methodology and

principles of analysis
By Suzanne Rosselet-McCauley

What is the World

Competitiveness Yearbook?
The IMD World Competitiveness Yearbook (WCY) is the
worlds most thorough and comprehensive annual report on
the competitiveness of nations, published without interruption
since 1989. It is considered to be the rst access point to world
competitiveness, providing objective benchmarking and trends,
as well as a worldwide reference point to statistics and opinion
data that highlight the competitiveness of key economies. The
WCY analyzes and ranks the ability of nations to create and
maintain an environment that sustains the competitiveness of
enterprises. In other words, how do nations and enterprises
manage the totality of their competencies to achieve
prosperity or prot? A countrys competitiveness cannot be
reduced only to GDP and productivity because enterprises
must also cope with political, social and cultural dimensions.
Therefore nations need to provide an environment that has
the most efficient structure, institutions and policies that
encourage the competitiveness of enterprises.
The WCY provides extensive coverage of 60 countries and
regional economies, all key players in world markets. In 2003,
we began including regions such as Bavaria, Catalonia, Ile-deFrance, Lombardy, Maharashtra, Rhone-Alps, Scotland, the
State of Sao Paulo and Zhejiang. All economies covered by
the WCY are chosen because of their impact on the global
economy and the availability of comparable international
statistics.

TABLE 1

620

Over 300 competitiveness criteria have been selected as

a result of extensive research using economic literature,
international, national and regional sources and feedback from
the business community, government agencies and academics.
The criteria are revised and updated on a regular basis as new
theory, research and data become available and as the global
economy evolves. A long-established collaboration with our
Partner Institutes worldwide also helps ensure that the data
is reliable, accurate and as up-to-date as possible. This year,
we welcome the collaboration of 57 Partner Institutes to our
unique network.

Who uses the World

Competitiveness Yearbook?
The WCY is an invaluable, dynamic and constantly updated
benchmark for decision-makers.The business community uses
it as an essential tool in determining investment plans and
assessing locations for new operations. Government agencies
nd important indicators to benchmark their policies against
those of other countries and to evaluate performance over
time. The academic world also uses the exceptional wealth of
data in the WCY to better understand and analyze how nations
(and not only enterprises) compete in world markets.

Competitiveness Factors

Economic Performance (77 criteria)

Macro-economic evaluation of the domestic economy: Domestic Economy,

International Trade, International Investment, Employment and Prices.

Government Efciency (73 criteria)

Extent to which government policies are conducive to competitiveness:

Public Finance, Fiscal Policy, Institutional Framework, Business Legislation
and Societal Framework.

Business Efciency

(69 criteria)

Extent to which enterprises are performing in an innovative, protable

and responsible manner:
Productivity and Efciency, Labor Market, Finance, Management Practices
and Attitudes and Values.

Infrastructure

(95 criteria)

Extent to which basic, technological, scientic and human resources

meet the needs of business:
Basic Infrastructure,Technological Infrastructure, Scientic Infrastructure,
Health and Environment and Education.

IMD WORLD COMPETITIVENESS YEARBOOK 2005

How does the World

Competitiveness Yearbook measure
Competitiveness?
During the past two decades, the methodology to assess
the competitiveness of nations has constantly been finetuned to take into account the evolution of the environment
and new research. In this way, the WCY keeps pace with
structural changes in national environments and the rapidly
changing technological revolution. We made these changes
gradually so that we could continue to compare the results
from year to year and highlight the evolution of an economys
performance relative to the competitiveness of others. Based
on analysis made by leading scholars and by our own research
and experience, the methodology of the WCY divides the
national environment into four main Competitiveness Factors:
Economic Performance, Government Efficiency, Business
Efciency and Infrastructure. Each of these four factors has
been broken down into five sub-factors, each highlighting
different facets of competitiveness. Altogether, the WCY
features 20 such sub-factors. (See Tables 1 and 2).
Some of these sub-factors have been further divided into
categories that dene competitiveness issues more explicitly.
All 314 criteria have been grouped into these sub-factors and
categories. However, each sub-factor does not necessarily
include the same number of criteria (for example, it takes
more criteria to assess Education than to evaluate Prices).
Each sub-factor, independently of the number of criteria it
contains, has the same weight in the overall consolidation of
results, that is 5% (20 x 5 = 100). This allows us to lock
TABLE 2 The

