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How Global Competitiveness Index Affects the Economy

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Microeconomic Indicator in Forex

Global Competitiveness Index

What is the Global Competitiveness Index (GCI)?

There are many definitions of GCI out there. As defined by the World Economic Forum, GCI is the set of laws, rules, regulations, and policies which measure the overall productivity of the country. Other definitions may not be very different, but what remains common everywhere is the use of the word “productivity” and “efficiency.”

Simply GCI can be thought of as all the aspects that contribute towards the well-being of a nation. It is believed that a country that is competitive is also very productive at the same time as a productive economy leads to growth, higher income levels of working men, and a better quality of life.

Global Competitiveness is the ability of an economy to compete among different economies, which enhances its international trade for goods and services. More benefits of GCI are that they improve the quality of business planning, level of innovation and technology, human capital development, and quality of infrastructure. GCI provides macroeconomic stability having its effect on inflation, interest rates, national debt, deficits, etc. Hence, an improvement in Competitiveness raises the potential return on investments. It is also a key to job growth and poverty reduction, which are a driving factor for any country.

What does the Global Competitiveness Index (GCI) of a country measure?

GCI measures not just one economic indicator but many factors which it determines in different ways. Firstly, it affects the Relative export prices of a country which is nothing but one country’s export prices in relation to others. So if a country is able to create a high competitiveness attitude with its neighbouring countries and overseas nations, then this gives room for raising its export prices and increasing the taxes on the imports. This directly raises the revenues of the government and facilitates better financial growth of the nation. This itself is represented as a separate Index.

GCI raises labour productivity by curbing unemployment as it motivates the working professional for high competence among its peer nations. This builds confidence among industrialists and entrepreneurs to establish firms and startups which automatically creates jobs. So as the job condition improves, the GDP per worker or GDP per hour of employment will be much better than before. Consequently, Unit labour costs, which are the cost of labour per unit of output, is stated to increase. By these changes which are due to GCI, the economy is at its best, and nothing can drag the economy.

Reliable sources of information on GCI for major currencies

The Global Competitiveness rank is a report that is published by the World Economic Forum, and its respective website provides a detailed report for any country. One can also get the data from Business newspapers and magazines released by business agencies of that country. Comparisons can also be made with respect to its previous rankings. However, here are the few rankings of the major economies of the world,

GBP(Sterling) – https://tradingeconomics.com/united-kingdom/competitiveness-index

AUDhttps://tradingeconomics.com/australia/competitiveness-index

USDhttps://tradingeconomics.com/united-states/competitiveness-index

EURhttp://www3.weforum.org/docs/WEF_Europe2020_CompetitivenessReport_2014.pdf

CHFhttps://tradingeconomics.com/switzerland/competitiveness-index

CADhttps://tradingeconomics.com/canada/competitiveness-index

NZDhttps://tradingeconomics.com/new-zealand/competitiveness-index

JPYhttps://tradingeconomics.com/japan/competitiveness-index

What do Traders care about the GCI and its impact on the Currency?

For any currency to appreciate and maintain its fair value, it is utmost important for the country to show productivity. This is because productivity is the primary driving force for growth and income levels. And as we all know, better income levels are closely related to human well-being. This promotes a chain of development events to occur within the country, and interest rates rise, causing higher buying volume in the currency. In other words, the country goes through a bull market.

Basically, rising Competitiveness means good prosperity. It is believed by large investment firms, that any country which is having a competitive environment, is likely to benefit the most towards having sustained economic growth. Hence, that nation can draw a lot of institutional interest in that particular currency.

The GCI is subdivided into three sub-indices. First is the Basic Requirement sub-index. This index is comprised of pillars of Institutions, Macroeconomic Environment, Health, Infrastructure, and Primary Education. Second sub-index is the Efficiency Enhancers. It comprises of Training in the Industry, Goods Market Efficiency, Labor Market Efficiency, Technological Readiness, Financial Market Development, and Market size. The last one is the Innovation and Sophistication Factors sub-index, which again has pillars of Business Sophistication and Innovation. These Pillars are the sole of GCI and should always be evaluated before any decision.

Frequency of the release

The Global Competitiveness Index (GCI) is published yearly by the World Economic Forum. The annual reports are somewhat similar to the Ease of Doing Business Index and the Indices of Economic Freedom, which is also a year on year release. All of them together look at factors affecting economic growth. Every year’s release is analysed critically and compared with the previous year’s rank to understand the sectors responsible for better ranking or a fall in the ranking.

The Bottom Line

The Global Competitiveness Index (GCI) has been used as an essential tool by policymakers of many countries over the years. Since its first release in 2005, the index is widely recognized as one of the critical assessments of Global Competitiveness.

The World Economic Forum also provides the best thinking and research with its recent project of reviewing the index to come up with better results. With this attempt, economic indicator aims to provide the policymakers, business leaders and country heads, a great tool that can measure prosperity in an economy and can help in the discussions for reforms and productive investments.

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