Competitiveness indicators: the importance of an efficient allocation of resources

Given the nature of the current crisis and the levels of public and private-sector debt, which limit the capacity to reactivate the economy by stimulating domestic demand, competitiveness gains have become a crucial resource for relaunching growth in a significant number of economies. In addition, in the context of Economic and Monetary Union, competitiveness plays a central role as a macroeconomic adjustment variable and, thus, in the stability of the euro area. However, there is no common agreed definition of competitiveness and the term is used with different shades of meaning depending on the context. For example, in macroeconomics textbooks the concept of competitiveness is similar to that of relative prices between countries. In Porter (1990) it is defined as the productiveness with which a nation uses its resources, whether natural or accumulable (capital and labour), which is close to the definition of the Davos Forum, according to which competitiveness has to do with the set of institutions, policies and factors that determine a nation’s level of productivity. The OECD considers it to be a country’s ability to sell its products on international markets, while Krugman (1994) refers to it as “a poetic way of saying productivity”, and warns of the dangers of an obsession with the competitiveness of a country. The European Commission also has its own definition of this concept, perhaps the broadest and most abstract, which associates improvements in competitiveness with increases in living standards accompanied by the lowest possible level of involuntary unemployment. Many of these definitions of competitiveness have some connection with a country’s relative position in international trade, which depends in principle on price and cost factors. If these move unfavourably relative to those of other economies, the ability to sell products at home and abroad is impaired. This probably explains why competitiveness indicators based on relative (national or sectoral) price comparisons are among those used most regularly. But there are also other factors that affect the ability of a country to sell its output, such as, for example, the quality of the products and the economy’s productive specialisation. The composition of a country’s human capital, the efficiency of its infrastructure, its business regulatory framework, the integration of its firms into global production chains and their innovative capacity are factors that have a decisive influence on these determinants of competitiveness and that are not satisfactorily reflected in the usual pricecompetitiveness indicators. Also, most of the empirical approximations to the concept of competitiveness adopt an aggregate approach (rarely descending below the sector level), which does not necessarily permit all the problems underlying a loss of competitiveness to be identified. This article reviews the usual measures of competitiveness and their limitations, when all the relevant information is aggregated, and discusses alternative indicators, based on microeconomic information (at the firm level), which enable certain distortions that prevent resources from being efficiently allocated between firms and sectors of the economy to be identified.