the weight of the sub-factors regardless of the number of

criteria they include. We believe that this approach improves
the reliability of the results and helps ensure a high degree
of compatibility with past results. Statistics are sometimes
prone to errors or omissions... Locking the weights of subfactors has the same function as building re barriers; it
prevents problems from spreading in a disproportionate
way. In addition, the past ve years results are calculated for
every economy covered by the WCY, in order to highlight the
evolution of competitiveness.
The WCY uses different types of data to measure quantiable
and qualitative issues separately. Statistical indicators
are acquired from international, national and regional
organizations, private institutions and our unique network of
57 Partner Institutes worldwide. These statistics are referred
to in the WCY as Hard data and include 128 criteria used
to determine the overall rankings and 73 criteria presented
as valuable background information but not used in the
calculation of the rankings. The 128 Hard criteria represent a
weight of approximately two-thirds in the overall ranking. The
remaining 113 criteria are drawn from our annual Executive
Opinion Survey and are referred to in the WCY as Survey
data. The survey questions are included in the Yearbook
as individual criteria and are used in calculating the overall
ranking, representing a weight of approximately one-third.

Breakdown of Competitiveness Factors

Government
Efciency

Business Efciency

Public Finance

Productivity
Labor Market

International
Investment

Fiscal Policy

Technological
Infrastructure

Institutional Framework

Finance

Scientic Infrastructure

Employment

Business Legislation

Management Practices

Health and Environment

Prices

Societal Framework

Attitudes and Values

Education

Economic Performance
Domestic Economy
International Trade

Infrastructure
Basic Infrastructure

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Executive Opinion Survey

Every year, we conduct an Executive Survey in order to
complement the statistics that we use from international,
national and regional sources. Whereas the Hard data shows
how competitiveness is measured over a specific period
of time, the Survey data measures competitiveness as it is
perceived. The survey is an in-depth 113-point questionnaire
sent to executives in top- and middle management in all
of the economies covered by the WCY. The survey was
designed to quantify issues that are not easily measured, for
example: management practices, labor relations, corruption,
environmental concerns or quality of life.The survey responses
reect perceptions of competitiveness and indications for
the future by business executives who are dealing with
international business situations. Their responses are more
recent and closer to reality since there is no time lag, which
is often a problem with Hard data that show a picture of the
past.
The surveys are sent to executives who represent a crosssection of the business community in each country or
region. The distribution reects a breakdown of industry by
sectors: primary, manufacturing and services, and in order to
be statistically representative, we select a sample size which
is proportional to the GDP of each economy. The survey
respondents are nationals or expatriates, located in local and
foreign enterprises in the country or region and which, in
general, have an international dimension. They are asked to
evaluate the present and expected competitiveness conditions
TABLE 3

622

Computing the Rankings

IMD WORLD COMPETITIVENESS YEARBOOK 2005

of the economy in which they work and have resided during

the past year, drawing from the wealth of their international
experience, and thereby ensuring that the evaluations portray
an in-depth knowledge of their particular environment. We
try to contact most IMD alumni and all responses returned
to IMD are treated as condential. The surveys are sent in
December and are returned in March; in 2005, we received
4,000 responses from the 60 economies worldwide.
For additional details concerning the Executive Opinion
Survey, please refer to the chapter on Data Processing
Methodology.

How are the rankings computed?

