A New European Regional

Competitiveness Index:
Theory, Methods and Findings

Lewis Dijkstra, Paola Annoni and Kornelia Kozovska

ABSTRACT

The EU Regional Competitiveness Index (RCI) is the first composite indicator which
provides a synthetic picture of territorial competitiveness for each of the NUTS 2 regions
of the 27 EU Member States. It builds on and modifies the approach of the Global
Competitiveness Index of the World Economic Forum (WEF). It consists of eleven
pillars grouped in three groups: basic, efficiency and innovation. It takes into account the
level of development of the region by emphasizing basic issues in less developed regions
and emphasizing innovative capacity in more developed regions. The pillars measure not
only issues relevant for firms but also for residents and their quality of life.

The traditional images of Europe with a blue banana or a core periphery pattern are not
confirmed by this analysis. The RCI reveals a more polycentric pattern with high scores
in many capital regions and other regions with large cities. More generally, though,
Eastern and Southern European regions tend to score lower than regions in the Northwest
Europe. The gap between the competiveness of the capital region and the surrounding
regions is very high in central and Eastern Europe, which suggests that the regional
spillovers are not (yet) as effective in these countries. The substantial disparities within
several countries also highlight the need for regional analysis and the limits of a purely
national approach.

Keywords regional competitiveness · composite indicator · NUTS 2 regions · robustness

analysis

1
INTRODUCTION ...............................................................................................................4

1. THEORY .....................................................................................................................4
1.1. The concept and definition.................................................................................4
1.2. What regional level: Functional or administrative regions?..............................5
1.3. Factors of competitiveness and the reach of public policies .............................6
1.4. An assumed lower efficiency of public expenditure?........................................6
1.5. A differentiated approach ..................................................................................7
2. CONCEPTUAL FRAMEWORK ................................................................................7
2.1. Three Groups .....................................................................................................8
2.2. Basic pillars......................................................................................................13
2.2.1. Institutions..........................................................................................13
2.2.2. Macroeconomic stability....................................................................14
2.2.3. Infrastructure......................................................................................14
2.2.4. Health.................................................................................................15
2.2.5. Quality of primary and secondary education .....................................16
2.3. Efficiency pillars..............................................................................................17
2.3.1. Higher education and training and lifelong learning .........................17
2.3.2. Labour market efficiency...................................................................17
2.3.3. Market size.........................................................................................18
2.4. Innovation pillars .............................................................................................20
2.4.1. Technological readiness.....................................................................20
2.4.2. Business sophistication ......................................................................21
2.4.3. Innovation ..........................................................................................23
3. RESULTS AND DISCUSSION ................................................................................23

4. CONCLUSION..........................................................................................................27

5. METHODOLOGICAL ANNEX ...............................................................................28

5.1. Statistical assessment .......................................................................................29
5.2. Aggregation and weighting scheme.................................................................30
5.3. Robustness analysis .........................................................................................32

2
 Uncertainty analysis.........................................................................................33
Compensability effects.....................................................................................34
6. REFERENCES ..........................................................................................................38

7. APPENDIX................................................................................................................42

3
 INTRODUCTION

This paper provides a description of the first European Regional Competitiveness

Index – RCI - calculated for all NUTS 2 regions in the 27 EU Member States. The
first section discusses the theory behind the framework and how this links to
available indicators. Section 2 explains the conceptual framework of the index while
Section 3 describes the results from applying the index to the European regions and
the associated policy recommendations. Section 4 summarises main conclusions that
can be drawn from the RCI distribution. Finally Section 5 provides the
methodological background of the process used to set up the index together with the
robustness analysis carried out to test the scores/ranks stability.

1. THEORY

Regional competitiveness is as much debated by politicians and policy makers, as it

is doubted by academics. For politicians and policy makers, it offers a fairly fuzzy
umbrella concept that covers aspects that matter to the firms and residents of a
region. It tends to focus on measurable differences between regions which fall
(partly) under the control of public authorities without any clear political or
conceptual framework.

Despite accusations that regional competitiveness is embedded in a neo-liberal

ideology (Bristow 2010), the concept as adopted in the present work neither
assumes nor supports a minimal state. On the contrary, this new index, as with most
other measures of competitiveness, gives the Nordic regions some of the highest
scores despite having economies in which public sector accounts for some of the
highest shares in GDP in the world.

We adopt a simple definition of regional competitiveness which responds

pragmatically to current issues raised in the literature, with a focus on how these can
guide indicator selection.

1.1. The concept and definition

A broad notion of competitiveness refers to the inclination and skills to compete, to

win and retain position in the market, to increase market share and profitability, and
eventually to consolidate commercially successful activities (Filó, 2007). The World
Economic Forum (WEF) produces one of the best known competitiveness indices –
the Global Competitiveness Index (GCI). The World Economic Forum defines
national competitiveness as the 'set of institutions, policies and factors that
determine the level of productivity of a country' (Schwab and Porter, 2007). The
WEF definition links micro (firm-level) to macro (country-level) competitiveness.
The framework describing a firm’s capacity to compete, grow and be profitable

4
(Martin et al., 2006) is relatively uncontested, but applying the same concept to
countries or regions has been subject to much debate. The implicit analogy between
firms and nations has been widely criticised because a country cannot go out of
business and because competition between countries can benefit both, while
competition between companies in the same sector is more likely to be a zero sum
game (Krugman, 1996).

Between the micro and the macro levels stands the concept of regional
competitiveness. A region is neither a simple aggregation of firms nor a scaled
version of nations (Gardiner et al., 2004). Meyer-Stamer (2008) states that: "We can
define (systemic) competitiveness of a territory as the ability of a locality or region
to generate high and rising incomes and improve livelihoods of the people living
there.” In contrast to the WEF definition focussed on the concept of productivity,
this definition is based entirely on the benefits to people living in a region. It
assumes a close link between competitiveness and prosperity. It characterizes
competitive regions not only by output-related terms such as productivity but by
sustained or improved level of comparative prosperity (Bristow, 2005).

Along the same lines we propose a definition of regional competitiveness which

integrates the perspective of both firm and of residents:

Regional competitiveness can be defined as the ability to offer an attractive and

sustainable environment for firms and residents to live and work.

Sustainable in this definition is not used in the purely ecological-environmental

sense, but in the sense of a region’s capacity to provide an attractive environment in
both the short and long term. This means that a region which reduces taxes to such a
degree that it can no longer maintain the quality of its public infrastructure and
services does not provide a sustainable attractive environment.

Clearly these definitions combine ingredients with a strong normative dimensions

relating to both firms and residents, such as institutions or income, and possible
trade offs, such as productivity and employment. Ideally we will strive to balance
the most important aspects of an attractive environment by combining the goals of
commercial success with personal well-being.

One important difference compared to the Meyer-Stamer definition is that our

working definition refers to a point in time and not to changes over time. Likewise,
all the indicators included in the index refer to the situation in one point in time and
not to changes over time.

1.2. What regional level: Functional or administrative regions?

The RCI index focuses on NUTS 2 regions in the European Union. The literature
raises two issues related to the selection of the appropriate regional level. First,
competitiveness should be calculated for a functional region. The second is that the
region should have an important political and administrative role. In most countries,

5
 however, functional regions are not administrative and vice-versa. Thus in practice
these two recommendations can rarely be combined.

The index makes two modifications to the use of the NUTS 2 regions. The first
follows the political logic. We combined two NUTS 2 regions Inner London and
Outer London. The combined region matches with the territory under the control of
the Greater London Authority. The second follows the functional logic. We
combined Brussels with the two surrounding regions (Vlaams Brabant and Brabant
wallon), which means that this region coincides with the Brussels metro region as
defined by the OECD (2009)1.

