Economic efficiency: Competitiveness—an assessment beyond economic efficiency

Economic efficiency refers to the effective use of a country's resources to maximize the production of goods and services. Economic efficiency thus focuses on the cost of that production. In other words, economic efficiency is about the production of goods and the performance of services at the lowest possible cost. In this sense, there are several indicators to assess economic efficiency including: employment rates, interest rates and prices. Competitiveness goes beyond such understanding by emphasizing the structural elements that surround economic efficiency and that to an extent, determines economic efficiency. The results presented in the IMD World Competitiveness Center's (WCC) World Competitiveness Yearbook, offer an analysis of how countries manage the totality of their resources and competencies to increase prosperity. Within such framework, competitiveness goes beyond measures of economic efficiency because there are political, social and cultural factors that affect competitiveness. Competitive countries provide a context that is underlined by an efficient structure and institutions, supported by policies that encourage the competitiveness of enterprises.

There is thus an extensive range of relevant elements of competitiveness. Therefore, the WCC results develop four fundamental dimensions or factors of competitiveness. Each of these factors is in turn divided into sub-factors. The first factor encompassed by the WCC results is Economic Performance which undertakes a macro-economic evaluation of the domestic economy by taking into account measures of the domestic economy, international trade, international investment, employment and prices. The second factor summarized by the WCC results is Government Efficiency. This factor contemplates the extent to which government policies are conducive to competitiveness. Among the factors component are public finance, fiscal policy, institutional framework, business legislation and societal framework. Business Efficiency is the third factors covered by the WCC results. Business Efficiency analyzes the extent to which the national environment encourages enterprises to perform in an innovative, profitable and responsible manner. It does so by studying a country's productivity and efficiency, its labor market, finance, management practices and the prevalent attitudes and values. The WCC results also consider an Infrastructure factor. The latter analyzes the extent to which a country's basic, technological, scientific and human resources meet the needs of business. This factor incorporated measures of basic infrastructure, technological infrastructure, scientific infrastructure, health and environment and education.

From the preceding summary of the competitiveness factors, it becomes clear that an analysis based on economic efficiency measure is ultimately narrow. Economic efficiency is useful to observe the growth (or otherwise) of a particular economy. If the aim, however, is to go beyond economic growth to encompass the sources or elements that contribute to such growth and to understand what enables a country to reach high levels of competitiveness, then a more comprehensive framework is needed.

Importantly, it may be the case that a particular country achieves economic efficiency but simultaneously experiences lack of competitiveness in a non-economic dimension of the process thereby failing to further its competitiveness. In other words, competitiveness is greater than an assessment overly focused on economic efficiency.


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Recommended readings

IMD World Competitiveness Center (2014—several other years). IMD World Competitiveness Yearbook. Lausanne: IMD World Competitiveness Center.

Suggested websites

The IMD World Competitiveness Center's Yearbook