THE EUROPEAN COMPETITIVENESS INDEX:CONCEPT, MEASUREMENT, IMPLICATIONS AND LINKS WITH

RESILIENCE

Robert HugginsThe Management School

University of Sheffield

Presentation to the International Conference on Small States and Economic Resilience

Valletta, Malta, 23-25th April 2007

Outline

The Concept of Competitiveness

Introducing the European Competitiveness Index

The Role of the Knowledge-Base of an Economy

Competitiveness and Resilience

Conclusions.

European Council:

"Europe must renew the basis of its competitiveness,increase its growth potential and its productivity and

strengthen social cohesion, placing the main emphasis on knowledge, innovation and the

optimisation of human capital”

Source: Presidency Conclusions, European Council, March 2005

What is Competitiveness?

We define competitiveness as the capability of an

economy to attract and maintain firms with stable or

rising market shares in an activity, while maintaining

stable or increasing standards of living for those who

participate in it.

Regional Competitiveness

The competitiveness of a region will depend on its ability to anticipate and successfully adapt to internal

and external economic and social challenges, by providing new economic opportunities, including

higher quality jobs.

What Makes a Competitive Region?

Competitiveness is influenced by a number of different factors including public and private

investment in human capital, the quality of physical infrastructure, the productivity of the workforce,

institutional capacity, social capital, innovation and research facilities, accessibility to markets, and so on.

In other words, competitiveness is increasingly being measured in terms of creativity, knowledge and environmental conditions, rather than purely on

accumulated wealth.

European Competitiveness Index – Geographic

Scope:

The European Competitiveness Index 2006- include all EU-25 nations and their respective NUTS-1 regions, as well as Norway and Switzerland.

The continued focus on regions, as well as nations, reflects the growing consensus that it is regions that are the primary spatial unit that compete to attract investment, and the level at which knowledge is

circulated and transferred, resulting in agglomerations, or clusters, of industrial and service

sector enterprises. 

Throughout the report an index value of 100 refers to the mean average of the EU-25 regions plus Norway

and Switzerland.

Methodology (1)

All data are first converted so that the mean and variance of each variable is set at zero and one respectively. After the standardisation, factor

analysis is applied to the data set.

To extract the common part of variations among the original variables (i.e. commonalities), image factoring is employed. The dimensions obtained

are then rotated. Varimax is used with Kaiser normalisation.

While identifying common dimensions of the underlying structure, factor analysis also shows the location of each case (i.e. region in this study) within the underlying structure, by providing the case's scores for the

dimensions identified.

Methodology (2)We use these scores for the dimensions as sub-composite indices.

Subsequently, we aggregate these sub-composite indices with a view to obtaining a single composite.

Data Envelopment Analysis (DEA) is used to obtain a single composite index from the above sub-composite indices.

DEA is a linear programming technique originally developed for the estimation of the relative efficiency of a set of units (called decision

making units, DMUs) producing a set of outputs from common inputs.

It neither assigns weights to variables with any dependent variable chosen a priori, nor assigns weights set a priori. Instead, it seeks a

set of weights for each unit that maximises a weighted sum of

variables.

Is Competitiveness Similar to Resilience?

Resilience Versus Competitiveness of European Nations

R2 = 0.5692

0.5

0.55

0.6

0.65

0.7

0.75

0.8

0.85

0.9

0 50 100 150 200

European National Competitiveness Index

Resilie

nce In

dex

(Bri

gu

glio

et

al., 2005)

Towards a European Regional Resilience Index

Adaptation of Briguglio et al.’s (2005) National Resilience Index:

Macroeconomic stability index - adjusted to account for regional GDP (per capita) and unemployment rates.

Social development index - adjusted to account for regional educational rates (based on numbers in upper secondary and

vocational education).

Governance index – although in world of multi-level governance the regional level is becoming increasingly prominent there are few

existing metrics.

Microeconomic efficiency index – regulation is still largely a national issue, although markets often have a regional focus.