The remaining NUTS 2 regions are not necessarily functional or politically relevant.
We argue, however, that this does not undermine the credibility of a competitiveness
index based on NUTS 2 regions as it captures regional variations in the
attractiveness for firms and residents.

1.3. Factors of competitiveness and the reach of public policies

Theories about economic growth or competitiveness consider issues or assets which

fall outside the scope of public policies, or which can hardly be affected by public
intervention. For example, the land area of a country, the presence of natural
resources such as oil or gas, a port, a large city or (meteorological) climate.
Although in a global perspective these aspects may explain GDP per head or GDP
growth, this paper does not include such indicators in the regional competitiveness
index. As the economies in the EU are all moderately to highly developed, this
paper follows the recommendation of Combes (2008) to put aside natural
differences between regions such as raw materials, geographical specificities or
climate, i.e. what Cronon (1991) calls first nature. The index targets Cronon's
second nature, which is the result of human actions.

1.4. An assumed lower efficiency of public expenditure?

Bristow (2010) argues that regional competitiveness theories hide a neo-liberal

economic and political ideology. This paper makes no assumptions about the
efficiency of public spending, but focuses on the outcome of private and public
spending. The question is not how much is spent on education by the government
(an indicator which is not included in the index). The question is whether the people
have good skills and degrees (indicators which have been included).

The mix of public services needed in a region, and the way these are deployed,
change over time. To ensure that a region provides the right type, amount and
quality of services in the most efficient manner requires constant monitoring, change

1
OECD Metropolitan database: OECD methodology for the definition of metropolitan regions
http://www.oecd.org/dataoecd/41/37/45511614.pdf

6
 and often innovation. A region which fails to adapt to new demands for services or
to new technologies for services’ delivery becomes less competitive. E-government
services, one-stop-shop for start-ups or foreign investors are but a few examples of
changes in technology and services that regions must muster to remain attractive.

In this respect we have followed the World Bank Doing Business index, adopting
some of its indicators to describe the quality of what is provided by public services.

1.5. A differentiated approach

This index does not apply a one-size-fits-all approach to competitiveness. On the

contrary, it assumes that the focus in less developed economies should be different
than in intermediate or highly developed economies. Whereas less developed
economies need to ensure that their basic transport infrastructure, basic education
and health care services are of a good quality, highly developed regions should be
more concerned about their business sophistication and their use of technology and
innovation. As detailed later in this paper (Section 5.2), a differential weighting
scheme is adopted to avoid penalising less-developed regions for lacking aspects
which only influence competitiveness at a higher level of development.

2. CONCEPTUAL FRAMEWORK

Several well-established studies measure competitiveness at the country level. The

Global Competitiveness Index (GCI), yearly published by the World Economic
Forum (Schwab, 2009; Schwab and Porter, 2007), and the World Competitiveness
Yearbook by the Institute for Management Development (IMD, 2008) are the most
influential and best known indices.

Attempts to extend the analysis at the regional level have been done in more recent
years. The European Competitiveness Index (ECI), computed by the University of
Wales Institute, focuses on European regions at the NUTS 1 level (Huggins and
Davies, 2006) in the European Union, which did not include Romania and Bulgaria
at the time. A simpler but more detailed geographical description of competitiveness
is presented in the ’Atlas of Regional Competitiveness’ (Eurochambers, 2007)
reflecting the international recognition of the importance of the regional NUTS 2
level, but the approach falls short of aggregating the variables to a single composite
index.

Some European countries have dedicated efforts to construct national measures of

regional competitiveness, such as in the UK (Huggins and Izushi, 2008), Croatia
(UNDP, 2008), Lithuania (Snieška and Bruneckiené 2009) and Finland (Huovari et
al., 2001).

The RCI offers the first comprehensive picture on the situation of all NUTS 2
regions of the EU, allowing for a cross-regional comparison across EU Member
States.

7
Our index to a large extent adopts and builds upon the methodology developed by
the WEF for the Global Competitiveness Index - GCI (Schwab, 2009). GCI is
indeed the most internationally recognised index covering a fairly comprehensive
set of aspects relevant to competitiveness. There are, however, some key differences
that distinguish the RCI from GCI due to the regional and European dimension of
the RCI.

2.1. Three Groups

Eleven pillars (dimensions) describing different aspects of competitiveness are

included in the RCI. They are classified into three major groups: (I) Basic, (II)
Efficiency and (III) Innovation.

The basic group includes the following five pillars (1) Institutions, (2)
Macroeconomic Stability, (3) Infrastructures, (4) Health and (5) Quality of Primary
and Secondary Education. These five pillars are taken to represent the key basic
drivers of all types of economies.

As a regional economy develops, other factors related to a more skilled labour force
and a more efficient labour market enter into play for its advancement in
competitiveness and are part of the Efficiency group. This includes three pillars (6)
Higher Education, Training and Lifelong Learning, (7) Labour Market Efficiency
and (8) Market Size.

At the most advanced stage of development of a regional economy, drivers of

improvement are part of the Innovation group which consists of three pillars: (9)
Technological Readiness, (10) Business Sophistication and (11) Innovation.

8
 Map 1: Stages of development

The three groups are purportedly nested: a good performer in the Innovation group
is expected to be a good performer also in the Efficiency and the Basic groups as
they are instrumental to increasing levels of competitiveness. As regions move along
the path of development, their socio-economic conditions change and different
determinants become more important for the regional level of competitiveness. As a
result, the best way to improve competitiveness of more developed regions is not the
same as for less developed regions. To take this into account and following the
WEF-GCI approach (Schwab, 2009), EU regions are divided into ’medium’,
’intermediate’ and ’high’ stage of development. This is done on the basis of regional
GDP per head, 2007 in PPP (purchasing power parity). EU regions are classified
into the three stages of development, according to the thresholds listed in Table 2-1.

9
The corresponding map is shown in Map 1. The threshold which defines the
medium level is a GDP per head below 75% of the EU average, which is also the
threshold used by the European Commission for Cohesion Policy to identify regions
eligible for the ’Convergence’ objective. The second threshold is the EU average
GDP per head. This threshold has no link to Cohesion Policy and its influence on
final scores and ranks has been tested by the robustness analysis of RCI described in
Section 5.3.

Table 2-1: Limit values for the definition of development stages

A sub-index is calculated for each of the three pillar groups (Basic, Efficiency and
Innovation, see Map 2) as the simple average of the pillar scores belonging to each
of the pillar groups. Each pillar has a score based on the average of the standardised
(z-scores) indicator values, including where necessary a correction for skewness.

10
 Map 2: Regional Competitiveness Index - Grouped pillar scores

The set of weights assigned to the pillar groups depends on the development stage of
the region. Values of the weights for the different stages of development are based
on the GCI approach, with some modifications to accommodate the specific
economic performance of EU regions.

As detailed in Section 5.2, for all three development stages, the same weight (50%)
is assigned to the efficiency pillar group (50%). The importance of the basic pillar
group decreases as GDP per head goes up (40% for medium, 30% for intermediate
and 20% for high). The innovation pillar group progressively gains in importance as
development goes up (10% for medium, 20% for intermediate and 30% for high).
(See Table 5-1). This is a similar approach to that of WEF for the GCI (Schwab and
Porter, 2007; Schwab, 2009).

This method has the slight shortcoming that if a region has reached the high stage of
development, it will lose less from a poor score in the basic pillar than if the region
were classified as medium or low stage. Most regions with a high GDP per head,
however, score well on the basic pillars, supporting our assumption of nested
groups.

