*112388*

Economic sciences/2. Mathematical methods in economics.

Regional economics. Economics theory.

State regulation of economy. Macroeconomics.

Orazalin Rustem, PhD doctoral candidate

Al-Farabi Kazakh National University, Kazakhstan

Modeling competitiveness effect on a living standard

Competitive advantage factors are directly correlated with competitive advantages itself. Factors of forming competitive advantages are immediate causes or determinants of competitive advantage. Range of competitive advantages is extremely wide and the system of factors of their formation has even bigger variety. According to M. Porter, standard of living is a main indicator of competitiveness of a country. [1]

At the same time from the point of view of forming competitive advantages a standard of living acts as a factor of this formation. Standard of living impact on forming competitive advantages can be seen on other competitive advantages.

There are integrated indicators of quality of life such as social and demographic indicators that reflect the impact degree of meeting the needs on life expectancy, incidence dynamics, birth rate and mortality of the population. First of all they depend on income level and consumption volume of goods and services. Increase in income level promotes expansion of a possibilities range of a person in receiving high-grade food, adequate medical care, quality professional education, that represents a necessary basis and formation, and increase in competitiveness of manpower. [2]

Now based on indices of standard of living and competitiveness we built an empirical model which allows comparing competitiveness of regions on the basis of measurable economic and social factors. Model aims to investigate character and extent of influence of a competitiveness rating on standard of living of region’s population.

Competitiveness of a country is an indicator that allows analyzing capacity of country against other countries from the point of view of its economic and technological development, welfare growth.

Thus analysis can have two directions: 1) formulating competitiveness indicator through factors or 2) formulating competitiveness indicator through results (integrated competitiveness index).

According to Aiginger competition can formally be defined through results as well as factors. [3]

1. Result:

                         Competitiveness = F (Y; S; E)                                              (1)

 

Y= income per capita, S = set of social and economic indicators, E = indicators set of technology and ecology

2. Factors:

                        Competitiveness = F (K; L; TFP; C; I; T)                             (2)

 

K, L = traditional factors of production (characterize scale and economy type), TFP = factors of the technical progress, C = possibilities (characteristics social economic development and infrastructures), I = economic institutes, T = stability of economy and trust level. [4]

Main focus of this study is to investigate competitiveness effect on standard of living in 16 regions of Kazakhstan, where index of standard of living serves as a dependent variable of the model and a general index of competitiveness of region is a regressor.

Correlation matrix shows quiet strong relationship between competitiveness and a standard of living in regions. At the same time the correlation is not as high as potential cause of multicollinearity.

Model is robust and parameters are statistically significant. P-value (0.00038≈0.0004) is less than 0.01, meaning that there is no more than a 1%, or a 1 in 100, probability of observing a result as extreme as that observed solely due to chance, then the association between the standard of living and competitiveness is considered statistically very significant (table-1).

 

Table 1 – Results of the model of competitiveness effect on a living standard

Dependent Variable: Y

Method: Least Squares

Sample: 1 16

Included observations: 16

Variable

Coefficient

Std. Error

t-Statistic

Prob. 

C

0.038788

0.082250

0.471587

0.6445

X

1.168224

0.252128

4.633462

0.0004

R-squared

0.605289

    Mean dependent var

0.393125

Adjusted R-squared

0.577095

    S.D. dependent var

0.186251

S.E. of regression

0.121121

    Akaike info criterion

-1.267578

Sum squared resid

0.205385

    Schwarz criterion

-1.171005

Log likelihood

12.14063

    F-statistic

21.46897

Durbin-Watson stat

1.986924

    Prob(F-statistic)

0.000387

        

Although the relationship between two parameters of the model is significant, correlation is not very strong as R-squared is equal to 0.6053.

         Parameter estimations of the model show that the increase in the index of competitiveness index of a region by one leads to the 1.17 increase change in the index of standard of living.

The only region that is inconsistent with the theoretical model is Atyrau region which is one of the most competitive and productive regions of Kazakhstan (competitiveness index is 0.44), but the standard of living is very low (0.26). 

However the reason of Atyrau region being inconsistent with the model is that poverty index is very high in Atyrau region and population is not fully provided with housing. Other indicators and sub-indices of standard of living are relatively low in Atyrau region compare to Almaty city; in particular purchasing power parity is quiet low.  These indicators reflected on standard of living index in Atyrau region which indicates that social programs should be better delivered to the population.

Regional competition is a major factor which stimulates an increase in efficiency of national economy. Consequently improving methodical assessment approaches is required. Our analysis allows revealing regional competitive advantages and weaknesses of regions. Majority of regions has weaknesses in innovative and scientific activity. Since innovative development in the modern world has a great importance, success of a country is proportional to the level of manufacturability of economy. Developing high-tech production requires creating a complex of specialized and developed factors and binding them on a concrete industry. These factors aren't as widespread as major factors because considerable capital investment and human efforts are required for their development. Necessary resources for creating really developed factors (for example, educational programs), demand themselves highly-skilled personnel and/or high technology. Creating such factors demands considerable capital investments and time.

It is necessary to pay careful attention to providing conditions on developing and introducing effective technologies. Industries that produce competitive goods and services should become base for the development and introduction of the latest technologies.

Summing up it should be noted that competition isn't an obstacle for effective interaction between regions, but promotes increase in competitiveness of regions of Kazakhstan as in a national economy as a whole.

 

Bibliography

 

1 Porter, M., Ketels, C.M. UK Competitiveness: Moving to the Next Stage.  – DTI Economics Paper 3.  London: Department of Trade and Industry.Porter Ì. International competitiveness, 2003.

2 Zemlyanukhina, S. Urven’ zhizny v systeme faktorov formirovaniya konkurentnyh preimucshestv trudovyh resursov. Saratov, 2010. Access online:

http://journalnio.com/index.php?option=com_content&view=article&id=157&Itemid=78

3 Karl Aiginger, 2006. "Competitiveness: From a Dangerous Obsession to a Welfare Creating Ability with Positive Externalities," Journal of Industry, Competition and Trade, Springer, vol. 6(2), pages 161-177, June.

4. Klimova, M. Ekonometricheskoe modelirovanie konkurentosposobnosty strany. Arhiv tezisov i materialov k dokladam. Nauchniy seminar Makroekonomicheskie issledovaniya, MGU. – Moskva, 2008