Relationship between " Financial Market Development " and " Technological Readiness " based on Global Competitiveness Report: a Guidance for Developing Countries !

Abstract

The technology is the factor of wealth creation. The more effective use of technology severely affects the competition conditions. The concept of competitiveness has attracted abundant attentions of both scholars and governors during the past decade. During this period, the World Economic Forum has published its annual reports which encompass Global Competitiveness Index (GCI) in order to measure national competitiveness in different countries. This paper aims at investigating the interaction between the two sets of “Financial Market Development” and “Technological readiness” as the two basic pillars of national competitiveness in order to provide information for improving national competitiveness in developing countries. In our study, we used descriptive-correlation methodology. The statistical population was 139 countries whose GCI data were included in GCI 2010 report. Also, we employed Canonical Correlation Analysis (CCA) to investigate interaction between two sets of “Financial Market Development” and “Technological readiness”. Our findings show that there is a significant and positive relationship between the set of “Financial Market Development” and that of “Technological readiness”.

Keywords: Global Competitiveness, Technological readiness, Financial Market Development, Canonical Correlation Analysis, Developing Countries.

Full text

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Relationship between “Financial Market Development” and
“Technological Readiness” based on Global Competitiveness
Report: a Guidance for Developing Countries
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1"Faculty"of"Management,"University"of"Tehran,"Tehran,"Iran","Email: jafarnjd@ut.ac.ir"
1"Faculty"of"Management,"University"of"Tehran,"Tehran,"Iran","Email: ghasemir@ut.ac.ir
1"Faculty"of"Management,"University"of"Tehran,"Tehran,"Iran","Email: jafarnjd@ut.ac.ir
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1. Introduction
In globalization age, the economic competition among countries and economic enterprises has
increased globally. The concept of competitiveness has been applied by Michael Porter at a wide extend of
competitiveness of enterprise and industry to national and global competitiveness [22].
In global economy, the competitiveness means the ability of obtaining suitable and constant situation
at international markets. In view of Organization for Economic Cooperation and Development (OECD),
the ability of a country in producing commodities and services for presentation in international markets is
one of the most important dimensions of competitiveness. The competitiveness means reaching of internal
commodities and services to international markets. The competitiveness has been also defined as the
ability of a economy for stabilization of its share in the market and in all these definitions, the concept of
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competitiveness attracts attention as obtaining a suitable place in international markets for products of a
country [12].
The changes in globalization process means that the nations cannot reach suitable development just
from producing commodity and services for national markets. In 21st century, the degree of development
of nations depends on their political, national and economical capacity, their leaders and also the speed of
their national institutions in adjustment and use from globalization process. Therefore the exact
identification of globalization process and exact scrutiny of this trend is necessary in different countries
especially in developing countries which have entered into this scene [24].
The countries and enterprises and industrial organizations have justified the relationship between
innovation and economical success. The development of technology helps the innovators to move at first
line of market. Therefore, the application of technology (in addition to its development) is one of the key
factors of success in global competition [13].
The rapid progress of globalization has alarmed nation states worldwide to develop stable
macroeconomic policies in order to enhance the competitiveness of domestic markets. The State has an
important role to play in this process. This also means greater efforts to reform education and science, to
promote advanced technologies and to strengthen the private sector [9]. Economic management agenda in
many economies around the world is transition from factor-driven economy to efficiency-driven. To this
end, their economic policy making should benefit valid orientation and indicators for this transition.
Utilizing comparative approach and benchmarking from successful economic experiences around the
world can help the policy makers and business leaders manage economy and achieve a higher level of
prosperity. In this regard, improving the national competitiveness is a key factor.
The concept of competitiveness has attracted abundant attentions of both scholars and governors
during the past decade to the extent that World Economic Forum (WEF) has developed GCI to measure
competitiveness of countries around the world [29].
The purpose of WEF of issuing the annual GCI reports is to provide benchmarking tools for business
leaders and policymakers to identify obstacles to improved competitiveness, thus stimulating discussion
on the best strategies and policies to overcome them [27].
However, before adopting the GCI as a benchmark or spending any resources and efforts to improve
national competitiveness, policymakers must determine their country priorities for improving national
competitiveness [29]. In our study, we seek to provide useful information for improving national
competitiveness in developing countries.
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2. Literature review
2.1. Competitiveness
According to Dutta (2007) in today’s perspectives, competitiveness has become a fundamental force
in economics like gravity in physics [5]. Competitiveness is a concept, which tries to explain why some
countries develop faster than others. Also, it connects the macro- and micro-economic views of social-
economic development [14].
McFetridge (1995) identified competitiveness at three levels: firm, industry and national [19]. In the
context, Porter (1990) believed that “the only meaningful definition of competitiveness at the national
level is national productivity” [21]. Furthermore, Heap (2007) point out that “improving productivity is
the only way of baking a bigger cake – most other changes simply give us different sized slices” [8].
From a macro policy perspective, the primary goal of competitiveness is the well being of the citizens
of a country, be it through individual income, standard of living, human development, or social justice