11
 Map 3: Regional Competitiveness index, 2010

The indicators used in the RCI have a defined and transparent normative dimension
and display an unambiguous orientation with respect to competitiveness: one
extreme is good, the other is bad, as is the case for example for variables such as
long term unemployment, income or life expectancy. They are all quantitative and
mostly come from Eurostat, the European Union statistical office. Whenever
information was not available from Eurostat, other data sources were used such as

12
the World Bank, Eurobarometer, and the OECD. Most recent data have been used
for all indicators, with a temporal range mostly spanning between 2007 and 2009.
The final aggregated index is shown in Map 3.

2.2. Basic pillars

The first three basic pillars are all calculated at the national levels. The
scores for these pillars are shown in Map 4. The remaining two pillars are
calculated at the regional level, scores are shown in Map 5.

2.2.1. Institutions

The importance of institutions for economic growth has gained increasing

attention in the last decades as a result of the search of additional factors
influencing economic development beyond traditional growth theories
(Rodriguez-Pose, 2010; Storper, 2005). Effective institutions improve the
provision of public goods, address market failures, improve efficiency
(Streeck, 1991), reduce transaction costs (North, 1990), foster transparency
(Storper, 2005), promote entrepreneurship and facilitate the functioning of
labour markets. Putnam (2000) points out that solid institutions are the key
enablers of innovation, mutual learning and productivity growth and puts
them as the core factors driving economic growth. The role of institutions in
shaping the economic fate of a country is also considered crucial by
Acemoglu (Acemoglu et al., 2001).

Indicators included in the pillar are listed in Table 7-1. The goal is
measuring the quality and efficiency of institutions, the level of perceived
corruption, the general regulatory framework, the institutional climate for
enterprises. Indicators describing these aspects at the regional level –
however desirable, are not available. Country level data are used instead.

13
 Map 4: Regional Competitiveness - Basic pillars part one

2.2.2. Macroeconomic stability

The pillar Macroeconomic stability measures the quality of the general

economic climate. Economic stability is essential for guaranteeing trust in
the markets both for consumers and producers of goods and services. Stable
macroeconomic conditions lead to higher rates of long term investments and
are essential ingredients for maintaining competitiveness. The set of
indicators describing this pillar is similar to the one included in the WEF
GCI, with the exception of the ‘interest rate spread’ which is not available
for EU countries. On the basis of experts’ opinion we have replaced this
indicator with the ‘government long term bond yields’ with the intention of
measuring the trust in a country’s market. Indicators included in the pillar
are listed in Table 7-2.

2.2.3. Infrastructure

Modern and effective infrastructures contribute to both economic efficiency

and territorial equity as it allows for the maximisation of the local economic
potential and the optimal exploitation of resources (Crescenzi and
Rodriguez-Pose, 2008). As pointed out by Schwab and Porter (2007),

14
infrastructures are an important factor in determining the location of
economic activity and the kinds of activities and sectors that can develop in
an economy. High-quality infrastructure guarantees easy access to other
regions and countries, contributes to better integration of peripheral and
lagging regions, and facilitates the transport for goods, people and services.
This has a strong impact on competitiveness as it increases the efficiency of
regional economies. Indicators included in the pillar are listed in Table 7-3.

2.2.4. Health

The Health pillar describes the human capital in terms of health condition
and well-being, with a special focus on the workforce. The 2006 Community
Strategic Guidelines on Cohesion (Official Journal of the European Union,
2006) underline that a healthy workforce is a key factor in increasing labour
market participation and productivity and enhancing competitiveness at
national and regional level. Good health conditions of the population lead to
longer working life, higher productivity and lower healthcare and social
costs.

Table 7-4 provides the list of selected indicators. Indicators infant mortality,
cancer death and heart disease death rates are meant to describe the
outcomes of the health system. Road fatalities and Suicide rates refer to
aspects of the population well-being from a more social point of view. The
intention is to measure the health system effectiveness with respect to the
population health and well-being rather than to the level of inputs. Many
aspects, not strictly dependent directly upon the health system, may affect
the indicators included in the pillar such as food and/or smoking habits,
population density, quality and safety of roads, etc. The pillar aims to
describe a wider concept: the competitiveness of the workforce in terms of
healthy living conditions.

15
 Map 5: Regional Competitiveness - Basic pillars part two

2.2.5. Quality of primary and secondary education

High levels of basic skills and competencies increase the ability of

individuals to subsequently perform well in their work and/or to continue to
tertiary education. A number of studies have found a significant positive
association between quantitative measures of schooling and economic
growth (see Sianesi and Reenen, 2003 or Krueger and Lindahl, 2001,
Hanushek, E. A., and Wößmann, 2007) for an overview). In a recent work
the Lisbon Council, a think tank, advocates the need to look at human capital
at the regional scale (Ederer et al., 2010).

A recent OECD study (OECD, 2010) relates cognitive skills measured by

PISA, the OECD Programme for International Student Assessment, to
economic growth and finds that relatively small improvements in the skills
of a nation’s labour force can have substantial gains in terms of current GDP
and future well-being. To capture this dimension we focus on compulsory
education outcomes, measured as the performance of students (age 15) in the
PISA tests, as an indication of effectiveness and quality of the educational

16
 system across EU Member States. Low scores can be taken as an indication
for inadequate preparation for the challenges of the knowledge society and a
lower potential in terms of human capital. The selected indicators are listed
in Table 7-5.

2.3. Efficiency pillars

The three efficiency pillars are calculated at the regional level and the scores
are shown in Map 6.

2.3.1. Higher education and training and lifelong learning

The contribution of education to productivity and economic growth has been

widely researched in the last decades. Knowledge-driven economies based
on innovation require well-educated human capital, capable to adapt and
education systems which successfully transmit key skills and competencies.
A clear picture of the economic benefits of education can be found in the
most current release of the OECD publication Education at a Glance 2010
(OECD, 2010). Research literature of the past two decades has shown that
the quality of human resources is not only directly involved in knowledge
generation but plays a crucial role in adopting technologies developed
somewhere else (Azariadis and Drazen, 1990).

Variables traditionally used for measuring educational quality are the level
of educational attainment of the population, the number of years of schooling
of the labour force or the literacy rates (Psacharopoulous, 1984).
Participation in education throughout one’s life is also deemed essential for
the continuous upgrade of the skills and competencies of workers in order to
assist them in handling the challenges of continuously evolving technologies.
This pillar attempts to capture all these aspects with relevant indicators at the
regional level (see Table 7-6 for the list of indicators).

2.3.2. Labour market efficiency

Efficient and flexible labour markets contribute to efficient allocation of

resources (Schwab and Porter, 2007) and are an important component of
regional competitiveness. Employment and unemployment rates give
information as to the level of activity of the regional economy while long
term unemployment indicates the presence of structural problems. The
employment gender gap is also an important aspect as economic growth is
dependent upon the possibilities of men and women to have a balance
between their professional career and family lives (Eurostat, 2008). Smith
and Bettio (2008) point out that the significant increase in female labour
market participation in the EU in recent years has had an important role in
improving overall EU employment performance in relation to the Lisbon
targets. However, high employment rates do not necessarily correspond to
high labour productivity which is one of the main factors for a region’s

17
competitiveness. High labour productivity attracts economic activity and
increases competitiveness. All these aspects have been captured by the
indicators selected for this pillar (see Table 7-7).

Map 6: Regional Competitiveness - Efficiency Pillars

2.3.3. Market size

The pillar describes the level of regional economic welfare and the size of
the market available to firms. Larger markets allow firms to develop and
benefit from economies of scale and encourage entrepreneurship and
innovation.

