Global Competitiveness

The 12 pillars of competitiveness

There are many determinants driving productivity and

competitiveness. 

Understanding the factors behind this

process has occupied the minds of economists for hundreds

of years, ranging from Adam Smith’s focus on

specialization and the division of labor to neoclassical

economists’ emphasis on investment in physical capital

and infrastructure,3 and, more recently, to interest in

other mechanisms such as education and training, technological

progress, macroeconomic stability, good governance,

firm sophistication, and market efficiency, among

others.

 While all of these ideas are likely to be important,

they are not mutually exclusive—two or more of

them can be true at the same time,

This open-endedness is captured within the GCI

by including a weighted average of many different components,

each measuring a different aspect of competitiveness.

These components are grouped into 12 pillars

of economic competitiveness:

First pillar: Institutions

The institutional environment is determined by the

legal and administrative framework within which individuals,

firms, and governments interact to generate

income and wealth in the economy. 

The importance of a sound and fair institutional environment has become

even more apparent during the economic crisis, given

the increasingly direct role played by the state in the

economy of many countries.

The quality of institutions has a strong bearing on 

competitiveness and growth.5 It influences investment

decisions and the organization of production and plays

a key role in the ways in which societies distribute the

benefits and bear the costs of development strategies

and policies. 

For example, owners of land, corporate

shares, or intellectual property are unwilling to invest in

the improvement and upkeep of their property if their

rights as owners are not protected.6

The role of institutions goes beyond the legal

framework.

Government attitudes toward markets and

freedoms and the efficiency of its operations are also very

important: excessive bureaucracy and red tape,7 overregulation,

corruption, dishonesty in dealing with public

contracts, lack of transparency and trustworthiness, and

the political dependence of the judicial system impose

significant economic costs to businesses and slow the

process of economic development.

In addition, proper management of public finances

is also critical to ensuring trust in the national business

environment.

Indicators capturing the quality of government

management of public finances are included here

to complement the measures of macroeconomic stability

captured in pillar 3 below.

Although the economic literature has focused

mainly on public institutions, private institutions are

also an important element in the process of creation

of wealth.

The recent global financial crisis, along with

numerous corporate scandals, has highlighted the relevance

of accounting and reporting standards and transparency

for preventing fraud and mismanagement,

ensuring good governance, and maintaining investor

and consumer confidence

 An economy is well served by businesses that are run honestly, where managers

abide by strong ethical practices in their dealings with

the government, other firms, and the public at large.8

Private-sector transparency is indispensable to business,

and can be brought about through the use of standards

as well as auditing and accounting practices that ensure

access to information in a timely manner.9

Second pillar: Infrastructure

Extensive and efficient infrastructure is critical for

ensuring the effective functioning of the economy, as it

is an important factor determining the location of economic

activity and the kinds of activities or sectors that

can develop in a particular economy.

 Well-developed infrastructure

reduces the effect of distance between regions,

integrating the national market and connecting it at low

cost to markets in other countries and regions.

In addition,

the quality and extensiveness of infrastructure networks

significantly impact economic growth and affect income

inequalities and poverty in a variety of ways.10 A welldeveloped

transport and communications infrastructure

network is a prerequisite for the access of less-developed

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