EU Regional Competitiveness Index 2010, a JRC Scientific and Technical Report written by Paola Annoni and Kornelia Kozovska, measures the competitiveness of European regions at the NUTS2 level by developing a series of indicators and a composite index.
Measuring regional competitiveness is important because as the report states “if you can not measure it, you can not improve it”. The quantitative estimation of regional competitiveness can facilitate Member States in identifying possible regional weaknesses, the factors that drive these weaknesses, and assist regions in the catching up process.
The report starts from the review of the latest literature contributions to the concept of ‘regional competitiveness’ and of some well-known existing competitiveness indices at country and regional level (NUTS1 and NUTS2).
“Competitiveness (is) the set of institutions, policies and factors that determine the level of productivity of a country. The level of productivity, in turn, sets sustainable level of prosperity that can be earned by an economy”.
“We can define (systemic) competitiveness of a territory as the ability of a locality or region to generate high and rising incomes and improve livelihoods of the people living there.”
Twelve pillars are included in the Regional Competitive Index with the objective of describing different dimensions of competitiveness. They are classified into three major groups:
I. Basic pillars
1. Institution: Private individuals, firms and governments interact with each other in an environment created by both private and public institutions. The Institution pillar aims at describing the legal framework, level of bureaucracy, regulation, corruption, fairness in handling public contracts, transparency, political (in)dependence of the judiciary system.
2. Infrastructure: High quality infrastructure is obviously critical for efficient functioning of the economy. The pillar describes roads, railroads, ports and air transport as well as the quality of power supply and telecommunications.
3. Macro-economy: It describes the macroeconomic stability with variables such as government surplus/deficit and debt, saving rate, inflation and interest rate spread.
4. Health and primary education: Health of workforce and basic education received by the population are clearly key aspects of a productive and efficient economy. This pillar aims to measure the incidence of major invalidating illnesses, infant mortality, life expectancy and the quality of primary education.
5. Higher education and training: If basic education is the starting point of a ductile and efficient workforce, higher education and continuous training are crucial for economies not restricted to basic process and products. This pillar describes secondary and tertiary education together with the extent of staff training.
II. Efficiency pillars
6. Goods market efficiency: The ideal environment for the exchange of goods is the one which features the minimum of impediments to business activity through government intervention. The three main aspects described by the pillar are: distortions, competition and market efficiency.
7. Labour market efficiency: This pillar measures efficiency and flexibility of the labour market, as well as the equity in the business environment between women and men.
8. Financial market sophistication: A well-functioning financial sector provides the right framework for business growth and private sector investments. It mainly describes the sophistication of financial market, the easiness for accessing loans, the strength of investor protection and other similar variables.
9. Market size: The size of the market determines at which level firms may exploit economies of scale. Firms which operate in large markets have more possibility of exploiting scale economies. Both domestic and foreign markets are taken into account in order to avoid discrimination against geographic areas.
III. Innovation pillars
10. Technological readiness: A regulatory framework which is friendly to Information and Communication Technology (ICT) together with ICT penetration rates are of key importance for the overall competitiveness of a nation. Representative variables describing this dimension are for instance internet and mobile telephone subscribers, personal computers, availability of latest technologies and laws relating to ICT.
11. Business sophistication: This pillar concerns the quality of the business networks of the country and the quality of individual firms’ operations and strategies. These aspects are measured using variables on the quality and quantity of local suppliers, the marketing extent and the production of sophisticated unique products.
12. Innovation: The pillar refers to technological innovation which, similar to the technological readiness pillar, is a dynamic factor of competitiveness. This pillar is particularly important for more advanced countries which have already reached a higher stage of development. Such countries cannot improve their productivity by ‘simply’ adopting existing technologies but must invent innovative products and processes to maintain and improve their productivity level.
The major data source is Eurostat with some additional official sources – OECD-PISA, OECD Regional Patent database, European Cluster Observatory, World Bank Governance Indicators and Ease of Doing Business Index.
Source: European Commission JRC
The RCI 2010: Regional Competitive Index EU – JRC2010