The World’s Most Economically Competitive Countries

Here’s a surprsie: Finland is the world’s most competitive economy — despite having one of the world’s highest tax rates. This is according to a study by the World Economic Forum: The Global Competitiveness Report 2003-2004. The United States came in second.

The annual ranking on competitiveness ranks the Scandanavian countries as world leaders for all-round ability to succeed in the global economy. Finland comes first for the third time in four years in the study, but Sweden, Norway and Denmark are now all in the top six places — and Taiwan in the fourth position.

Here’s an extract from the Global Competitiveness Report 2003-2004 by Professor Klaus Schwab:

Recent events — from the difficult reconstruction efforts under way in Afghanistan and Iraq to efforts to deal with large humanitarian crises in various parts of Africa — have brought into focus the importance of concerted international action to safeguard and strengthen security and stability.

Yet a continuing lack of public confidence in national institutions and governments and a growing awareness of institutional weaknesses at the international level risk slowing the development process down in many parts of the world.

Against this somber backdrop, one cause for some optimism is the growing recognition that the rule of law and the existence of credible and efficient public institutions are essential prerequisites for sustainable economic development.

The Executive Opinion Survey carried out by the World Economic Forum, the backbone of our work on competitiveness issues, provides ample evidence of this.

Scoring Countries on Growth

WHat criteria did the WEF say was critical to “sustained economic growth?” There were three keys: quality of economic policies, the state of public institutions (such as courts), and technological prowess.

The scoring system fuses data, such as macroeconomic performance indicators, with findings from a survey of 8,700 senior business executives from 104 countries.

The WSJ observed:

“The Nordic countries are rising in overall pre-eminence, doing well across the board,” says Augusto Lopes-Claros, the forum’s chief economist. The study gives more weight to the Nordic nations’ low levels of corruption than their high levels of taxes: Over 30% of respondents said tax rates were the biggest drawback to doing business in Finland, for example.

In contrast, the study gives only mediocre ratings to the emerging powerhouses of the world economy, China (ranked No. 46, down two places from last year) and India (ranked No. 55, up one place).

“China has an incredibly good macroeconomic performance, but it has problems on its institutional side, including its banking system,” says Mr. Lopes-Claros. “At the moment, some of its inadequacies in public institutions are being disguised by a booming economy,” he says. Reform in China could become more pressing if the U.S. becomes less willing to import quite so many Chinese goods in coming years, he says.

Taiwan (No. 4) and Singapore (No. 7) are the highest Asian countries, because of the former’s strong grasp of technology production and research and the latter’s solid economic environment, the report says. Japan, which was No. 9, has risen from 21 in 2001, boosted in part by the nation’s economic recovery.

Elsewhere in Europe, the United Kingdom jumped four places higher to No. 11, while Italy slumped to No. 47, down from No. 26 in 2001, and now has the lowest ranking among the 15 nations that were in the European Union before May. “Italy’s worsening performance affects all areas, with particularly sharp drops in the area of quality of public institutions,” the report said. Italy has a lower rank than many of the new EU countries.

Among those new EU members, Estonia rose two places to No. 20 and “is by a significant margin the most competitive economy among the 10 countries that joined the EU in May,” the report says.

At the bottom of the competitive list are countries in South and Central America, Asia and Africa, including Nicaragua, Madagascar, Honduras, Bolivia, Zimbabwe, Paraguay, Ethiopia, Bangladesh, Angola and Chad, which was last.

Fascinating stuff. Here’s the top 10 Countries on the WEF’s Growth Competition Index:

Country 2004
Finland 1 1
U.S. 2 2
Sweden 3 3
Taiwan 4 5
Denmark 5 4
Norway 6 9
Singapore 7 6
Switzerland 8 7
Japan 9 11
Iceland 10 8

Global Competitiveness Report

The Global Competitiveness Report 2003-2004 Executive Summary

Nordic and Asian Nations Lead in Competitiveness
Finland Leads Again, U.S. Is No. 2 In World Economic Forum Study
THE WALL STREET JOURNAL, October 13, 2004 11:05 a.m.,,SB109765231510643994,00.html

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  1. EGO commented on Oct 24


    Mr. Ritholtz’s post, The World’s Most Economically Competitive Countries, got me thinking of the common notion that the Nordic countries have a successful welfare state model on how to run the economy. At a first glance at The Global Competitiveness …

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