The essential building block for the rankings is the standardized
value for all the criteria, which we call the STD value.The rst
step is to compute the STD value for each criterion using
the data available for all of the economies (See the chapter
on Data Processing Methodology for more details). We then
rank the economies for the 241 criteria that are used in the
aggregation, 128 Hard and 113 Survey data. The additional 73
criteria are presented for background information only. They
are not included in the aggregation of data to determine the
overall rankings. In most cases, a higher value is better, for

TABLE 4 Fiscal Policy Sub-Factor

Latest Developments
Regional Dimension
example, for Gross Domestic Product; the economy with the
highest standardized value is ranked rst while the one with
the lowest is last. However, with some criteria the inverse may
be true, where the lowest value is the most competitive, for
example, Consumer Price Ination. In these cases, a reverse
ranking is used: the economy with the highest standardized
value is ranked last and the one with the lowest is rst.
Since all economies statistics are standardized, they can be
aggregated to compute indices. We use these index values,
which we call scores, to compute the following rankings:
the Overall Scoreboard, Competitiveness Factor rankings and
Sub-factor rankings. When the data is unavailable or too old
to be relevant for a particular country or region, the economy
appears at the bottom of the statistical table for the criterion
being measured and a dash is shown. In the aggregation of the
statistics, all missing data is replaced with a STD value equal
to zero.
See Table 3: Computing the Rankings and Table 4: Fiscal Policy
Sub-factor.

We began introducing regional economies to our rankings in

the 2003 edition of the WCY: Bavaria (Germany), Catalonia
(Spain), Ile-de-France (France), Lombardy (Italy), Maharashtra
(India), Rhone-Alps (France), the State of Sao Paulo (Brazil)
and Zhejiang (China). Scotland (United Kingdom) was added
in the 2004 edition. We believe that regions promote their
own competitiveness profiles and policies, which are not
necessarily similar at a national level, and that they seek more
independence in the management of their competitiveness.
Many regions or states represent pockets of competitiveness
inside the nation and are increasingly competing to attract
investments.
Thus, the WCY strives to provide the most extensive
and comprehensive analysis of competitiveness for as many
national or regional environments as possible, taking into
consideration the availability and reliability of data for these
economies. In doing so, we hope to reflect the expanding
global marketplace and the increased presence of developing
economies. With time, we hope to expand the regional
dimension to cover additional regional economies and develop
future collaboration with reputable Partner Institutes.
With the addition of regional economies, it was often difcult
to nd statistical data for all of the 314 criteria covered in the

IMD WORLD COMPETITIVENESS YEARBOOK 2005

623

WCY; for example, in international investment, public nance,

scal policy, education or infrastructure. These criteria often
are provided only at a national level. In order to include these
regional economies in the rankings, and to make comparisons
possible between countries and regions, we have used proxies
for those criteria where data was unavailable, too old to be
relevant, or did not correspond to the standard denition.
These proxies are calculated on the basis of either a) the
ratio of the region in the total national GDP, or b) the ratio of
the region in the total national population, depending on the
criterion that is being measured. Please see Appendix I: Notes
and Sources for further details.

Global and Customized Rankings

The WCY team constantly fine-tunes its methodology to
take into account the evolution of the global economy in
which enterprises compete, as well as the needs of our users.
Consequently, in the 2005 edition of the WCY, we present
one overall global ranking in addition to rankings customized
to meet different requirements. For example, rankings that are
split by population size, by GDP per capita or by geographical
region. However, all of the individual criterion (statistical
tables) as well as the rankings used in the National/Regional
Proles are shown on a global basis.
Our experience over the years and our research on the
competitiveness of nations leads us to believe that the size
of economies is becoming more relevant and large populated
economies present a different competitive model than smaller
ones. Therefore, a ranking split by population size: two groups
of 30 economies showing populations greater than 20 million
(Australia to China) and populations less than 20 million
(Iceland to the Netherlands) may be particularly useful to
those who wish to make comparisons between countries and
regions that are in the same playing eld. However, other
users may prefer making comparisons based on GDP per
capita or within a particular geographical region, for example,
Europe-Middle East-Africa, Asia-Pacic or the Americas.
In order to ensure compatibility with past rankings, the past 5
years results for every economy are calculated on the basis of
a global population of 60 economies. This allows comparisons
of rankings over time and highlights the evolution of
competitiveness for each country and regional economy.

