Global Competitiveness Index (GCI) vs Unemployment Rate

1
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
2
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 ltRegressiongt

3
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.

4
Different Stages of Economy
5
(No Transcript)
6
Weights of the three main groups of pillars at
each stage of development
GCI xBasic yEfficiency
zInnovation (xyz100)
7
Criteria of deciding the stages

• Percent of specific types of goods allocated in
  total export
• Level of GDP per capita at market exchange rates

8
(No Transcript)
9
Basic Requirement
10
Institution

• Divided into two major parts
• Public institutions
• Private Institution

11
Public institutions

• Property rights
• Public trust of politicians
• Wastefulness of government spending
• Reliability of police services

Social Stability
12
Private institutions

• Ethical behavior of firms
• Corporate Governance

• Protection of minority shareholders interests
• Strength of auditing and accounting standards

13
Infrastructure

• Transportation System
• Telecommunication System
• Electricity Supply

14
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

15
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

16
Electricity Supply

• Electricity supply in a reasonable price
• Free of interruption and shortages

• Business and factories can run smoothly

17
Marcoeconomy

• Relative passive factor
• Stable Marcoeconomy alone not able to increase
  productivity
• Only when macroeconomy disarray harms
  productivity (in a reverse way)

18
Example

• Inflation too high
• Government spending too high (deficit)

• Bad economic environment
• Lower living standard Motivation

19
Health and primary education

• Impact of health on productivity
• Importance of basic education

20
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

21
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

Productivity
22
Efficiency Enhancer
23
What is competitiveness?
This view of competitiveness is deeply flawed
24
What is competitiveness?
25
(No Transcript)
26

• Market Size

27
Production

• 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

28
Machanism

• 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

29
Machanism

• 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

30
Machanism

• 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

31
Market

• 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

32
Innovation and Sophistication factors
33
Business sophistication

• Business sophistication is conducive to higher
  efficiency in the production of goods and
  services. This leads to increased productivity,
  thus enhancing a nations 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

34
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

35
(No Transcript)
36
Key competitive advantages of Hong Kong and
China Suggestions for achieving higher GCI
37
Ranking in different pillars (Hong Kong)
Pillars Ranking Sub section ranking
(1) Institutions 12 5
(1) Infrastructure 5 5
(1) Macroeconomic stability 5 5
(1) Health and primary education 28 5
(2) Higher education and training 26 3
(2) Goods market efficiency 1 3
(2) Labor market efficiency 4 3
(2) Financial market sophistication 1 3
(2) Technological readiness 6 3
(2) Market Size 27 3
(3) Business sophistication 15 21
(3) Innovation 23 21
Overall 12
38
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 RD / Innovations

Rank No.1 around he world
39
Ranking in different pillars (China)
Pillars Ranking Sub section ranking
(1) Institutions 77 44
(1) Infrastructure 52 44
(1) Macroeconomic stability 7 44
(1) Health and primary education 61 44
(2) Higher education and training 78 45
(2) Goods market efficiency 58 45
(2) Labor market efficiency 55 45
(2) Financial market sophistication 118 45
(2) Technological readiness 73 45
(2) Market Size 2 45
(3) Business sophistication 57 50
(3) Innovation 38 50
Overall 34
40
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
41
Statistical Analysis

• By SAS Software

42
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

43
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
44
Simple Linear Regression

• Model (For any country)
• Unemployment f (GCI, ß) ?
• Where ß is a parameter vector, and ? is
  uncorrelated random error that follows the normal
  distribution.

45
Unemployment Rate VS GCI
46
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)
47
Normal PP Plot of Residual
48
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

49
Residual VS GCI
50
Residual VS Predicted
51
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

52
Unemployment Rate VS GCI
53
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

54
Outliers by Hat Matrix
Country/Region Unemployment Rate GCI
Senegal 48 3.33
Macedonia 35 3.45
South Africa 24.2 4.44
55
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

56
Revised Sample
57
Regression Results Summary

• R-Square 0.182

Variable Parameter Estimates Standard Error
ߺ 18.711 2.713
ß¹ -2.689 0.622
58
Regression Results Summary

• Intuition regarding to the slope
• ß¹ change from -3.99042 to -2.689
• ߺ change from 25.20143 to 18.711

59
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.

60
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