Benchmarking Competitiveness in Transition Economies, HIID, Sachs, et al, 1999

Description
For long-term, sustainable growth, countries must become internationally competitive. This paper constructs a measure of competitiveness and stresses that while the enabling environment is important, it is the synergies among firms - and between firms, markets, and government - that are key to stability and continuity. The competitiveness indicator is built around seven sub-indicators, each constructed to reflect the role of a specific area for competitiveness - openness, good government, the financial sector, infrastructure, technology, labor markets, and institutions (including markets, due process, and political). It uses the resulting measures to assess each country's standing viz. other transitioning countries by examining both inter- and intra-cluster differences based on the initial conditions of transition. The paper illustrates how the resulting competitiveness indicator correlates to standard performance measures such as foreign direct investment and GDP growth and ends by comparing transition country competitiveness to countries in the rest of the world.

As the indicator is built up from economically meaningful sub-indicators, it allows an examination of competitiveness components that can provide insight into where countries are lagging, a key signal for the potential benefits of technical assistance. While the paper does not examine the causality behind the rankings, results suggest how multi-level indicators may be used to pinpoint both where technical assistance is required and the likely benefits of such assistance.

Summary of results
There is reason to believe that the better a country's rank is, the more likely the impact of additional technical assistance is subject to diminishing returns. While this is relevant for prioritizing assistance, it also has bearing for setting aid "graduation" points. Finally, the indicator "recipes" provided in the paper make it easy to generate an annual, updated "big picture" to track the concrete fruits of reform progress in transition economies. In sum, these indicators may be seen as a complementary tool to deeper analysis.