[14].
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2.2. Measuring nation’s competitiveness
Since 1979, annual Global Competitiveness Reports of World Economic Forum (WEF) have
examined the many factors enabling national economies to achieve sustained economic growth and long-
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term prosperity. In these reports competitiveness has been defined as the set of institutions, policies, and
factors that determine the level of productivity of a country [22]; Also, since 2005, the WEF has
developed the Global Competitiveness Index (GCI). As a highly comprehensive index, GCI captures the
microeconomic and macroeconomic foundations of national competitiveness. According to GCI reports,
“a nation’s level of competitiveness reflects the extent to which it is able to provide rising prosperity to its
citizens” [26].
The GCI captures the open-ended dimension of competitiveness by providing a weighted average of
many different components, each of which reflects one aspect of the complex concept of competitiveness
[26]. The GCI contains 12 pillars which are classified as following table:
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Table1. GCI pillars in three main sub-indexes
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It is important to keep in mind that These 12 pillars of competitiveness are not independent: they tend
to reinforce each other, and a weakness in one area often has a negative impact on other areas. For
example, innovation (pillar 12) will be very difficult without a well-educated and trained workforce
(pillars 4 and 5) that are adept at absorbing new technologies (pillar 9), and without sufficient financing
(pillar 8) for R&D or an efficient goods market that makes it possible to take new innovations to market
(pillar 6) [27].
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2.3. Three stages of development and GCI
Another useful classification of GCI reports considers three different stages of development in which
each country falls. In this regard, Schwab (2009) pointed out that: “Different pillars of GCI affect different
countries differently: the best way for Burkina Faso to improve its competitiveness is not the same as the
best way for Switzerland. According to the GCI, in the first stage, the economy is factor-driven and
countries compete based on their factor endowments, primarily unskilled labor and natural resources.
Companies compete on the basis of price and sell basic products or commodities, with their low
productivity reflected in low wages. Maintaining competitiveness at this stage of development hinges
primarily on well-functioning public and private institutions (pillar 1), well-developed infrastructure
(pillar 2), a stable macroeconomic framework (pillar 3), and a healthy and literate workforce (pillar 4). As
wages rise with advancing development, countries move into the efficiency-driven stage of development,
when they must begin to develop more efficient production processes and increase product quality. At this
point, competitiveness is increasingly driven by higher education and training (pillar 5), efficient goods
markets (pillar 6), well-functioning labor markets (pillar 7), sophisticated financial markets (pillar 8), a
large domestic or foreign market (pillar 10), and the ability to harness the benefits of existing technologies
(pillar 9). Finally, as countries move into the innovation-driven stage, they are able to sustain higher wages
and the associated standard of living only if their businesses are able to compete with new and unique
main sub-indexes
Pillars of GCI
Basic requirements
1. Institutions
2. Infrastructure
3. Macroeconomic stability
4. Health and primary education
Efficiency enhancers
5. Higher education and training
6. Goods market efficiency
7. Labor market efficiency
8. Financial market sophistication
9. Technological readiness
10. Market size
Innovation and sophistication factors
11. Business sophistication
12. Innovation
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products. At this stage, companies must compete through innovation (pillar 12), producing new and
different goods using the most sophisticated production processes (pillar 11) (p. 7)” [26].
All these pillars are not mutually exclusive – so that two or more of them could be true at the same
time. Hundreds of econometric studies show that many of these conjectures are, in fact, simultaneously
true [25]. All the pillars are not independent: not only they are related to each other, but they tend to
reinforce each other [23].
Researchers believe that there is a common agreement about the importance of change rate of
technology in determination of the economic growth rate [6]. On the other hand, the variability of
competition rules in business world shows the process of new product presentation into markets with a
special importance. Today, most organizations more than any other time have found that it is not enough to
depend on just traditional competition leverages such as quality improvement, decrease of cost or
differentiation in presentation of products and services and instead concepts such as speed and flexibility
in competition have raised and the trend toward the presentation of new products and services into market
itself is the adequate reason of this change of attitude [10].
The technology is the factor of wealth creation. The more effective use of technology severely affects
the competition conditions. Technology management urges the invention and the innovation management
and these two are the main parts of every system that creates and uses the technology [13].
As mentioned in Introduction, this research seeks to investigate interactions between pillars of
“Financial Market Development” and “Technological Readiness” in GCI in order to provide information
for improving national competitiveness in developing countries.
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2.4. Financial Market Development
The recent financial crisis has highlighted the central role of a sound and well-functioning financial
sector for economic activities. An efficient financial sector allocates the resources saved by a nation’s
citizens, as well as those entering the economy from abroad, to their most productive uses. It channels
resources to those entrepreneurial or investment projects with the highest expected rates of return rather
than to the politically connected. A thorough and proper assessment of risk is therefore a key ingredient.
Business investment is critical to productivity. Therefore economies require sophisticated financial
markets that can make capital available for private-sector investment from such sources as loans from a
sound banking sector, properly regulated securities exchanges, venture capital, and other financial
products. The importance of such access to capital was recently underscored by the liquidity crunch
