The Best Economies in the World

Source: Thinkstock After sliding in the rankings for four consecutive years, the United States moved up two places in the World Economic Forum’s competitiveness ranking, from seventh last year to fifth in 2013. A combination of factors, including improving financial markets and a strong university system, helped the U.S. improve, despite its weak macroeconomic environment.

The WEF’s Global Competitiveness Report defines competitiveness as the “institutions, policies, and factors that determine the level of productivity of a country.” In order to assess competitiveness, the WEF divided the 148 nations it surveyed into one of three classifications, depending on their development. Based on the WEF’s report, these are the best economies in the world.

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“Factor-driven” economies are the least developed and rely on low-skilled labor and natural resources. More developed countries are considered “efficiency-driven” economies because they focus on improving economic output through increasing production efficiency. The most developed economies, which rely on innovation and technological changes to drive growth, are considered “innovation-driven” economies. Nations may also fall in between these classifications.

While gross domestic product is not a measure of well-being or competitiveness by itself, competitive nations often have high GDP per capita. This is because the factors that allow nations to compete for new business are the same factors that drive productivity and output.

Each of the 10 most competitive nations is among the 25 highest for GDP per capita out of the countries measured. The most competitive economy in the world, Switzerland, had a per capita GDP of more than $79,000, good for fourth highest worldwide. At the other end, almost all the 10 least competitive economies have extremely low GDP per capita, six of them below $1,000.

According to Margareta Drzeniek-Hanouz, lead economist at the WEF’s Global Competitiveness and Benchmarking Network, “competitiveness is not so much about countries competing in the global marketplace, but rather about the factors — politicians, institutions — that countries put into place to raise productivity and thereby grow.” In the case of the United States, Drzeniek-Hanouz highlighted financial market efficiency, labor market efficiency and innovation as factors that make the country globally competitive.

Many of the world’s most competitive nations also have the ability to borrow a great deal to support their spending and investment, which can result in high government debt. Seven of the 10 most competitive nations had at least 50% of GDP in gross general government debt as of 2012. And three of them — Japan, Singapore and the United States — had more than 100% of their GDP in debt.

In poorer nations, where access to financing often is not only an issue for businesses but for governments as well, debt levels are typically lower. Just one of the 10 least competitive countries had more than 50% of its GDP in debt.

To create the Global Competitiveness Index (GCI) score for each country, the WEF ranked more than 100 economic indicators that it grouped into 12 broad categories. Also referred to as pillars, these categories quantify the extent to which a country is competitive. The pillars were then scored from 1 to 7, but each had a different weighting in the final country rank, depending on which classification a nation fell under. Innovation and sophistication accounted for 30% of the score for nations such as the United States, which is an innovation-driven economy, but just 5% of the final score for less-developed nations such as Haiti, a factor-driven economy.

Based on the WEF’s Global Competitiveness Report, which ranks 148 countries, 24/7 Wall St. reviewed the economies with the highest and lowest GCI scores. All GDP figures, as well as figures on government debt as a percentage of GDP and GDP per capita, were provided to the WEF by the International Monetary Fund.

These are the 10 most competitive global economies.