All the regions in the EU are part of its single market which upholds freedom
of movement to goods, capital and people (albeit with limited temporary
restrictions on the mobility of residents of the countries who joined the
Union in 2004 and 2007). As a result, one could argue that market size is the
same for all EU regions.

18
 The access to this single market, however, is likely to differ in terms of costs
in time and money. For example, the access to the rest of the EU is not the
same in Norrbotten in Northern Sweden as it is in Bavaria or Slovenia. This
paper takes into account the differential access costs to the single market
through two measures of potential access to GDP and population. Both
measures take into account the distances at which population and GDP are
located from the region. Values are inverse distance weighted, meaning the
further the distance the lower the weight (Map 7).

Map 7: Potential market size, expressed in GDP (left) and population (right)

Potential market size is estimated by summing up volume of GDP within a

100 km radius using a linear, inverse distance weighting based on 10 km2
grid cells. The use of grid cells ensures that the distribution of economic
activities within regions is taken into account. For example, if economic
activity is concentrated close to the border of a large region, the potential
market size in the neighbouring region will be bigger than if that activity was
located far from the border. The radius of 100 km ensures that the potential
market size is not limited to the administrative borders. This has particularly
significant impact in regions with a small surface area such as Bremen or
Brussels. Thus, we take into account the fact that the EU common market
facilitates the access to neighbouring regions, regardless of whether they are

19
 situated within the same or another country. The included indicators are
shown in Table 7-8.

This pillar captures the regional market, proxied by GDP, as well as the
potential market, unconstrained to the administrative borders of a region and
taking into account the distance to the rest of the market.

2.4. Innovation pillars

The three innovation pillars are (mostly) calculated at the regional level. The
scores are shown in Map 8.

2.4.1. Technological readiness

This pillar measures the level at which households and enterprises use
technology. Information and communication technologies (ICT) have
profoundly changed the organisational structure of firms, facilitating the
adoption of new and more efficient work practices and lifestyles, improving
productivity and speeding-up commercial processes. Hence, the use of ICT
has become an essential element of competitiveness. The way employees
within firms are able to use new technologies depends upon the way in
which technologies have penetrated their everyday life. The converse is true
as well. We capture these interlinked aspects by concentrating on the use of
ICT by households as a proxy for the level of penetration of technologies in
the population and by looking at the levels at which ICT has been
incorporated in enterprises. Table 7-9 lists the indicators included in the
pillar which is divided into two components (sub-pillars): the use of
technology by households - private use - and by enterprises - business use.
Due to the data characteristics, the sub-pillar related to households is
measured at the regional level, while the enterprise sub-pillar is measured at
the country level, due to missing data at the regional level. The overall pillar
score is computed as a simple average of the two sub-scores, assigning the
same country enterprise-score to all regions within the country.

20
Map 8: Regional Competitiveness Index - Innovation pillars

2.4.2. Business sophistication

The level of business sophistication gives a sign as to the level of its

productivity and its potential for responding to competitive pressures.
Specialisation in sectors with high value added contributes positively to
regional competitiveness. This pillar includes indicators related to
employment and Gross Value Added - GVA - in sectors such as Information
and Communication (NACE sector J) and Financial and Insurance activities
(NACE sector K).

Foreign Direct Investments (FDI) can be very beneficial for the economic
performance of countries and regions as they contribute to enhancing the
capital and technological endowment of the host country or region (Barba
Navaretti and Venables, 2004). Geographical proximity and
interconnectedness among firms and suppliers lead to different types of
spillover, productivity and efficiency, but most importantly knowledge
spillover due to the higher concentration of specialised human capital.

21
 According to Porter (1998), regional clusters could lead to higher
competitiveness for firms thank to increased productivity, higher innovation
rate and availability of specialised resources. This point of view, however,
has been much debated, especially in relation to competitiveness.

This index takes a rather cautious approach to cluster theory. It includes only
one indicator that measures the presence of clusters in a region. We argue
that, on average, the presence of a cluster strengthens the competitiveness of
a regional economy, especially through external economies of scale and
knowledge spillovers.

Nevertheless, not all clusters are strong and some may be specialised in a
declining sector. Therefore, the incorporation of one such indicator should
not be misunderstood as supporting arguments such as (1) the only way to
competitiveness is through clusters, (2) existing clusters should be supported
by public funds or (3) public policies should promote the creation of clusters.
On the contrary, the approach taken here is that of a dynamic comparative
advantage approach (Martin 2011). This approach is dynamic because the
sources of comparative advantages can change over time and depend on the
level of development of the region. It includes clusters as one potential
source of comparative advantage, but also includes many others.

We selected an indicator on the presence of regional clusters derived from

the European Cluster Observatory2 database. This indicator is designed to
capture the extent to which a region is specialised in a given sector(s), with
an emphasis on knowledge and technology-intensive sectors. Computational
details of this indicator can be found in [reference deleted to maintain the
integrity of the review process]. The set of selected indicators is shown in

2
http://www.clusterobservatory.eu

22
 Table 7-10.

2.4.3. Innovation

As Schwab and Porter (2007) point out, innovation is especially relevant for
developed economies. They need to be at the forefront of new technologies,
produce cutting-edge products and processes in order to maintain their
competitive advantage. This requires an environment which is conducive to
creating relationships between firms and the science infrastructure,
producers and users of innovation and between firms and the wider
institutional environment (Cantwell, 2006).

The level of innovative capability of a region influences directly the ways in

which technology is diffused within the region. Research has shown that
knowledge production is highly geographically concentrated. Feldman
(1993) suggests that firms producing innovations tend to locate in areas with
resources and that resources accumulate due to a region’s success with
innovations. The pillar has been designed to capture both the regional
potential to innovate as well its actual performance in innovative activities.

Indicators describing these aspects of innovation are, for example,

‘Employment in Science and Technology’, ‘Knowledge workers’, ‘Core
Creativity class’ and ‘R&D Expenditures’. Indicators related to patents
production describe instead regional innovative outcomes (Table 7-11).

3. RESULTS AND DISCUSSION

The RCI is closely correlated with GDP per head (2007), an indicator which is not
directly included in the index (see Figure 1). The strong correlation confirms that the
index, even if defined on a much broader set of measures, captures the main level of
development. Regions in different stages of development are marked differently in Figure
1. Also in each of the three groups, higher values of RCI are associated with higher
values of GDP per head. The RCI of intermediate regions fall clearly between those of
the medium and high developed regions and there is considerably overlap, i.e. regions
with the same score can be found in all three groups. The overlap between the RCI in the
medium and the high stage is far more limited. Only a few of the highest scoring medium
developed regions score better than the worst performing highly developed region.

23
 Figure 1: Relation of RCI with GDP per head (reference year for GDP: 2007).
Different markers correspond to different stages of development of the regions
(circle=’medium’; square=’ intermediate’; cross=’ high’).

The maps of the three sub-indices (Map 2) show least heterogeneity in the basic pillar
and most in the innovation pillar. The reason for the homogeneity of the basic pillar is
twofold: first, three out of five pillars in the basic group are measured at the country
level; second, as the pillars describe basic aspects, a certain level of homogeneity across
EU is expected. The diversity in the innovation pillar group suggests substantial
difference in the sophistication of regional economies across and within countries.

In Table 3-1 the ten most competitive EU regions are listed. They are the three Dutch
provinces that cover the Randstad (Utrecht, Noord- and Zuid-Holland), Hovedstaden
which includes Copenhagen, London, Stockholm, Etel-Suomi which includes Helsinki,
Ile de France which includes Paris, Noord-Brabant and the UK region Berkshire, Bucks
and Oxfordshire.

