Irene Mia Competitiveness Indexes Comments by Fernando Gomez, Universidad Pompeu Fabra, Barcelona

Basic ideas behind the approach Need to use broader notions of competitiveness to promote growth and development, compared with –the traditional neoclassical accounts of growth (factor accumulation, total factor productivity growth, technology) and –the traditional macroeconomic predominance of fiscal and monetary policies over legal and other microeconomic policies Accounts such as the one underlying both GCI and Global CI, add several important factors to the picture –GCI adds public institutions

Basic ideas behind the approach –Global CI adds More meat and detail concerning public institutions Role of some private institutions (surrounding investors’ protection) Health and education (at all levels) Market efficiency, both from the perspective of the role of public authorities (anti-trust, taxes, barriers to entrepreneurship) and private arrangements (labor and financial markets) Business sophistication, in quantitative –extension- and qualitative –intensity- terms Innovation beyond technology as a factor

Some comments: The Empirics of Institutional Theory of Growth This prominent role of institutional quality, in line the en vogue literature on institutions as a cause of growth –These ideas are by no means new (Adam Smith, Stuart Mill, Douglass North) –The novel dimension lies in the use of econometrics to support the institutional theory of economic growth: Acemoglu, Johnson, and Robinson (2005) for a survey Some standard problems in this recent literature have already been pointed out: –Endogeneity –Omitted variables –Lack of good instrumental variables

Some comments: The Role of the Law in Global CI Law is definitely relevant and present not only in the formally institutional pillar of Global CI, but also in other pillars, more or less explicitly In market efficiency, the Law is prominent: –Regulation of entry and activity in markets –Labor market regulation –Financial market regulation –Anti-trust Law Innovation is crucially shaped by the design and enforcement of IP legal rules

Some comments: Measuring Legal Variables Use of surveys, as common method of measuring law-related variables face some general problems –They look at outcomes, not structure –Subjectivity –Lack of consistent assessment –Not-so-relevant questions: for instance, the procedure to cash a bounced check [Djankov et al. (2003)] is not important when checks are not widely used: Obsolete payment technology

Some comments: Some Blame on Non-lawyers When surveys –or the elaboration of indexes more generally- related to legal variables are carried out entirely by non-lawyers, we may face –Lack of specific knowledge to identify the relevant issues in the legal framework for the problem at hand –Ignoring already existing –or relatively easy to obtain- hard data –Increased presence of cognitive biases, due to unfamiliarity with the terrain: over-optimism, representative heuristic –Lack of sufficient attention to details that make a difference: too gross a picture often (protection of property rights, for instance, is too broad to be meaningful in legal decision-making) – Disregard the difference between law in the books and law in action It is important -though not perfect either : problematic in some developing countries, lack of consistency, to use the input from lawyers

Some comments: Challenges of Measuring Legal Variables in this Context Keep in mind the instrumental function of the indexes. The goal is to improve institutional quality If institutional quality is an important factor for growth and economic welfare, start looking directly at quality evaluation of legal rules and decisions. For instance, not only judicial independence is important, also judicial competence Strive to build hard data, when feasible (and it is in areas such as labor and financial market regulation) Start with areas in which measurement is easier Forgotten role of ideology: it plays a large role in legal rules and decisions

Some comments: The First Pillar of Global CI Security is indeed important for welfare and growth, but –Some issues, such as terrorism and, maybe to a lower extent, organized crime, are largely outside the range of institutional choices by countries –Not only the business costs of crime are relevant for growth, also other social costs are –For crime, there is hard data in many countries, although with reporting problems Almost unlimited scope of many variables (property rights, favoritism, ethical behavior of firms) Some issues are sensitive to the underlying property structure: dispersed vs. concentrated ownership are crucial for issues of board efficacy or shareholders’ protection