Policy in Action

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Policy in Action

Fast-Forwarding the Nation

Issue 02 | April 2011

Economic Growth, Productivity and Competitiveness


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Policy in Action Series

Te Policy in Action Series is published by the Emirates

Competitiveness Council (ECC). Te series is intended

to raise public awareness and stimulate discussion on

key areas o competitiveness and the policy work o the

Emirates Competitiveness Council.

Te Emirates Competitiveness Council, established in

2009, is mandated to drive the UAEs competitiveness

agenda. Competitiveness is a broad-ranging economic

development ramework that seeks to enhance the

countrys sustainable growth and prosperity. Te ECC

in collaboration with its partnersthe public and

private sectorsworks towards ensuring the nations

position as a regional and global leader.

For more inormation please contact:

Emirates Competitiveness CouncilPO Box 212000, Dubai, United Arab Emirates +971 4 330 4433F +971 4 330 4044

Email: [email protected]: www.ecc.ae


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The rapidly changing global economicenvironment has created an impetus ornations to be competitive at an internationallevel making it more important than ever toincrease the level o productivity countries derive

rom their resources. Under the leadership oHis Highness Sheikh Mohammed bin Rashid AlMaktoum, UAE Vice-President and Prime Ministerand Ruler o Dubai, the UAE institutionalized itscompetitiveness drive in May 2009, by launchingthe Emirates Competitiveness Council (ECC). heECC was created with a view to ormalizing theUAEs competitiveness strategy and leveragingits comparative advantages towards becoming aleading economy in an increasingly competitive

global environment.

Competitiveness as a ramework or economicdevelopment is generally tied to, and measuredby, a countrys productivity, and is considered tobe an essential driver to improve living standards.1With high and rising productivity, a country

is able to support a strong currency, attractivereturns to capital and high wage levels, whichtranslates into wealth generation supportinghigh living standards. his article explores theconceptual ramework or competitiveness, itsrelation to productivity and economic growth,and its importance or promoting sustainedgrowth rates. It also examines the broad range opolicy tools that governments adopt to promotecompetitiveness.

1 A ew economists, including Paul Krugman, recipient o the 2008 Nobel Memorial Prize in Economics, question the notion onational Competitiveness. Krugman has argued that competitiveness exists at the level o rms, but not at the country-level, as coun-tries do not compete in the same way as companies. When two companies compete, the gain o one company is the loss o the other.However, international trade is not a zero-sum game, since when two countries trade both benet. It appears that Krugmans view

ocuses quite narrowly on international trade and not in the broader aspects and dimensions o competitiveness such as the businessenvironment. Proponents o competitiveness theory present the counter argument that countries do not compete solely on the basiso trade; they also compete through the policies they choose to promote higher growth and standards o living including throughproviding environments that are avorable or business, investment and or attracting global talent. In other words, countries competeby proxy through companies they host. For more, see Krugman Competitiveness: A Dangerous Obsession, in Dong-Sung Cho, FromAdam Smith to Michael Porter: Evolution o Competitiveness Teory, 2000.

I. Introduction

Synopsis: Te most important determinant o a countrys uture prosperity is its ability to achieve

and maintain high productivity levels. In their pursuit o higher prosperity, several countries across

the world are embracing competitiveness as a ramework or improving their national growth and

development. Governments have considerable infuence on the productivity perormance o their

countries as their policies largely shape the business environment companies operate in. In this issue o

Policy in Action we examine the concepts underlying competitiveness at the national level and how it

is related to economic growth and productivity. Likewise, we explore why governments are developing

competitiveness policies, programs and institutions to support their development, and outline, at a

broad level, some o the main policy tools employed towards promoting competitiveness and long-

term sustainable growth and prosperity.

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2 World rade Organization (http://www.wto.org)

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II. Why Are Governments ArticulatingCompetitiveness Policies?