National and Regional Competitiveness

Proles
The Yearbook comprises an in-depth prole for each economy
covered in 2005. These proles indicate the overall and factor
trends for each economy as well as highlighting the strongest
and weakest criteria. Each prole also includes a simulation
study that analyzes how competitiveness could be improved.
In 2003, proles were added for the regional economies.
For additional details, see How to use the World
Competitiveness Yearbook - National and Regional
Competitiveness Proles described further on.

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IMD WORLD COMPETITIVENESS YEARBOOK 2005

How to use the World

Competitiveness Yearbook?
The analytical part of the WCY is divided into the following
main sections (see Table 5: How to Use the Yearbook):

The World Competitiveness Scoreboard

The World Competitiveness Scoreboard presents the 2005
overall rankings for the 60 economies covered by the WCY.
This overall ranking is calculated on the basis of the 241 ranked
criteria included in the Yearbook: 128 Hard and 113 Survey
data. The countries and regional economies are ranked from
the most to the least competitive and the results from the
previous years scoreboard (2004) are shown in brackets. The
index value or score is also indicated for each economy.

Customized Rankings
In addition to global rankings, other rankings are provided
to show comparisons based on different perspectives. These
rankings include countries and regions split by population size
(two groups of 30 economies comprising populations above
and below 20 million), by GDP per capita to reect different
peer groups (above and below $10000) and three regional
rankings drawn from different geographical areas (EuropeMiddle East-Africa, Asia-Pacic and the Americas).

Evolution of the Overall Ranking and

Competitiveness Factor Rankings
This section presents the overall rankings and the rankings
for each of the four Competitiveness Factors: Economic
Performance, Government Efciency, Business Efciency and
Infrastructure for the past ve years, 2001-2005. Thus, the
reader is able to analyze the evolution of an economys
performance over the past few years relative to the others
on a global basis. The global rankings for each of the
Competitiveness Factors are then shown.Again, the economies
are ranked from the most to the least competitive and the
index values or scores are indicated for each Factor.

Sub-factor Rankings
A summary of the rankings for all 20 sub-factors is presented
for the 60 economies for 2005. It is possible, at a glance, to
determine in which areas of competitiveness a country or
region excels or has particular weaknesses and to make
comparisons between the economies. These rankings provide
a more detailed examination of specific competitiveness
issues and, in addition to the factor rankings, can be used to,
for example, evaluate the business environment of a nation
or region, support international investment decisions, or
assess the impact of various public policies. We view the
rankings as a tool for managers to use when they analyze the
above questions. Obviously, each company must take into
consideration the logic of its own economic sector, economic
forecasts and its own traditions.The rankings provide a unique
tool for analyzing different economic sectors.

TABLE 5 How to Use the Yearbook

Competitiveness Structures (Spider Charts)

b. Competitiveness Trends - Factor Breakdown

This section compares the index values of the four

Competitiveness Factors for each country and region to
those of the leading economy (see Table 6). As can be seen,
an economy may have a higher index value for a particular
Competitiveness Factor than the leading economy, even
though it has a lower overall ranking. These charts help
identify in which environment a country or region may have a
particular strength or weakness.

The second page shows the economys performance over

time for each Competitiveness Factor from 2001 to 2005, and
the rankings for each sub-factor for 2005 (see Table 8).

