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Экономические науки/ 13. Региональная экономика

Asp. Gynko D.V.

Kharkiv national university of civil engineering and architecture

The experience of formation the competitiveness index in USA

What can we say about competitiveness? The researchers from USA suggest to consider the state competitiveness as concentration of polices and conditions that ensure of per capita income and its continued growth. For achieving high level of competitiveness the state should be able to attract and incubate new business, provide an environment that is conducive to the growth of existing firms.

The USA researchers suggest to create an index of regional competitiveness with the consideration the simple economic relation [2]:

Y = f (K, L, T);

In this relation says about the output (Y) that depends on the amount of capital (K), labor (L), and the technology that is the harnessed by the economy.

We can say that more inputs lead to more outputs. But we need to understand what raises input levels? We can observe that some regions mix the ingredients such as fiscal policies , educated workforce, openness to trade in wore successful ways than others. Why does it happen?

The USA researchers use Porter`s celebrated diamond theory to answer these questions. Following the Porter inspired Global Competitiveness Report the researchers suggest to classify indicators into eight groups [1].

The first group is “Government and fiscal policies”. Of course, business is more likely to be attracted to areas with moderate tax rates and clear evidence of financial discipline.

The second group is “Security”. The region should be more attractive to business if public officials are trusted and if crime is low.

The third group is “Infrastructure”. It is very important to pay attention to community. The access to high-speed broadholds, telephone service, the price of energy – the elements of competitiveness that are included in the infrastructure sub-index for each region.

The fourth group is “Human recourses”. In this group skilled labor and high level of labor force are very important. But it also combined with a wide spread commitment to education, training and health care.

The group number five is “Technology”. Nowadays the development and application of technology are central to economic development. The technology sub-index measures this by taking into account research funding, the number of patents issued, the proportion of scientists and engineers in the labor force and the importance of high-tech companies.

The group number six is “Business incubation”. In USA they say: - “Good idea is not enough”. For business is also very important to mobilize financing for investment and from the financial system. A higher rate of business is a clear sign of a competitive environment.

The group number seven is “Openness”. We need to mark that open economies tend to be more competitive. Consequence of it can be the higher level of productivity and specializing more thoroughly in their areas of comparative advantage. This sub-index shows us how to connect the firms and people in a region. It is based on the level of exports, as well as the percent of the population born abroad.

And the last group is the group number eight – “Environmental Policy”. All the regions are faced with the environmental problems. Areas that have a heavy-handed policy of environmental regulation are likely to be less attractive to business as well as to their workers and managers.

The USA researchers say that the competitiveness index is simply the summary measure based on large number of variations. The approach of the researchers from USA is the simplest and the most transparent within each sub-index, each variable carries equal weight. Then each sub-index is given the same weight when constructing the overall index [3].

Scientific figures in USA give the raw data series for each state. On purpose constructing the competitiveness index several steps were needed to make.

The first step is consists of normalizing each variable for giving it a mean of 5 and ranging from 0 (worst) to 10 (best). After that the eight sub-indexes are needed to form as the simple average of the normalized component variables.

As a result the sub-indexes were normalized themselves. After that we need to give a mean of 5, and standard deviation of 1 to each. These are presented inside the front and back covers [2].

The final step we make by the simple averaging of the eight sub-indexes. It is again needed to normalize it, so it has a mean of 5 and standard deviation of 1. As a result of these steps we will get the overall index of state competitiveness.

References

1. Michael Porter, “The current Competitiveness Index: Measuring the

Microeconomic Foundations of Prosperity”, in World Economic Forum, The Global Competitiveness Report 2000, Oxford University Press, New York, 2000

2. “What is competitiveness?”. The Competitiveness Institute: http: // www.

competitiveness. org/ article/articleview/774/1/32/ (accessed November 1, 2008)

3. Bettina H. Aten and Roger J. D`Souza, “Regional Price Parities: Comparing Price Level Differences Across Geographic Areas”, Survey of Current Business, November 2008, p. 64-74