Increasingly, policymakers in countries around the world are articulating competitiveness policiesand developing related programs and institutionsin an attempt to boost their economic growth.here are a variety o reasons or countries competitive agendas. Here we highlight the three maindrivers or countries to adopt a competitive posture:

1. Pressures of GlobalizationFundamental changes in international

commerce and inance, such as lower transportcosts, advances in telecommunicationstechnology, and the decline in trade barriershave ueled a rapid increase in global economicintegration over the past twenty-ive years.his has led to heightened competitionamongst companies in both national andinternational goods and services markets.Governments have tended to view thisexposure to competition more as a threat tomanage than an opportunity to seize.

Indeed, increased economic globalizationpresents a potential threat since companieswithin a countrys borders are now subjectto much broader and sometimes cheapercompetition. On the other hand, it potentiallypresents signiicant opportunities, as increasedtrade levels and the greater wealth o manyeconomies creates new market opportunities.o illustrate the intensiied level o competitionin the world economy, one only needs to

consider that total world exports rom 1993 to2009 increased rom US$3.6 trillion to US$12trillion, a rise o 213%.2

Regardless o whether policymakers viewglobalization and its accompanying competitionas a threat or an opportunity, severalgovernments have responded proactivelythrough a competitiveness approach.

2. Insufficiency of Macroeconomic PolicyPerhaps more importantly than the

challenges and opportunities stemming romglobalization, is the realization on the parto governments that in order to developsustainably over the long-term, traditionalapproaches to economic growth aimed atmacroeconomic stabilization leading toincreased output are not suicient. Indeed,policy makers have identiied the need ora more robust, cross-cutting approach tosupport sustained rates o economic growthand increasing prosperity.

Broadly speaking, policymakers use a seto policy levers to manage their economicdevelopment. hese are macroeconomicpolicy (see inset 1), microeconomic policy(see inset 2) and industrial policy(see inset 3). hrough these dierent policylevers governments play an important role inshaping the business environment in whichcompanies operate. A competitiveness policywould aim to make that business environment

conducive or companies to increase theirproductivity and wage levels, allowing capitaland labor to constantly increase the returnsthey earn.


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Macroeconomic policies are concerned with the overall health o a countrys economy. Governmentsuse our main macroeconomic tools consisting o iscal policy, monetary policy, exchange rate control andincome policy. We illustrate these below:

3 US Government Printing Oce, Public Law 107 16, June 2001

(http://www.gpo.gov/dsys/pkg/PLAW-107publ16/pd/PLAW-107publ16.pd)4 US Government Printing Oce, Public Law 108 27, May 2003

(http://www.gpo.gov/dsys/pkg/PLAW-108publ27/pd/PLAW-108publ27.pd)5 US Department o reasury, Report to Congress on International Economic and Exchange Rate Policies, February 2011

(http://www.treasury.gov/resource-center/international/exchange-rate-policies/Documents/Foreign%20Exchange%20Report%20February%204%202011.pd)

Inset 1:Macroeconomic Policy Levers

Policy Lever Examples

1. Fiscal Policyis concerned with thegovernments revenue generation and

spending policy.

Examples o scal policy rom the United States include two laws o theBush administration to lower taxes in the country and thus provide astimulus to the US economy:

Te Economic Growth and ax Relie Reconciliation Act o 2001

(EGRRA)3 and the Jobs and Growth ax Relie Reconciliation Acto 2003 (JGRRA).4 Tese laws were enacted with sunset provisionsthat made them expire in 2010, however, the Obama administrationhas extended these laws.

Te UAEs has a liberal tax policy, as there is neither a personal nor acorporate income tax and this has been recognized as a competitiveadvantage or businesses that operate in the country. In the absenceo these taxes, businesses have more capital to reinvest in theirbusinesses and thus drive productivity.

2. Monetary policyconsists in adjusting the

supply o money in the economy and con-trolling its growth rate.

It is generally controlled by a regulatory bodysuch as a central bank that adjusts the primeinterest rate.

In the United States, the Federal Reserve typically increases the interest

rate when the economy grows too ast, in order to control overheatingand ination. It would decrease it in case o economic slowdown, bymaking government bonds less attractive and prompting investorsto inject money in the economy. Te primary objective o monetaryauthorities is to maintain price stability in their respective economies.