24
 Table 3-1: Best ten regions as classified by RCI

The capital region has the highest RCI than surrounding regions in their country for all
but three countries (Germany, Italy and the Netherlands) (see Figure 2). In the
Netherlands, the capital region has the second highest RCI and in Italy it has the third
highest. Only Berlin is outperformed by many other German regions, but then Berlin has
only recently become the capital of Germany again.

Figure 2: RCI for each country, capital region and other regions, 2010
1.5

Regional Competitiveness Index, 2010

1.2

0.9

0.6
Regional Competitiveness Index, EU = 0

0.3

0.0

-0.3

-0.6

-0.9
▲ Capital region
-1.2
• Non-capital region
▬ Country average
-1.5

-1.8
1
NL 2
DK FI3 4
LU 5 UK
SE 6 7
BE 8
DE IE9 10
AT 11
FR 12
SI 13
EE 14
ES 15
CZ 16 CY
IT 17 18 PL
PT 19 SK
20 LT
21 HU
22 23 EL
LV 24 MT
25 26 RO
BG 27

25
In some countries the gap between the capital region and other regions is wide. The RCI
of the capital regions at least half a z-score higher (i.e. half a standard deviation or more)
than the second best region in nine countries. The gap is bigger than 0.7 in Romania
(0.8), the Czech Republic (0.78) and Slovakia (0.73). Also in France, this gap is large
(0.65) and this issue is known as 'Paris et le desert français' (Paris and the French
desert). A big gap between the capital region and other regions could lead to high
pressure on the capital region and an underutilisation of resources in other regions.

In many countries, regions with a large city seem to perform better than other regions.
For example, regions including Barcelona, Lyon, Milan, Munich, Hamburg, Utrecht,
Rotterdam all score (much) better than the other regions in the country. This is all the
more striking as, unlike the WEF GCI, the RCI does not include an indicator on the
presence of a large city.

The gap between the capital region and the second best region in the UK, Poland and
Belgium is relatively small. However, a small gap between the capital region and other
regions does not mean that the entire country performs well. For example, Belgium has
highly heterogeneous RCI scores (see Figure 3).

Figure 3 shows the regional heterogeneity for each EU country (except for six countries
where the NUTS 2 level coincides with the country level). The within country variability
is computed by the absolute distance from the median. This kind of variability measure is
less sensitive to the presence of outliers as it is based on the median, which is a robust
estimator of the central location of a distribution. The variability index reveals substantial
differences in competitiveness within some countries. For example Belgium, Sweden,
Spain, France, Portugal and Slovakia all have high heterogeneity with variation well
above the EU average. This underlines the fact that competitiveness has a strong regional
dimension, which national level analysis does not capture.

26
 Slovakia
Portugal
France
Spain
Sweden
Belgium
Italy
Finland
Ireland
United Kingdom
Netherlands
Greece
Hungary
Czech Republic
Romania EU average = 7.90
Germany
Bulgaria
Poland
Austria
Denmark
Slovenia

4 5 6 7 8 9 10 11 12 13

Figure 3: Within country variability of the RCI

4. CONCLUSION

The RCI is the first measure providing a European perspective on the competitiveness of
all NUTS 2 regions in the EU. It refers to the most recent data available, most of the
indicators spanning the period 2007-2009. Through its eleven pillars, it assesses not only
aggregate competitiveness, but also the strength and weaknesses of a region on the main
dimensions relevant for competitiveness.

In many countries the capital region is far more competitive than the other regions in the
same country and many countries have highly heterogeneous RCI scores. The gaps and
variation in regional competitiveness should give rise to a debate to what extent these
gaps are harmful for their national competitiveness and to what extent the internal
variation can be remediated. The internal variation and heterogeneity also underlines the
inevitable limits of a national level analysis. In Italy, for example, only two regions have
a score similar to the national one. Most Italian regions score either much better or much
worse.

The so-called blue banana (Brunet 1989), which linked the region of greater London all
the way to Lombardy passing through the Benelux countries and Bavaria does not appear
on the RCI map (Map 3). On the contrary, the RCI shows a more polycentric pattern

27
with strong capital and metropolitan regions in many parts of Europe. Some capital
regions are surrounded by similarly competitive regions, but in many countries the
regions neighbouring the capital are far less competitive. A key question for the future is
whether good performance of these capital and metropolitan region will help to lift
neighbouring regions through spillovers or whether the gap between them and the other
regions will grow.

Much of the debate around the use of composite indicators for measuring regional
competitiveness has concentrated on the implications of creating league tables and the
danger of stigmatizing lagging regions while not taking into account the broader picture
(for example, Bristow (2005)). The RCI takes a wider approach to competitiveness
looking at a number of relevant dimensions not strictly related to firm productivity but
also to societal well-being and long term potential. In doing so, it departs from traditional
discourses which retain that regional economic performance derives only from firms’
competitiveness and reflects the current debate on the fact that prosperity should not only
be measured by GDP but should include other aspects such as health and human capital
development, in agreement with the Stilglitz, Sen Fitoussi report (Stiglitz et al., 2009)
and the European Union Beyond GDP process (EC 2009).

The use of different weighting scheme dependent upon the stage of development of
regions takes into account the intrinsic heterogeneity of regions across the EU and offers
a more ’fair’ basis for comparison of results. It also offers a guide for policy making. For
example, the competitiveness of medium developed regions is likely to benefit more from
improving institutions and basic education than from trying to increase the number of
patent applications or R&D expenditure. In addition, the transparent and straightforward
weighting of the three main groups of pillars according to the level of development
allows a region to see what the impact would be of moving to the next stage of
development.

The RCI may help European, national and regional policy makers to assess which of the
pillars are the strongest assets of a region and which are in need of improvement. It
allows a region to compare itself to all other EU regions, to find regions with a similar
level of competitiveness and to identify regions it could learn from. Regions on the cusp
of moving from medium to intermediate or from intermediate to high would do well by
analysing and improving their innovative capacity. The three innovation pillars provide a
clear indication on which fronts their performance may be lagging behind.

Regional development strategies could make use of RCI to inform regional development
policy priorities. The future of the RCI project is to further refine the index which will be
updated every two years starting form the 2010 release.

5. METHODOLOGICAL ANNEX

The Regional Competitiveness Index – RCI - is a composite indicator. As all combined

measures, it presents pros and cons. It is a metric which quantifies with a single number
what is not directly measurable otherwise, the level of competitiveness of a region, but

28
the underlying phenomenon remains intrinsically multidimensional. It is a combination of
a large set of indicators which are observed, statistically treated, weighted and finally
aggregated.

The RCI is therefore the result of a long list of subjective choices. The heated debate
within the scientific community about the pitfalls of summarizing into a single index a
multi-dimensional concept – see for example the Stiglitz’s Commission Report (Stiglitz
et al, 2009) – is not addressed here. The goal of the research is to provide a measure of
the regional level of competitiveness by following two interconnected principles:
simplicity and transparency. Simplicity is driven by the general necessity of the
composite to be easily understood by non-technical audience - policy makers,
stakeholders, citizens. But simplicity did not prevail on technical soundness: appropriate
statistical analyses drove the construction of the RCI.

Constructing a composite is a multidisciplinary exercise which involves expertise both in

the concept to be measured and in the statistical techniques to assess the building
methodology. The starting step in a composite setting-up is the definition of the concept
and of the index framework (OECD, 2008). This has been extensively discussed in the
main body of the paper. In the following Sections the focus is on most relevant steps
addressed during the RCI construction. All the details are provided in Annoni and
Kozovska (2010).

