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Composite Competitiveness Indicators With Endogenous Versus Predetermined Weights : An Application to the World Economic Forum’s Global Competitiveness Index

Author

Listed:
  • Harry P. Bowen

    () (McColl School of Business, Queens University of Charlotte)

  • Wim Moesen

    () (Center for Economic Studies, Catholic University Leuven)

Abstract

This paper addresses an important methodological issue concerning the construction of a composite indicator, and in particular composite indicators of national competitiveness; these indicators often serve as a benchmark for policymakers and others to judge the relative success of their country. Most competitiveness indicators aggregate primitive data using predetermined fixed weight values that are applied uniformly to all countries. The use of fixed and uniform weights may bias inferences of relative performance since it ignores that countries can have different policy priorities or lack inherent capabilities on some dimensions. In addition, since the particular weight values chosen are not likely to be universally accepted, the credibility of any particular index is weakened. To address this issue, this paper proposes a procedure that allows for endogenously determined country specific weights that explicitly take account of a country’s own choices and achievement across primitive dimensions. We then illustrate our procedure by applying it to examine the widely cited Global Competitiveness Index developed by the World Economic Forum. Our resulting Revealed Competitiveness Index uses weights that allow that countries may choose different combinations of the underlying dimensions but still achieve the same level of overall performance. In general, our method will prove useful to those wishing to construct and compare indexes of performance, while minimizing objections about the “importance” of the different component dimensions that often arise when predetermined and uniformly applied weights are used.

Suggested Citation

  • Harry P. Bowen & Wim Moesen, 2009. "Composite Competitiveness Indicators With Endogenous Versus Predetermined Weights : An Application to the World Economic Forum’s Global Competitiveness Index," Discussion Paper Series 2009-02, McColl School of Business, Queens University of Charlotte.
  • Handle: RePEc:msb:wpaper:2009-02
    as

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    References listed on IDEAS

    as
    1. Charnes, A. & Cooper, W. W. & Rhodes, E., 1978. "Measuring the efficiency of decision making units," European Journal of Operational Research, Elsevier, vol. 2(6), pages 429-444, November.
    2. Athanassopoulos, Antreas D. & Lambroukos, Nikos & Seiford, Lawrence, 1999. "Data envelopment scenario analysis for setting targets to electricity generating plants," European Journal of Operational Research, Elsevier, vol. 115(3), pages 413-428, June.
    3. Laurens Cherchye & Wim Moesen & Tom Puyenbroeck, 2004. "Legitimately Diverse, yet Comparable: On Synthesizing Social Inclusion Performance in the EU," Journal of Common Market Studies, Wiley Blackwell, vol. 42(5), pages 919-955, December.
    4. Seiford, Lawrence M. & Zhu, Joe, 1999. "An investigation of returns to scale in data envelopment analysis," Omega, Elsevier, vol. 27(1), pages 1-11, February.
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