3. Exchange rateregime is the policy by whichgovernments determine the value o theircountrys currency relative to oreigncurrencies.

Chinas trading partners have argued that it controls the Yuan Renminbiat an articially low level to boost the level o Chinese exports via pricecompetitiveness.5

Te UAEs currency is pegged to the US dollar as most o its trade

is conducted in US dollars. Tis benets oreign investors, as iteliminates currency risk in their operations, allowing or long-termplanning and more accurate business orecasting.

4. Income policyis generally an austeritymeasure which aims to control wages orincome in order to curb ination. Wage orincome controls are oten accompanied byprice control measures. Te efectiveness othis policy is inconclusive.

In 1983, Australia, in consultation with the Unions, introduced the Pricesand Income Accord. With this policy, wage hikes were capped at theConsumer Price Index. At the same time, the government committed toexpand spending on education and to enhance welare measures.


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Microeconomic policies reer to policies directed to achieve improvements in economic eciency, either

by eliminating or reducing distortions in individual sectors o the economy or by reorming the economy,rather than other goals such as equity or employment growth. Te ollowing six areas are illustrative.

Inset 2:Microeconomic Policy Levers

Policy Lever Examples

1. rade Policy eNorthAmericanFreeTradeAgreement(NAFTA)andtheMercadoComndelSur(Mercosur)

agreements have created two trade blocs in North and South America intended to provide larger

input and product markets to their companies, which are now able to reap economies o scale, tap

into larger capital pools, and thus improve their productivity.

Te UAE has concluded a number o trade agreements and is negotiating a number o

others. Such agreements provide a legal ramework which increases trade and economic

cooperation between trading partners. Te UAE has recently signed two Free rade

Agreements (FAs) with Singapore and the European Free rade Association (EFA)

Countries (Norway, Iceland, Switzerland and Liechtenstein). As part o the GCC, the UAE is

also currently negotiating FAs within with several countries including Japan and Australia,

India and China to oster strategic bilateral relationships.

In 2004, the UAE signed a rade and Investment Framework Agreement (IFA) with

the United States to provide a ormal ramework or dialogue on economic reorm and

trade liberalization. IFAs promote the establishment o legal protection or investors,improvements in intellectual property right protection, more transparent and ecient

customs procedures, and greater transparency in government and commercial regulations.6

Over the years the country has developed a robust enabling environment and has become

an active player in global trade. As a result the UAE is currently ranked 16th in the World

Economic Forums 2010 Global Enabling rade Index.7

2. Foreign Direct

Investment (FDI)

Regulations

Depending on their economic strategies, priorities, and needs, countries will usually place FDI

regulations to access capital, labor skills, and oreign technology. Policies range rom ownership limits

and incentives to capital ow regulations and they oten difer by sector and with a view towards the

expected impact o the investment in the national economy.

Te UAE is one o the most FDI-riendly nations rom the perspective o repatriation o unds

as it allows ree capital and income repatriation. By 2009 the inward FDI stock (accumulated

FDI) or the UAE reached over US$73 billion.8 Te UAE ranked 11th globally in the 2010 FDI

condence index9 refecting the countrys ability to attract FDI .

Te UAE has engaged a strategy to attract FDI to develop economic clusters in dedicated Free

Zones. Examples include twoour 54,10 a world class media cluster in Abu-Dhabi and Dubai

International Financial Centre (DIFC)11 a leading international nancial center in Dubai.

6 UAE Ministry o Foreign rade (http://www.mot.gov.ae/en/)

7 World Economic Forum, Global Enabling rade Index, 2010 (http://www3.weorum.org/docs/WEF_GlobalEnablingrade_Report_2010.pd)

8 United Nations Conerence on rade and Development (http://unctadstat.unctad.org)9 A Kearney, FDI Condence Index, 2010 (http://www.atkearney.com/images/global/pd/Investing_in_a_Rebound-FDICI_2010.pd)10 woour54 (http://www.twoour54.com/en)11 Dubai International Financial Centre (http://www.dic.ae)


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3. Nationalizationis the process otaking an industryor assets into thepublic ownershipo a nationalgovernment orstate. Privatizationis the oppositeoperation wherebyownership ogovernment owned

assets is transerredto the privatesector.

o ensure economic stability, in 2008 the UK government partially nationalized the ailingbanks Royal Bank o Scotland and HBOS Lloyds SB.