5.1. Statistical assessment

Statistical assessment of the RCI is carried out with a twofold intention: 1. to assess the
quality of each indicator selected to populate the RCI framework. This includes the
treatment of missing values and outliers (univariate analysis); 2. to verify whether the set
of indicators within each dimension is jointly consistent (multivariate analysis).

Univariate analysis is carried out separately for each indicator. Indicators eventually
included in the framework have been chosen to have a missing data limit of about 10-
15%. In some cases, missing data have been imputed using either NUTS 1 values, when
available, or a specific imputation method based on simple statistical estimates which use
available data.

To adjust for outliers we adopted a Box-Cox transformation. Box-Cox transformations

are a set of continuous, monotonously increasing, power transformations which include
the logarithmic one as a particular case (Zani, 2000). They depend on a power parameter
λ and generate a contraction of high values for λ < 1 or a stretching of high values for λ
>1. To correct for different range and measurement units, weighted z-scores are adopted
with region population size as weights.

Internal data consistency within each pillar is verified by Principal Component Analysis
– PCA, a multivariate explorative technique (Morrison, 2005). Among multivariate
methods, PCA is particularly suitable for statistically summarizing the data in a
parsimonious way. It is in fact a dimensionality reduction technique which is designed to
capture all relevant information into a small number of transformed dimensions.

29
The usefulness of PCA in composite developing is easy to understand: each dimension in
a composite is designed to describe a particular aspect of the latent phenomenon to be
measured (the level of competitiveness in this case). As these aspects are not directly
observable, they are measured by a set of observable indicators which, by definition, are
related to the aspect they are supposed to describe and, consequently, to each other. In an
ideal situation, each dimension should show a unique most relevant PCA component
accounting for a large amount of variability associated to the full set of indicators. Plus,
all the indicators should contribute roughly to the same extent and direction to the most
relevant component.

PCA is applied to check for internal consistency of each RCI dimension. This allowed for
detecting non-influencing indicators or indicators describing something else or something
more than they were supposed to. Multivariate analysis helped us in refining the RCI
framework. In the revised framework almost all the pillars show a clear unique
underlying dimension with a well-balanced contribution of each indicator within each
pillar. As Hagerty and Land (2007) showed and Michalos (2011) recently reasserted, '…
the agreements and disagreements about weights assigned to objective indicators will be
largely overwhelmed by the correlations among indicators and much rarer than expected
except in some relatively extraordinary circumstances' (from Michalos, 2011, p. 127).
Assessing the level of correlation among indicators within each dimension has a special
meaning as the higher the correlation the lower the effect of different weighting scheme
on the final index.

5.2. Aggregation and weighting scheme

The construction of the RCI consists of a stepwise aggregation process.

The first step consists in computing the scores for each RCI dimension as simple
arithmetic average of the transformed and normalised indicators which passed the ‘PCA
test’. Note that the fact that PCA analysis shows a distinct, single dimension described
almost equally by all the indicators supports the simple choice of equal weighting within
each dimension. By construction PCA components are indeed linear combinations of
standardised variables with weights proportional to their correlation with PCA
components. In case of strong correlation across indicators, PCA scores are a proxy of
equal weighting scores. The higher the correlation the higher the closeness of the two
approaches. It is important to remark that RCI is not based on PCA weights. The
derivation of weights through principal component or other latent variable models is
neither straightforward nor transparent. Pure statistical approaches may lead to
inappropriate normative results as for example the assignment of negative weights to
some dimensions (Decancq and Lugo, 2009).

High correlation within each pillar also reduces the possibility of compensability across
indicators, where compensability is understood as the undesirable offsetting of low scores
in some indicators with high scores in others.

30
The second step consists in computing the scores for the three groups of dimensions -
basic, efficiency and innovation - as arithmetic means of the dimension scores. For each
region i the sub-scores associated to the dimension groups are:

1 5
RCI basic (i ) = ∑ score(i, j )
5 j =1
1 8
RCIefficiency (i ) = ∑ score(i, j )
3 j =6
1 11
RCIinnovation (i ) = ∑ score(i, j )
3 j =9

where score(i,j) is the score assigned to region i for dimension j, j = 1, …11 (dimensions
are numbered in the same order as presented in the main body of the paper3).The simple
choice of arithmetic mean when aggregating dimensions in the same group is driven by
the need of keeping the index simple. It gives room for possible compensability effects
between dimensions within each group. The extent of these effects has been quantified by
means of an OWA analysis, as detailed in Section 5.3. The analysis shows that the RCI
score is affected by compensability within pillar groups for only a small percentage of
regions (6%).

In the last step the RCI score is computed as weighted average of the three sub-scores:

RCI(i ) = wbasic RCI basic (i ) + wefficiency RCIefficiency (i ) + winnovation RCIinnovation (i )

wbasic + wefficiency + winnovation = 1

As discussed in the main body of the paper, the set of weights {wbasic , wefficiency , winnovation } is
chosen according to the development stage of the region allowing for an increasing
relevance of innovative dimensions as the capability of the region increases (in terms of
GDP per head). This basically means that a low score on the innovative sub-score counts
more for high developed regions than for low developed ones (Table 5-1).

Figure 4 displays a sketch of the aggregating and weighting scheme of the RCI.

3
Specifically, j=1 indicates the dimension Institutions, j=2 indicates the dimension Macroeconomic
stability, …, j=11 indicates the dimension Innovation.

31
 Table 5-1: Weighting scheme of the RCI dimension groups

Equal weighting Equal weighting

across Basic across Efficiency
dimensions Æ dimensions Æ
Basic sub-score Efficiency sub-core
(Institutions - Macroeconomic (Higher education – Labor
stability – Infrastructure – wbasic wefficiency market efficiency – Market
size)
Health – Primary&Secondary
education)

Regional
Competitiveness
Index - RCI

winnovation

Equal weighting across

Innovation dimensions Æ
Innovation sub-score
(Technological readiness – Business
sophistication – Innovation)

Figure 4: RCI structure and weighting scheme

5.3. Robustness analysis

Various choices enter the setting-up of a composite indicator: type of framework,
indicator selection, weighting scheme, aggregation, and many others. The aim of the
robustness analysis is to assess to what extent the choices (or some of them) might affect
the score/ranking which results from the composite indicator (Saisana et al., 2005). The
robustness analysis of an index is therefore an essential ingredient for validating its
message by anticipating criticism.

The robustness assessment of the RCI follows these two major steps (refer to Annoni and
Kozovska, 2010 for the complete analysis):

ƒ uncertainty analysis to assess the impact of varying the threshold for the
definition of the development stage of the regions as well as the set of weights

32
 assigned to the sub-indices (Saisana et al., 2005 , OECD, 2008; Saltelli et al.,
2008);
ƒ evaluation of compensability effects within each group of dimensions.

Uncertainty analysis

The uncertainty analysis of the RCI includes the second threshold for the definition of the
development stage as one of the uncertain factors. It is assumed to uniformly varying in
the interval [95,105], reference value 100 (GDP percentage with respect to EU average).
Unlike the first threshold, which is defined by the EU Convergence objective, this
threshold is not linked to any normative and is tested by the analysis.

Other uncertain factors included in the analysis are the set of weights
{wbasic , wefficiency , winnovation } differentially assigned to the regions on the basis of their
development stage. The choice of the range of uncertainty of the weights is driven by two
requirements: ensuring a wide enough range of uncertainty, while not interfering with the
rationale of the composite weighting scheme, needed to account for the intrinsic
differences among regions. Balancing these contrasting needs, a set of uncertain intervals
are defined as shown in Table 5-2. Values are sampled from Uniform distributions4.

