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Market Competitiveness Indicator

Description

This indicator measures a country government’s commitment to strengthening market forces in the economy by promoting a business environment that allows for innovation and open competition while limiting expropriation, state control of industry, and monopolies. This includes anti-trust laws, merger controls, state owned enterprises, intellectual property rights, fairness of the bidding process for public contracts, innovation, market dynamism, and the share of capital owned by the state.

Relationship to Economic Growth

Overall, market competition is linked to strong economic growth and poverty reduction throughout the world.113 Monopolies and State-owned enterprises increase poverty by limiting incentives for firms to innovate and encouraging rent seeking.114 These harmful effects can be mitigated by high quality merger control and anti-trust frameworks.115 Competition increases innovation, which increases productivity and decreases poverty.116 Fair public procurement systems decrease corruption and drive growth by increasing government efficiency and giving opportunities for small and medium enterprises to participate in the process.117

Methodology

Indicator Institution Methodology

The sources use a combination of legal analysis, firm surveys, and expert surveys to determine a country’s score. This indicator uses data from two sources: the World Bank’s Business Ready (B-Ready) report on Market Competition (https://www.worldbank.org/en/businessready/data) and the Bertelsmann Transformation Index (BTI) on Organization of the Market and Competition (https://bti-project.org/).

  • B-Ready: Quality of Regulations that Promote Market Competition: This pillar of B-Ready's Market Competitiveness index is based on 3 components (Competition, Innovation and Technology Transfer, and Bidding for Public Contracts).  Each of those components is made up of 4 sub-components.  Overall, this component is largely de jure, focusing on the legal and regulatory framework for market competition.
  • B-Ready: Implementation of Key Services Promoting Market Competition: This pillar of B-Ready’s Market Competitiveness index is based on the same 3 components as the first pillar (Competition, Innovation and Technology Transfer, and Bidding for Public Contracts); however, the focus of this indicator is more on the de facto implementation of the regulations covered by the first pillar.  It focuses on questions regarding the actual time that merge reviews take to conduct or the time that public contracts take to be awarded.
  • BTI: Organization of the Market and Competition: BTI conducts surveys of experts on questions of economic transformation.  The component used for this indicator is focused on Organization of the market and competition, which measures the fundamentals of market competition and free markets, specifically looking at questions around market organization, competition policy, foreign trade, and the banking system.

MCC Methodology

MCC’s Market Competitiveness Score = [ (Normalized B-Ready Competition Pillar 1) ÷ 3] + [ (Normalized B-Ready Competition Pillar 3) ÷ 3] + [ (Normalized BTI) ÷ 3]

This index draws on the 2024 B-Ready dataset and the BTI 2024 report. Country scores are reported on the Scorecards as 2024 data. When some indicators are missing data, the others are used. Since the two sources of this index have different scales, MCC created a common scale for each of the indicators by normalizing them. Please see the equations below.

MCC Methodology to Normalize B-Ready and BTI Data:

  • Normalized B-Ready Competition Pillar 1 = (Number of countries scoring below Country X on B-Ready Competition Pillar 1’s raw data in the income group) ÷ (Number of Countries scoring equal to or greater than Country X on B-Ready Competition Pillar 1’s raw data in the income group + Number of countries scoring below Country X on B-Ready Competition Pillar 1’s raw data in the income group)
  • Normalized B-Ready Competition Pillar 3 = (Number of countries scoring below Country X on B-Ready Competition Pillar 3’s raw data in the income group) ÷ (Number of Countries scoring equal to or greater than Country X on B-Ready Competition Pillar 3’s raw data in the income group + Number of countries scoring below Country X on B-Ready Competition Pillar 3’s raw data in the income group)
  • Normalized BTI = (Number of countries scoring below Country X on BTI raw data in the income group) ÷ (Number of Countries scoring equal to or greater than Country X on BTI’s raw data in the income group + Number of countries scoring below Country X on BTI’s raw data in the income group)

For example, to calculate a given country X’s score, MCC first finds the number of countries that score worse than that country in the income pool, and the number of countries that have the same or better score than country X on the sub-source.  MCC then divides the number of countries below by the sum of the number of countries below and the number of countries equal or above.  Missing values are not included in these calculations. Finally, MCC averages the normalized values for each source together. If one source is missing, the average of the normalized scores for the other two is used.  If two sources are missing, the normalized score for the other is used. If all three are missing, the indicator is considered missing and assigned an “N/A”.