Te liberalization o certain economic industries has oten led government to sell utilitycompanies, in particular telecom companies. Such instances include a wave o liberalizationo incumbent telecom service providers in Europe with British elecom in 1982, Deutscheelekom in 1996 and the Swedish Sonera in 2000. Privatization not only brings revenuesto the government but dynamizes the stock market, creating highly value stock marketleaders.12

4. Public investment

to correct market

ailures

Most telecommunication or utility companies such as water services and electricity havebeen initially developed by governments since they require massive investments that theprivate sector deems too risky to undertake. Governments thus intervene to correct thesemarket ailures to ensure universal access to essential goods.

5. Competition

policy goes hand inhand with economicregulations in orderto avoid industrymonopolies tothe detriment oconsumers, andmaintain healthycompetition in themarket.

Te US has in place antitrust regulation measures to prevent anti-competitive behavior.

For instance, it applied antitrust laws to dismantle the Standard Oil Company in 1911and A& in 1982 on the grounds o their dominant market positions.

In 2003, the European Union prevented the GEHoneywell merger in a preemptive moveto avoid the creation o a monopolistic company. In 2004 it ned Microsot 497 millionor abuse o its dominant position.13

Australia has established the National Competition Council to enorce competitionbetween companies and better serve the economy.

6. Subsidies,either director through taxbreaks constitutean importantmicroeconomictool.

In 2007, the US government passed legislation that would end more thanUS$14 billion in subsidies and tax breaks or oil companies and earmarked that money tohelp develop renew able energy, alternative uels and conservation technologies.14

12 Meginson, Boutchkova, Te Impact o Privatization on Capital Market Development and Individual Share Ownership,(http://www.oecd.org/dataoecd/11/39/2668393.pd)

13 European Commision, Competition: Making Markets Work Better (http://ec.europa.eu/competition)14 Congressional Research Service, Report or Congress, Energy Eciency and Renewable Energy Legislation in the 110th

Congress, May 2007


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Finally, industrial policy levers are those in support o speciic industry sectors identiied as strategic

to a countrys prosperity. Industrial policy may include a combination othough not limited tothemicroeconomic and macroeconomic levers described.

Inset 3:Industrial Policy

One o the ways in which governments have sought to sustain their economic growth is through industrialdevelopment policy. Tis consists essentially in direct involvement to support certain sectors and companiesconsidered to be important to the country. Policy may be designed to support or restructure old, struggling sectors,such as steel or textiles, or to try to construct new industries, such as heavy-industry or nanotechnology. Experiencerom countries around the world has produced mixed results, with some successes and many more spectacular andcostly ailures.

It is generally accepted that there is a need or governments to help business with straightorward measures, such asresearch and development or ostering high-tech skills. But there is no commonly accepted ramework yet or policyavoring specic sectors and companies.

Te evidence suggests that the more it is aligned with a national or local economys comparative advantage,and areas where it has a natural interest, the more likely industrial policy is to succeed. Drives to spur high-techentrepreneurship in areas o where the main economic activity is natural resource extraction, or instance, mayace challenges. For example, Chile, where industrial policy was applied successully, moved rom basic industriessuch as mining, orestry, shing and agriculture to aluminum smelting and salmon arming thanks to a number ogovernment initiatives. Industrial policy works best when a government is dealing with areas where it has naturalinterest and competence, and is ocused on long-term goals.15