Table 5-2: Uniform uncertainty intervals for weights

(M=medium stage; I=intermediate stage; H=high stage;
1=basic; 2=efficiency; 3=innovation)

4
The Monte Carlo experiment has been adapted to take into account the constraint on the sum of weights.

33
The Monte Carlo experiment consists of 1200 runs, each corresponding to a different
random combination of uncertain factors (threshold and weights). For each run the
difference between the reference rank, with all the values set at the reference value, and
the modified rank is computed for all the regions. The distribution of the shift in ranks is
shown in Figure 5. In more than 80% of the runs the maximum shift in rank is of 5
positions (out of about 270). Overall, the RCI proved to be robust with only a very small
fraction of regions with 'volatile' ranks.

Compensability effects

RCI has the mathematical form of stepwise linear aggregations. It intrinsically entails
compensability at all its computational levels: from the micro level of dimensions to the
macro level of dimension groups. The multidimensional analysis helped in reducing this
effect within each dimension, as discussed shortly above. Still compensability is expected
to be present when aggregating across dimensions within each dimension group.

RCI is thus affected by compensability, but to what extent? Various approaches may be
used to assess the level of compensability of composite indicators. The approach is here
to provide a summary analysis of compensability effects by means of the Ordered
Weighted Averaging - OWA, originally proposed by Yager (Yager, 1988 and 1996). The
OWA method consists of a family of operators which, for any given unit (country,
region, individual), map a set of k real values, indicators observed for that object, into a
single weighted index:
k k
f OWA ( x1 , x 2 ,..., x k ) = ∑ wi x( i ) wi ∈ [0,1] ∑w i =1
i =1 i =1

where x(i) is the i-th largest xi, that is {x (1) , x( 2 ) ,....., x( k ) } is the series of xi reordered in
descending order. Operators fOWA are not weighted averages since the set of weights
depends only on the i-th ordered position without considering the original values of
indicators. The interesting feature of OWA operators is that they embed many different
types of aggregations depending on the set of weights wi. A number of special cases can
be defined for the OWA operators. Among these, the following three have a special role:
1. ‘or’ operator; 2. ‘and’ operator; 3. average operator.

The set of weights in the ‘or’ operator is defined as {1, 0,..., 0} . This operator assigns to
unit i the highest scored value so that the fulfilment of at least one criterion is enough for
the unit to perform well. The ‘and’ operator stays at the opposite side and includes
{0, 0,...,1} as set of weights. It assigns unit i the lowest score implying no compensation
at all across indicators. A good performer according to the ‘and’ operator has to be good
in all the indicators. In this sense the ‘and’ operator is more demanding.

In most cases the operator lies between these two extremes, as the simple arithmetic
⎧1 1 1⎫
mean which is an OWA operator with weights ⎨ , ,..., ⎬ .
⎩k k k⎭

34
In RCI case two scenarios are computed within each dimension group: for each region
RCI_basic, RCI_efficiency and RCI_innovation are computed using ‘or’ and ‘and’
operators. Then the set of weights {wbasic , wefficiency , winnovation } , depending on the region
development stage, is then used for the final score computation (as in the reference case).
Figure 6 compares the reference RCI value to the scores obtained by the ‘or’ (upper line)
and the ‘and’ operators (lower line) for each region. As expected, the scores from ‘or’
operator are always higher than the reference score while the scores from the ‘and’
operator are always lower then the reference. The difference between the ‘or’ and the
‘and’ score gives an indication of the extent of compensability effects of each region.
Regions with very low ‘and’ scores are also those with very high ‘or’ scores. Their wide
range of variability, associated to the different OWA operators, indicates high levels of
heterogeneity of scores across each dimension group, so that a change in the weighting
scheme highly affects their final score. The analysis shows that about 15 regions, which
represent about 6% of all EU regions, have high range of variation (these regions are
highlighted in Figure 6).

Figure 6 also shows that low performing regions (at the right hand side of the picture) are
more affected by compensability than the others, since the distance between the average
trend of the ‘or’ and ‘and’ lines tends to increase going from left to right. This means that
good performers are more likely to score uniformly across dimensions than bad
performers.

Taking into account the two OWA operators lie at the extreme ends of the aggregation
decision-making process, compensability can be considered as influencing in the RCI
case only moderately.

35
Figure 5: Uncertainty analysis: rank difference histogram

36
 3

0
FI18

FI19
-1
FI13
FI1A
SE33 SE32 UKM6 EE00

-2
BG41
MT00
FI20
FR92
-3 FR94
FR91

FR93
-4
ITD5

ITD3

ITE2

ITD1

ITF4
FI18

FI19

AT31

UKM3

SI01

PT18
NL31

DE21
NL42
NL21
SE23
LU00
CZ01

DE25
UKH3
ES30
UKF1

UKL2
BE22

DEA4
UKK4
SE21
DE24
UKC2
FR52
UKN0

FR51
UKC1

BE35

UKD1
ES22
FR43
CZ06
CZ05
PL21

ES41

ES62
PL63
ES42

LV00

ES43
HU33
HU23
GR24
FR94
FR91
BG33
RO22
GR41
reference RCI 'and' OWA operator 'or' OWA operator

Figure 6: Analysis of compensability effects – comparison of RCI score by different OWA operators.
Regions are reordered on the basis of the RCI reference score

Acknowledgements
Authors are particularly grateful to Andrea Saltelli, Head of the Unit of Econometrics and
Applied Statistics of the Institute for the Protection and Security of the Citizen - Joint
Research Center, for useful comments and suggestions.

37
6. REFERENCES

ACEMOGLU, D., JOHNSON, S. and ROBINSON, JA, 2001, The Colonial Origins of
Comparative Development: An Empirical Investigation, The American Economic
Review, 91(5), 1369-1401

Annoni, P. & Kozovska, K. (2010) EU Regional Competitiveness Index 2010 European

Commission, Joint Research Centre, EUR 24346.

Azariadis, C. Drazen, A. (1990) Threshold externalities in economic development.

Quarterly Journal of Economics, 105(2): 501-526.

Barba Navaretti, G. and Venables, A.J. (2004) Multinational Firms in the World
Economy. Princeton: Princeton University Press.

Bristow, G. (2005) Everyone’s a ‘winner’: problematising the discourse of regional

competitiveness. Journal of Economic Geography, 5: 285-304.

Bristow, G. (2010) Critical Reflections on Regional Competitiveness. Routledge,

London.

Brunet, R., 1989, Les villes europeénnes: Rapport pour la DATAR. Montpellier:
RECLUS. ISBN 2110022000.

Cantwell, J. (2006). Innovation and Competitiveness. in Fagerber, J., Mowery, D. and

Nelson, R. ed. The Oxford Handbook of Innovation. Oxford: Oxford University Press.

Combes, P.; Mayer, T. & Thisse, J-F. (2008) Economic geography : the integration of
regions and nations. Princeton, NJ. Princeton University Press.

Crescenzi, R. and A. Rodriguez-Pose (2008). Infrastructure endowment and investment

as determinants of regional growth in the European Union. EIB Papers 13 (2).

Cronon, W. (1991) Nature's Metropolis Chicago and the great West. London, WW
Norton.

Decancq, K. & Lugo, M. (2009) Setting weights in multidimensional indices of well-

being and deprivation OPHI working paper no. 18, www.ophi.org.uk.

EC 2009: GDP and beyond. Measuring progress in a changing world, EC

Communication, Brussels, 20.8.2009, COM(2009) 433 final.