National and Regional Competitiveness

Proles
The World Competitiveness Yearbook includes an in-depth
analysis of each of the 60 economies comprising the following
information:
a. Competitiveness Trends - Overall
The rst page shows the evolution of the economys overall
performance and individual results (see Table 7):

The evolution of the overall ranking, 2001-2005

The Competitiveness Structure (spider chart) 2005
The Competitiveness Challenges for 2005
Basic Facts / Statistics of the country or region

c. Competitiveness Balance Sheets

These two pages highlight specic strengths and weaknesses
of the economy in world competitiveness. These balance
sheets indicate, for each Competitiveness Factor, the 10
criteria where the economy ranks best (strengths) and the
10 criteria where its performance is worst (weaknesses). See
Table 9.
d.Twenty Strongest Criteria
This page identies the 20 strongest criteria overall, regardless
of which Competitiveness Factor they are included in. The
selected criteria are broken down by the 13 hard and 7 survey
criteria with the highest STD values, representing a ratio of
2/3 hard data to 1/3 survey data. This ratio indicates the
proportion of each type of data in the overall ranking. We feel
that this approach is more representative of the economys
strongest facets of competitiveness rather than selecting
the 20 criteria with the highest STD values since, for some
economies, the survey data may be predominant. These 20
strongest criteria could thus be considered the economys
most important assets from a quantitative and qualitative
point of view.

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625

Infrastructure

Government
Efficiency

Infrastructure

Government
Efficiency

TABLE 6 Competitiveness Structure

Business
Efficiency

Business
Efficiency

Economic

Economic
Performance

Performance

Economic
Performance

Government
Efficiency

Infrastructure

Government
Efficiency

Infrastructure

Government
Efficiency

Business
Efficiency

Business
Efficiency

Business
Efficiency

Economic
Performance

Performance

TABLE 7 Competitiveness
Trends - Overall

Economic
Performance

Economic
Performance

Infrastructure

Government
Efficiency

Infrastructure

Infrastructure

Business

Efficiency

Economic

Performance

Infrastructure

Government

Government Infrastructure

Efficiency

Efficiency

Business

Efficiency

Business
Efficiency

Government
Efficiency

Business
Efficiency

Business
Efficiency

626

Economic
Performance

Government
Efficiency

Business
Efficiency

Government
Efficiency

Infrastructure

Business
EfficiencyEconomic

Government
Efficiency

Infrastructure

Infrastructure

Economic
Performance

IMD WORLD COMPETITIVENESS YEARBOOK 2005

TABLE 8

Competitiveness Trends - Factor Breakdown

e. Twenty Weakest Criteria and What If ?

Simulation
This page identies the 20 weakest criteria, regardless of which
Competitiveness Factor they are included in. We apply the
same methodology of criteria selection as in the previous page
(13 hard and 7 survey criteria); but in this analysis, the criteria
selected have the lowest STD values and could be considered
the economys liabilities. The Simulation study analyzes what
would happen to the overall ranking of the economy if its
weakest criteria values were replaced by the average values
of the 60 economies. The results show how much, if at all,
an economys competitiveness would increase if it were to
concentrate on improving the particular competitiveness
issues measured by these criteria. It should be noted, however,
that certain criteria have been excluded from the simulation:
those for which the economy has no control or which may
only have a very limited impact on competitiveness. For
example, we do not consider the amount of arable land to

be controllable. (See Appendix III for a list of criteria that are

excluded from simulation).

Statistical Tables
This section presents the data for all 314 criteria and 60
economies that are included in the Yearbook. The economies
are ranked by individual criterion and all criteria are grouped
by Competitiveness Factor and Sub-factor. These tables
present Hard data drawn from international, national and
regional organizations, Survey data from our Executive
Opinion Survey and additional data provided for background
information only. One can distinguish between each type of
statistical table due to a Survey or Background icon which
appears at the top of the tables.
Please refer to the Users Guide at the beginning of the
section on Statistical Tables for further details..

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TABLE 9 Competitiveness Balance Sheets & Simulation

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WORLD COMPETITIVENESS YEARBOOK 2005