Te UAEs support to aerospace is an example o policy to develop an industry that it considers important or itseconomic development. In its bid to become a signicant player in the aerospace industry Abu Dhabi is collaboratingwith aerospaces major players including Boeing and Lockheed Martin through its investment vehicle MubadalaDevelopment Co. Planned manuacturing o aerostructures will enhance UAE technical, design and engineeringcapability, while R&D is intended to provide an avenue by which academics and chemical engineers in the UAE canapply their expertise to advanced materials.16

15 Adapted rom Economist, Picking Winners, Saving Losers, Aug 5th 2010 (http://www.economist.com/node/16741043)16 Mubadala (http://www.mubadala.ae/)6


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In order to be competitive and improve the overalleconomic perormance o the country, policymakersare recognizing the need to combine traditionalmacroeconomic policy with a microeconomicapproach. o achieve and sustain economic growthand prosperity calls or a coherent set o policies andactions. Along with these policies, governments thatseek to be competitive aim to develop the relevantenabling hard and sot inrastructure, includingtransportation and communications inrastructure,and health and education systems.

A competitiveness approach includes developingsophistication o business strategy through efortsto integrate clusters based on industry sectors.Importantly, there is a need to align the skills andcapabilities o the workorce with the requirementso the private sector both in the short term throughimproved training and re-skilling programs and inthe long run through appropriate education policy.Such a comprehensive cross-cutting set o policies isunderstood as competitiveness policy.

3. Promoting Sustainable GrowthGovernments have recognized the needto grow sustainably over the long term.Economies can grow expansively, simply byincreasing actors o production such as laborand capital . However, this approach is notsustainable as labor and capital are limitedresources and countries cannot multiply themendlessly. Additionally, these inputs are subjectto diminishing marginal returns once a certainlevel is reached. his concept will be illustratedin more detail in the section below.

For the three main reasons outlined above, manygovernments are conceiving a competitivenessapproach to their development in order topromote sustainable growth and prosperity intothe uture.

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III. Economic Growth and Productivity

In this section we look at the underlying theoryo productivity and economic growth and outlineways in which policy is used to enhance a countrysproductivity and thereore its competitiveness. Weconclude with an examination o stages o economicdevelopment and the relationship betweenproductivity and prosperity.

Country-Level ProductivityAt the country level, gross domestic product (GDP)is the key measurement o the total output o aneconomy. On the supply side, GDP depends onthree actors o production used to produce goodsand services: Capital (K), Labor (L), and technology(), which determines the relative eciency withwhich the ormer are utilized in the productionprocess.Increasing Economic Output by

Increasing InputsTe overall output o an economy can be increasedin several ways. One seemingly straightorwardapproach to raising output is to increase one ormore o the input actors in the economy. Forinstance, through particular nancial marketpolicies, governments can increase the amounto capital (K) in the economy by increasing theavailability o unds or companies to producegoods and services thus enabling them to reachhigher levels o production. Similarly, policies that

stimulate an inow o capital into the countrywould be another way to increase the supplyo capital. Production can also be boosted byincreasing the amount o labor (L)i.e. the numbero people in the workorce available to producegoods and services. Incentives or enabling labororce growth may include initiatives or greaterparticipation by women, options or exible typeso employment (such as term contracts, part timework or seasonal labor) and measures to ease labormarket rictions (i.e. simpliying recruitment and jobcutting processes). Relaxing immigration controls isanother example o how some governments can usepolicy to increase the supply o labor to contributeto an overall increase in output.

Tere are however limits to the approach o simplyincreasing production inputs such as capital andlabor. Tis is because neither capital nor labor is aresource that exists in innite supply. Additionally,actor inputs are subject to what economistdescribe as decreasing marginal return. Beyonda certain point adding more production inputsafects the cost structure and leads to overpriced

goods and services. In the current global economiccontext companies will likely ace competitionrom many other rms willing to provide the samegoods and services at a better price. Overpricedgoods and services will put the company at adistinct disadvantage and undermine its market.Tis limitation means that companies cannot addproduction assets indenitely.

