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

1. THE EUROPEAN COMPETITIVENESS INDEX: CONCEPT, MEASUREMENT, IMPLICATIONS AND LINKS WITH RESILIENCE Robert Huggins The Management School University of Sheffield Presentation to the International Conference on Small States and Economic Resilience Valletta, Malta, 23-25th April 2007

2. Outline The Concept of Competitiveness Introducing the European Competitiveness Index The Role of the Knowledge-Base of an Economy Competitiveness and Resilience Conclusions.

3. 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

4. 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.

5. 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.

6. 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.

8. 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.

9. 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.

10. 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.

23. Is Competitiveness Similar to Resilience?

24. 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.

25. A Very Tentative European Regional Resilience Index

26. A Very Tentative European Regional Resilience Index (2)

27. A Very Tentative European Regional Resilience Index (3)

29. 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.

30. 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.

31. Thank you