Working Paper: NBER ID: w18249
Authors: Mercedes Delgado; Christian Ketels; Michael E. Porter; Scott Stern
Abstract: We define foundational competitiveness as the expected level of output per working-age individual that is supported by the overall quality of a country as a place to do business. The focus on output per potential worker, a broader measure of national productivity than output per current worker, reflects the dual role of workforce participation and output per worker in determining a nation's standard of living. Our framework highlights three broad and interrelated drivers of foundational competitiveness: social infrastructure and political institutions, monetary and fiscal policy, and the microeconomic environment. We estimate this framework using multiple data sets covering more than 130 countries over the 2001-2008 period. We find a positive and separate influence of each driver on output per potential worker. The microeconomic environment has a positive effect on output per potential worker even after controlling for historical legacies. Using our framework we define a new concept, global investment attractiveness, which is the cost of factor inputs relative to a country's competitiveness. This analysis reveals important insight into the economic trajectory of individual countries. Our framework also offers a novel methodology for the estimation of a theoretically grounded and empirically validated measure of national competitiveness.
Keywords: National Competitiveness; Foundational Competitiveness; Economic Performance; Global Investment Attractiveness
JEL Codes: O12; O47; O5
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| social infrastructure and political institutions (SIPI) (O17) | output per potential worker (J24) |
| monetary and fiscal policy (MFP) (E63) | output per potential worker (J24) |
| microeconomic conditions (E66) | output per potential worker (J24) |
| social infrastructure and political institutions (SIPI) (O17) | foundational competitiveness (F23) |
| monetary and fiscal policy (MFP) (E63) | foundational competitiveness (F23) |
| microeconomic conditions (E66) | foundational competitiveness (F23) |