Te Role of echnology in Enhancing ProductivityTese limitations on adding production inputs make

it necessary to increase the yield o the inputsandmake production assets more ruitul: Tis relates tohow eciently a business converts capital and laborinto goods and services. A company with higherproductivity creates more with the same amount olabor and capital than its rivals. It can thereore priceits product at a lower cost and still make greaterprot, or better still, charge the same or even higherprices than the competition and ofer better quality.echnology () the third actor o production,and in a broadest sense, innovation, is critical as it

improves the overall eciency o production, and isan enabler to achieve higher productivity.

Te Organization or Economic Co-operation andDevelopment (OECD) has adopted Schumpeters(1934) ve categories o innovation:

Product innovation Process innovation Market innovation (nding a new market to

an existing product) Development o new sources o inputs Change in organizational models

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17 UAE rade Oce (http://uaetrade-usa.org/index.php?page=uae-us-relations&cmsid=64)18 Tese include DP World, one o the largest marine terminal operators in the world, Dubai Customs, Economic Zones World, and

Dubai Multi Commodities Center, the marketplace or Diamond, Gold, precious metals and commodities.19 Dubai rade (https://dubaitrade.ae)20 World Bank, Doing Business Report, 2011 (http://www.doingbusiness.org)

echnology () captures the business processes,

tools and practices that afect capital productivity.echnology includes management practices,business processes, use o technology, nancialcapabilities, and ease o trade, to name a ew. otalactor productivity captures the eciency withwhich an economy transorms labor and capitalinto output. It encompasses all the enablers that

Inset 4:Dubai rade: A Case o echnology-Enabled Competitive rade Policy

Te UAE is committed to an open, competitive and encouraging environment or international trade and has seen

an impressive rise in trade over the past several years. Te country witnessed a 98% increase in exports rom 1995to 2004 and a 133% rise in imports.17 Currently, the UAE ranks among the worlds top three countries or enablingtrade across borders according to the World Banks Doing Business report 2011. Tis is a leap rom the 5thposition in 2010 and 13th rank in 2009.

Te countrys policies to ease trade are accompanied by leadership in developing technology systems to supportit, as illustrated by Dubai rade. Dubai rade is an integrated I platorm to acilitate trade and logistics operationsin Dubai in an unparalleled efort to become the worlds best practice model. On the ront end it is a customerportal, on the back end it is supported by Mirsal, a comprehensive electronic Customs declaration systemdeveloped by Dubai Customs that streamlines customs processes.

Dubai rade Portal is Dubai rades single sign on, single window channel to the online services o the major

stakeholders in the trade and logistics operations providing streamlined ow o goods and services into thecountry.18 Te portal includes services or traders, shipping lines and agents, clearing and orwarding agents, andree zone licensees as well as invoicing and payment services.19 Te portals electronic trade processing has reducedcosts to importers, exporters, and the reight community, and has greatly acilitated the movement o goods toand rom the UAE. As a result customs transactions are being handled more eciently as reected in World BankEase o Doing Business. It takes only 7 days and 4 documents to export a container, making the UAE one o themost ecient trade platorms in the world.20 In addition, the customs advanced systems have contributed to thecountrys ease o non-oil trading.

contribute to that process. echnology is the maindriver, with the view that it corresponds to allmethods that contribute to help rms. echnologydoes not just cover science and inormationtechnology, but it also covers, management andorganizational methods, nancial tools, as well astrade (see inset 4).

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IV. Towards Prosperity

In summary, economic development is otenmeasured as the output (the amount o goods andservices) that a country generates. Most economistsuse GDP as a measurement o an economysaggregate output and GDP per capita as a measureo perormance.

