. It could indeed happen that for Thailand we could have more recent data but we can t use this year if data is missing for most of the other countries. If the data is out of range we don t use it.

12 Completeness Data are retrieved from entities that provide information, preferably, for all the 63 countries in our sample. This is because using data from multiple sources with different statistical definitions/measurements will bring clear problems in terms of international country comparisons. Thus, our approach addresses: Issues with respect to definitions Issues with respect to units and measurements

Completeness in measuring Competitiveness: Diminishing the biases of measurements Answer: Based on our principle of consistency, we generally prefer data from a unique

13 Completeness in measuring Competitiveness: Diminishing the biases of measurements Answer: Based on our principle of consistency, we generally prefer data from a unique international source to ensure cross-country comparability. In this case, the Computer Industry Almanac Inc. provides us with reliable international comparable data on computer & internet usage.

14 Continuity Over the past two decades, the methodology used to assess the competitiveness of countries has been fine-tuned to take into account the evolution of the global environment, structural changes in national environments and the rapidly changing technological revolution. We make these changes gradually so that we can preserve the comparability of results from year to year and highlight the evolution of an economy s performance relative to the competitiveness of others.

Continuity in measuring Competitiveness: Example of significance of a criterion Technological Infrastructure criteria

broadband subscriptions In 2015, after our annual update of the competitiveness indicators, the number of fixed

Based on our evaluation, today the number of broadband subscriptions has a more explicative power in capturing the

15 Continuity in measuring Competitiveness: Example of significance of a criterion Technological Infrastructure criteria were always included in the assessment of IMD World Competitiveness Ranking Number of fixed landlines Number of broadband subscriptions In 2015, after our annual update of the competitiveness indicators, the number of fixed landlines has been excluded from the list of ranked criteria. Based on our evaluation, today the number of broadband subscriptions has a more explicative power in capturing the level of technology of a country. However, the data about fixed landlines are still collected and kept as background criterion, in order to be used as benchmark for other tech indicators.

16 Computing the Rankings I For each individual criterion we calculate the countries standardized values based on the standard deviation method: STD zit = z it ഥz t S z where S is the standard deviation for each criterion z and each economy i. STDs are winsorized at the criterion level to eliminate outliers and to reduce the impact of extreme values on final rankings. For each sub-factor, we calculate the average of the standard deviation values (STD values) of all the ranked criteria (excluding the background criteria).

17 Computing the Rankings II The survey criteria are weighted accordingly to maintain a ratio of two-thirds hard data to one-third survey data in the determination of the overall ranking. In 2017, we gave a weight of 0.54 to each survey criteria in order to ensure this ratio. Therefore, the average STD values for each sub-factor are calculated as: STD mt = Hard STD values x 1+Survey STD values x 0.51 Number of criteria in Subfactor m Missing values are replaced by an STD value that has been imputed from the average of the existing data in the sub-factor.

18 Computing the Rankings III The sub-factor rankings are calculated from the average STD values for each subfactor. The sub-factor average STD values are aggregated to determine the Factor STD values which are then converted into indices (scores) to determine the four Competitiveness Factor rankings. Across the four Competitiveness Factors, there is one economy with a value of 100 (Most Competitive Economy) The Overall Scoreboard is then determined from the average of the four Factors scores which are then converted into an index with the leading economy given a value of 100.

19 Computing the Rankings

20 Notes and data sources Notes and sources of data are carefully checked and updated every year Until 2016, statistical tables for all the indicators, notes and sources have always been published in the Appendix of the World Competitiveness Yearbook Starting this year, they are available in PDF format on the USB key-drive attached to th cover of the WCY.

21 Data Sources

24 More Information? IMD IMD World Competitiveness Center

METHODOLOGY AND PRINCIPLES OF ANALYSIS

METHODOLOGY AND PRINCIPLES OF ANALYSIS METHODOLOGY AND PRINCIPLES OF ANALYSIS This document introduces the methodology used by the IMD World Competitiveness Center to develop the IMD World Competitiveness