Ederer, P. Schuller, P., Willms, S., 2010, Human Capital Leading Indicators: How
Europe’s Regions and Cities Can Drive Growth and Foster Social Inclusion, Lisbon
Council report.

EUROCHAMBERS (2007) Regional Competitiveness Atlas. Brussels:

EUROCHAMBERS.
Eurostat (2008). Employment gender gap in the EU is narrowing: labour market trends
2000- 2007. Statistics in Focus 99/2008, Population and social conditions

Feldman, M. P. (1993) “An Examination of the Geography of Innovation.” Industrial and

Corporate Change, 2: 451-470.

Filó, C. (2007) Territorial Competitiveness and the Human Factors. International

Conference of Territorial Intelligence, Huelva 2007 (CAENTI) http://www.territorial–
intelligence.eu

Gardiner, B., Martin, R., Tyler, P. (2004) “Competitiveness, Productivity and Economic
Growth across the European Regions.” Regional Studies, 38: 1045-1067.

Hagerty M.R and Land, K.C. (2007) Constructing summary indices of quality of life: A
model for the effect of heterogeneous importance weights. Sociological Methods and
Research, 35: 455-496.

Hanushek, E. A., and Wößmann, L., 2007, Education Quality and Economic Growth,
World Bank report, Washington DC.

Huovari, J., Kangasharju, A., Alanen, A. (2001) “Constructing an index for regional
competitiveness.” Helsinki: Peelervo Economic Research Institute – Working paper No
44. http://www.ptt.fi/dokumentit/tp44_10080608.pdf

Huggins, R., Davies, W. (2006) European Competitiveness Index 2006-07. University of

Wales Institute, Cardiff – UWIC: Robert Huggins Associates Ltd.
http://www.cforic.org/downloads.php

Huggins, R., Izushi, H. (2008) UK Competitiveness Index 2008. University of Wales

Institute, Cardiff – UWIC: Centre for International Competitiveness – Cardiff School of
Management. http://www.cforic.org/downloads.php

IMD (2008). World Competitiveness Yearbook 2008. Institute for Management

Development. Lausanne, Switzerland.

Krueger, A. and M. Lindahl (2001). Education for growth: Why and for whom? Journal
of Economic Literature 39(4), 1101–1136.

Krugman, P. (1996) Making sense of the competitiveness debate. Oxford Review of

Economic Policy 12(3), pp. 17-25.

Martin, R., Kitson, M. and P.Tyler (2006) Regional Competitiveness. London:

Routledge.

Martin, R., Sunley, P., (2011) "Regional Competitiveness: Clusters or Dynamic

Comparative Advantage?" In Huggins, R., Izushi, H. (eds.) Competition, Competitive
Advantage, and Clusters: The Ideas of Michael Porter. Oxford University Press, Oxford.

Meyer-Stamer, J. (2008) “Systematic Competitiveness and Local Economic

Development.” In Shamin Bodhanya (ed.) Large Scale Systemic Change: Theories,
Modelling and Practices.
http://www.meyer-stamer.de/2008/Systemic+LED_SouthAfrica.pdf

39
Michalos, A.C. (2011) What did Stiglitz, Sen and Fitoussi get right and what did they get
wrong? Social Indicators Research 102:117-129.

Morrison, D.F. (2005) Multivariate Statistical Methods. Thomson.

North, D.C. (1990) Institutions, Institutional Change and Economic Performance. New
York: Cambridge University Press.

OECD (2008) Handbook on Constructing Composite Indicators. Methodology and User

guide. Paris: OECD.

OECD (2010) Education at a Glance 2010. Paris: OECD.

OECD (2010). The High Cost of Low Educational Performance. OECD.

Official Journal of the European Union (2006) Council Decision of 6 October 2006 on
Community strategic guidelines on cohesion. (2006/702/EC).
http://ec.europa.eu/regional_policy/sources/docoffic/2007/osc/l_29120061021en0011003
2.pdf

Porter, M.E. (1998) On Competition. Boston: Harvard Business School.

Psacharopoulous, G. (1984) “The contribution of education to economic growth:

international comparisons” in Kendrick, J. (Ed.) International comparisons of
productivity and causes of slowdown. American Enterprise Institute, Ballinger.

Putnam, R.D. (2000) Bowling Alone: the collapse and revival of American Community.
New York: Simon and Schuster.

Rodriguez-Pose, A. (2010) “Do institutions matter for regional development?” IMDEA

Working Paper Series in Economics and Social Sciences 2010/02.

Saisana, M., A. Saltelli, and S. Tarantola (2005). Uncertainty and sensitivity analysis
techniques as tools for the quality assessment of composite indicators, Journal of the
Royal Statistical Society - A 168(2), 307-323.

Saltelli, A., Ratto, M., T. Andres, F. Campolongo, J. Cariboni, D. Gatelli, M. Saisana, S.

Tarantola (2008) Global Sensitivity Analysis - The Primer. John Wiley & Sons, Ltd.

Schwab, K. and Porter, M. E. (2007) The Global Competitiveness Report 2007-2008.

World Economic Forum. Geneva, Switzerland.

Schwab, K. (2009) The Global Competitiveness Report 2009-2010. World Economic

Forum. Geneva, Switzerland.

Sianesi, B. and J. V. Reenen (2003). The Returns to Education: Macroeconomics.

Journal of Economic Surveys 17(2), 157–200.

Smith, M. and F. Bettio (2008, August). Analysis Note: the Economic Case for Gender
Equality. Conference on ”More women in the labor market boost economic growth”, 15-
16 October 2009, Sweden.

Snieška, V. and J. Bruneckiené (2009). Measurement of Lithuanian regions by Regional

Competitiveness Index. Engineering Economics 1(61), 45–57.
40
Stiglitz, J., Sen, A., Fitoussi, J.-P. (2009) Report by the Commission on the Measurement
of economic performance and social progress. Commission on the Measurement of
Economic Performance and Social Progress.

Storper, M. (2005) “Society, Community and Economic Development. Studies in

Comparative International Development, 39 (4):30-57.

Streeck, W. (1991) “On the institutional conditions of diversified quality production.” in

Matzner, E. and W. Streeck (eds) Beyond Keynesianism: Socioeconomics of production
and full employment. Alderhot: Edward Elger.

UNDP (2008). Regional Competitiveness Index Croatia 2007. Zagreb: United Nations
Development Programme.

Yager, R.R. (1988) “On ordered weighted averaging aggregation operators in multi-
criteria decision-making.” IEEE Trans. Syst. Man Cypern, 18: 183-190.

Yager, R.R. (1996) “Quantifier guided aggregating using OWA operators.” International
Journal of Intelligent Systems, 11: 49-73.

Zani, S. (2000). Analisi dei dati statistici. Milano: Giuffre’ Editore.

41
7. APPENDIX

Table 7-1: Indicators included in the pillar Institutions

42
Table 7-2: Indicators included in the pillar Macroeconomic stability

Table 7-3: Indicators included in the pillar Infrastructure

43
Table 7-4: Indicators included in the pillar Health

44
Table 7-5: Indicators included in the pillar Quality of primary and secondary education

45
Table 7-6: Indicators included in the pillar Higher education and training and lifelong learning

46
Table 7-7: Indicators included in the pillar Labor market efficiency

47
Table 7-8: Indicators included in the pillar Market size

48
Table 7-9: Indicators included in the pillar Technological readiness

49
Table 7-10: Indicators included in the pillar Business sophistication,

50
Table 7-11: Indicators included in the pillar Innovation

51