Te World Economic Forum has identied three

stages through which countries evolve, to reachthe highest level o economic perormance: Factor,Efciency and Innovation-driven stages odevelopment(see Inset 5).In general the moreadvanced countries have the highest GDP percapita. Countries do not reach advanced levelo business sophistication immediately. Rather,economies typically progress through a journeythat may take decades to move rom a actor basedeconomy to an innovation driven one. At the thirdstage, to become sustainable, countries need to

ensure that the economic perormance translatesinto prosperity as this enables the key drivers o aknowledge based economy.21 Knowledge basedeconomies are characterized by a good healthcaresystem, a highly perorming education system andproper policies and regulations. In other words theinnovation driven economies are the ones with thehighest levels o prosperity.

o grow in a sustainable manner, a governmentneeds to determine the appropriate policies in

order to balance both the supply and demandsides o the GDP equation. o sustain a given level

21 See Policy in Action, UAE in the Knowledge Based Economy, Emirates Competiveness Council, January 2011(http://www.ecc.ae/en/downloads.aspx)

22 World Economic Forum, Te Global Competitiveness Report 2010-2011(http://www3.weorum.org/docs/WEF_GlobalCompetitivenessReport_2010-11.pd)

o consumption, citizens need to earn wages onpar with their purchasing expectation. o earnthese wages, they need to nd jobs paying highenough wages. o ofer highly compensated jobs,companies need to be competitive and sell goods orservices more eciently than their competitors. Tisrelationship between productivity and prosperity isat the core o a competitiveness policy.

While higher levels o output (GDP) remain a validpolicy objective, economies can only accomplishthis sustainably and on a long-term basis i theeconomic growth results in higher real wages.Tere are two drivers that explain this. First, rmscan only become more competitive, i they rely onknowledge and technology to drive up their outputrather than pure labor increaseshence requiringmore skilled and higher-compensated workers. AsGDP grows (demand side) the supply side needs

to be adjusted and wages need to go higher sothat workers can uel consumption (or savings)and maintain the system in balance. Finally, it is thepurpose o a government to provide its citizens andinhabitants with a more prosperous lie, namelydeveloping better schools, healthcare and evenleisure acilities, while enabling them to consumemore. Te appropriate policies thereore acilitatethe population to be better educated and in betterphysical health and disposition, and thereore able tobe even more productive. In this way, productivity

and prosperity reinorce each other.

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About the author:Faysal (Fakhr-Eddine) Mokadem is the author o this article. Faysal is a Senior Project Manager at theEmirates Competitiveness Council (ECC). Prior to his work at ECC, Faysal was a management consultant at Booz AllenHamilton where he worked on international projects related to strategy, innovation and technology. Faysal holds an MBArom University o Chicago, as well as a Masters in Computer Science rom the University o Pierre and Marie Curie.

Inset 5:Productivity and Stages o Development

Countries can provide enabling environments and inrastructures or companies to maximize the returns romtheir actors o production making them competitive. In an international market countries compete throughtheir ability to provide such enabling environments in which businesses can thrive and achieve higher levels oproductivity vis--vis their international competitors. Countries tend to progress along a path towards buildingtheir economies to be driven by innovation and technology. he World Economic Forum or instance proposesa ramework o three main stage o development22 along which countries generally evolve over time. hese are:

Factor-driven economies rely predominantly on natural resources and direct labor and on the primary sector(agriculture, orestry, ishing, mining etc.) as a base or their competitiveness. Companies in actor driveneconomies oer commodities or basic products and typically compete on low prices they can reach thanksto their low cost labor structures. In these types o economies the government tends to be most eicient in

providing basic inrastructures (roads and a stable environment to best support the economy). India, Moldova,and Ethiopia are examples o countries that are actor-driven economies.

Efficiency-driven economies have generally achieved some level o industrialization and compete onproviding quality goods. he government ocus is then to create eicient actor markets, namely a smoothlabor market (as oten times rictions arise with industrial unions) and an eicient inancial market to ensureproper allocation o capital to the most proitable products and industries. China, Brazil, South Arica andBulgaria all in this category.

Innovation-driven economies rest their economic power on the ability o their populations to provideadvanced goods and services. Companies in innovation-driven have to continuously innovate and bring tomarket enhanced or new products and services. he tertiary sector oten times accounts or a large share o

the economy. Most countries in this category are OECD members. Government policies in innovation-driveneconomies should promote innovation and market sophistication through or instance strong consumerprotection laws or an emphasis on creating an environment conducive to business in particular or the smalland medium enterprises (SMEs). It is noteworthy that the UAE is ranked in this category and is the only Arabcountry included in this group.