A Very Tentative European Regional Resilience Index

Rank RegionResilience

Index Rank RegionResilience

Index

1 Uusimaa, Finland 0.781 21 Prague, Czech Republic 0.679

2 Denmark 0.758 22 Stockholm, Sweden 0.679

3 Etelä-Suomi, Finland 0.753 23 Övre Norrland, Sweden 0.678

4 Pohjois-Suomi, Finland 0.751 24 Östra Mellansverige, Sweden 0.677

5 Länsi-Suomi, Finland 0.737 25 Norway 0.676

6 Itä-Suomi, Finland 0.729 26 Wales, UK 0.675

7 Southern and Eastern, Ireland 0.726 27 Småland med öarna, Sweden 0.674

8 Switzerland 0.719 28 West Midlands, UK 0.673

9 Noord-Nederland, Netherlands 0.718 29 East Midlands, UK 0.671

10 Westösterreich, Austria 0.718 30 Västsverige, Sweden 0.671

11 Oost-Nederland, Netherlands 0.702 31 South West, UK 0.668

12 Zuid-Nederland, Netherlands 0.701 32 Sydsverige, Sweden 0.667

13 West-Nederland, Netherlands 0.699 33 Vlaams Gewest, Belgium 0.666

14 Südösterreich, Austria 0.698 34 North West, UK 0.664

15 Ostösterreich, Austria 0.693 35 Hamburg, Germany 0.662

16 North East, UK 0.692 36 Yorkshire and The Humber, UK 0.662

17 Région de Bruxelles-Capitale, Belgium 0.688 37 Baden-Württemberg, Germany 0.650

18 Mellersta Norrland, Sweden 0.685 38 Scotland, UK 0.649

19 Norra Mellansverige, Sweden 0.679 39 Estonia 0.647

20 Border, Midlands and Western, Ireland 0.679 40 Bremen, Germany 0.646

Rank RegionResilience

Index Rank RegionResilience

Index

41 Região Autónoma da Madeira, Portugal 0.644 61 Noreste, Spain 0.615

42 Eastern, UK 0.644 62 Bassin Parisien, France 0.613

43 Hessen, Germany 0.642 63 Mecklenburg-Vorpommern, Germany 0.613

44 South East, UK 0.642 64 Continente, Portugal 0.612

45 Northern Ireland, UK 0.642 65 Ouest, France 0.612

46 Bayern, Germany 0.637 66 Région Wallonne, Belgium 0.611

47 Île de France, France 0.637 67 Malta 0.608

48 London, UK 0.635 68 Região Autónoma dos Açores, Portugal 0.607

49 Nordrhein-Westfalen, Germany 0.629 69 Berlin, Germany 0.607

50 Comunidad de Madrid, Spain 0.626 70 Közép-Magyarország, Hungary 0.607

51 Luxembourg 0.625 71 Sachsen-Anhalt, Germany 0.604

52 Saarland, Germany 0.625 72 Méditerranée, France 0.604

53 Rheinland-Pfalz, Germany 0.623 73 Sur, Spain 0.603

54 Nord - Pas-de-Calais, France 0.623 74 Thüringen, Germany 0.602

55 Niedersachsen, Germany 0.623 75 Sud-Ouest, France 0.601

56 Brandenburg, Germany 0.618 76 Noroeste, Spain 0.600

57 Canarias, Spain 0.617 77 Sachsen, Germany 0.598

58 Schleswig-Holstein, Germany 0.617 78 Centro, Spain 0.596

59 Est, France 0.616 79 Este, Spain 0.594

60 Centre-Est, France 0.615 80 Bratislavský, Slovakia 0.584

A Very Tentative European Regional Resilience Index (2)

Rank RegionResilience

Index Rank RegionResilience

Index

81 Sicilia, Italy 0.570 98 Molise, Italy 0.545

82 Lombardia, Italy 0.568 99 Centro, Italy 0.545

83 Nord Est, Italy 0.567 100 Strední Morava, Czech Republic 0.544

84 Emilia-Romagna, Italy 0.566 101 Severozápad, Czech Republic 0.539

85 Slovenia 0.561 102 Latvia 0.534

86 Dunántúl, Hungary 0.560 103 Strední Cechy, Czech Republic 0.534

87 Campania, Italy 0.558 104 Cyprus 0.523

88 Jihovýchod, Czech Republic 0.558 105 Centralny, Poland 0.509

89 Nord Ovest, Italy 0.557 106 Poludniowo-Zachodni, Poland 0.501

90 Jihozápad, Czech Republic 0.556 107 Pólnocno-Zachodni, Poland 0.501

91 Abruzzo, Italy 0.553 108 Poludniowy, Poland 0.500

92 Alföld és Észak, Hungary 0.552 109 Pólnocny, Poland 0.500

93 Sud, Italy 0.552 110 Východné Slovensko, Slovakia 0.499

94 Sardegna, Italy 0.551 111 Lithuania 0.498

95 Severovýchod, Czech Republic 0.549 112 Západné Slovensko, Slovakia 0.496

96 Lazio, Italy 0.548 113 Stredné Slovensko, Slovakia 0.494

97 Moravskoslezko, Czech Republic 0.546 114 Wschodni, Poland 0.484

A Very Tentative European Regional Resilience Index (3)

Competitiveness Versus Resilience of European Regions

R2 = 0.4502

020406080

100120140160180200

0.4 0.5 0.6 0.7 0.8 0.9

Regional Resilience Index (derived from Briguglio et al., 2005)

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Concluding Remarks (1)

Not only is there an obvious divide in competitiveness between old and new Europe, but an increasing dependence

of Europe on its urban and city locations as the source its competitiveness, with a widening gap between the

performance of key cities and much of Europe’s hinterland.

On top of this, we are seeing the continued erosion in the regional competitiveness of locations in some of Europe’s

major economies, especially Germany.

Concluding Remarks (2)

The European Commission has made its objective the improvement of the competitiveness of all Europe’s regions through investments in the

knowledge economy.

With the further inclusion of Bulgaria and Romania from the beginning of 2007, if the Commission is to go anywhere near achieving this aim there is

a requirement for its Cohesion Policy to be clearly focused on understanding and removing the bottlenecks that are hindering the

competitiveness of many regions in Europe.

These bottlenecks vary on a region by region basis, and policies must be attuned to the particular types of knowledge that individuals regions can

best utilise in order to improve their competitiveness.

Thank you