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Reerences

UAE Sources

1. Dubai International Financial Centre (http://www.dic.ae)

2. Dubai rade (https://dubaitrade.ae)

3. Emirates Competitiveness Council, UAE in the Knowledge Based Economy, Policy in Action, Issue no. 1, UAE, January 2011

(http://www.ecc.ae/en/downloads.aspx)

4. Mubadala (http://www.mubadala.ae)

5. woour54 (http://www.twoour54.com/en)

6. UAE Ministry o Foreign rade (http://www.mot.gov.ae)

7. UAE National Bureau o Statistics (http://www.uaestatistics.gov.ae)

8. UAE rade Oce (http://uaetrade-usa.org)

Other Sources

1. A Kearney, FDI Condence Index, 2010 (http://www.atkearney.com/images/global/pd/Investing_in_a_Rebound-FDICI_2010.pd)

2. Congressional Research Service, Report or Congress, Energy Efciency and Renewable Energy Legislation in the 110th Congress,May 2007 (http://ncseonline.org/NLE/CRSreports/07Apr/RL33831.pd)

3. Dong-Sung Cho, Hwy-Chang Moon, From Adam Smith to Michael Porter: Evolution o Competitiveness Teory, WorldScientic, Singapore, Oct 2000

4. Economist Picking Winners, Saving Losers, Aug 5th 2010 (http://www.economist.com/node/16741043)

5. European Commision, Competition: Making Markets Work Better (http://ecc.europa.eu/competition)

6. Market Access Database, European Commission (http://madb.europa.eu/madb_barriers/barriers_select.htm)

7. Michael E. Porter, Te Competitive Advantage o Nations, Te Free Press, New York, NY, 1990

8. Milton Friedman,Walter W. Heller, Monetary vs. Fiscal Policy, W.W. Norton & Company, New York, NY, 19699. Organization or Economic Co-operation and Development (OECD), Oslo Manual: Te Measurement o Sci entic andechnological Activities, Proposed Guidelines or Collecting and Interpreting echnological Innovation Data(http://www.oecd.org/dataoecd/35/61/2367580.pd)

10. Richard H.K. Vietor, How Countries Compete: Strategy, Structure and Government in the Global Economy, HarvardBusiness School Press, Boston, MA, 2007

11. United Nations Conerence on rade and Development (UNCAD) (http://www.unctad.org)

12. US Department o Homeland Security, extiles & Quotas(http://www.cbp.gov/xp/cgov/trade/trade_programs/textiles_and_quotas/qbts)

13. US Department o reasury, Report to Congress on International Economic and Exchange Rate Policies, February 2011(http://www.treasury.gov/resource-center/international/exchange-rate-policies/Documents/Foreign%2Exchange%2Report%2Februry%204%202011.pd)

14. US Government Printing Oce, Public Law 10716, June 2001

(http://www.gpo.gov/dsys/pkg/PLAW-107publ16/pd/PLAW-107publ16.pd)15. US Government Printing Oce, Public Law 108-27, May 2003 (http://www.gpo.gov/dsys/pkg/PLAW-108publ27/content-detail.html)

16. William L. Megginson, Maria K. Boutchkova, Organization or Economic Cooperation and Development (OECD), Te Impact oPrivatization on Capital Market Development and Individual Share Ownership, (http://www.oecd.org/dataoecd/11/39/2668393.pd)

17. World Bank, Doing Business Report 2011 (http://www.doingbusiness.org)

18. World Economic Forum, Te Global Competitiveness Report 2010-2011, Geneva, Switzerland 2010(http://www3.weorum.org/docs/WEF_GlobalCompetitivenessReport_2010-11.pd)

19. World Economic Forum, Te Global Enabling rade Report 2010, Geneva, Switzerland 2010

(http://www3.weorum.org/docs/WEF_GlobalEnablingrade_Report_2010.pd)

20. World rade Organization (http://www.wto.org)

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Te content does not in any way represent or refect the views or approach o the United Arab Emirates Government and/ or

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