experienced by businesses and the public sector in both developing and developed countries. In order to
fulfill all those functions, the banking sector needs to be trustworthy and transparent, and—as has been
made so clear recently—financial markets need appropriate regulation to protect investors and other actors
in the economy at large [27]. So the “Financial Market Development” sub-indexes are:
1. Availability of financial services;
2. Affordability of financial services;
3. Financing through local equity market;
4. Ease of access to loans;
5. Venture capital availability;
6. Restriction on capital flows;
7. Soundness of banks;
8. Regulation of securities exchanges;
9. and Legal rights index [22].
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2.5. Technological readiness
In today’s globalized world, technology has increasingly become an important element for firms to
compete and prosper. The technological readiness pillar measures the agility with which an economy
adopts existing technologies to enhance the productivity of its industries, with specific emphasis on its
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capacity to fully leverage information and communication technologies (ICT) in daily activities and
production processes for increased efficiency and competitiveness. Whether the technology used has or
has not been developed within national borders is irrelevant for its ability to enhance productivity. The
central point is that the firms operating in the country have access to advanced products and blueprints and
the ability to use them [27]. The “Technological readiness” sub-indexes are:
1. Availability of latest technologies;
2. Firm-level technology absorption;
3. Foreign Direct Investment (FDI) and technology transfer;
4. Internet users;
5. Broadband Internet Subscriptions;
6. and Internet bandwidth [22].
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2.6. Canonical Correlation Analysis (CCA)
CCA is a multivariables statistical approach for measuring linear relationship between different
groups of variables. This approach can play an important role in exploratory mean when multi attribute
variables have some relations to an analytical category [16]. CCA is obtaining linear composition of
predicting variables that has the most correlation with linear combination of criteria variables. These
combinations are shown as follow: [15].
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The number of dependent variables (nine) or the number of independent variables (six), whichever is
smaller, determines the maximum number of canonical functions. Thus the analysis is based upon the
derivation of six canonical functions [18]. Table 2 is showing some researches in CCA field.
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Table 2. Some previous research which applied CCA technique
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3. Proposed model
This Proposed model is composed of two kinds of variables: “Financial market Development”and
“Technological readiness” as in the following figure:
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C!D
CLD
Methodology
Author(s)
Using by Canonical Correlation Analysis, this study examined the interdependencies between supply chain
relation quality and supply chain performance in automotive industry in Iran [20].
Mohaghar et al. (2011)
Using by Canonical Correlation Analysis, this study examined the interdependencies between Enabler and
results in EFQM model in TAVANIR Company in Iran [1].
Asghari-zade et al. (2011)
They demonstrated a meaningful relationship between Job satisfaction and EFQM by utilizing CCA [28].
Tutuncu and Kucukusta (2009)
They used CCA to study relationships between TQM and organizational performance [17].
Macinati (2008)
Using Canonical Correlation Analysis, this study examined the interdependencies in investing And
financing decisions of restaurant firms [11].
Jang and Ryu (2006)
They used CCA to study relationships between enablers and results in EFQM [3].
Bou-Llusar et al. (2005)
This study utilized a canonical correlation approach to segment the senior pleasure traveler market [2].
Baloglu et al. (1998)
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Figure1. Research proposed model
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According to the above-mentioned figure research question is:
Is there any meaningful relationship between “Financial market Development”and “Technological
readiness”?
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And Research Sub questions are:
1. Is there any correlation between “Financial market Development”sub-index and “Technological
readiness” sub-index?
2. In the set of “Financial market Development”, which sub-index has the most and which one has
the least impact on creating a meaningful relationship between “Financial market
Development”and “Technological readiness”?
3. In the set of “Technological readiness”, which sub-index has the most and which one has the least
impact on creating a meaningful relationship between “Financial market Development”and
“Technological readiness”?
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4. Research Methodology
4.1. Research Method
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Availability of
latest
technologies
Firm-level
technology
absorption
FDI and
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transfer
Internet users
Broadband
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Internet
bandwidth
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Availability of
financial
Affordability of
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Ease of access
Venture capital
Restriction on
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Research method used for this study is descriptive-correlation. Secondaryanalysis method was also
used for analyzing secondary data source. First, we studied literature of Competitiveness, GCI, “Financial
market Development”, “Technological readiness”, and CCA. Then, we used the GCI report data in 2010
for doing our secondary analysis. The Statistical population in this study was 139 countries whose data
was included in GCI report in 2010. Finally, we utilized Canonical Correlation Analysis (CCA) by SAS9
software; thereafter, analysis output was obtained.
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4.2. Information gathering tools
According to De Vaus (2002) it would be appropriate to use data collected by other people or
agencies to address the relevant research questions [4]. Such data is called secondary data resource. So we
utilized the data published by World Economic Forum (GCI report in 2010) as our secondary data
resource.
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5. Data Analysis
Using SAS9 software, we investigated correlation between two sets of “Financial market
Development” and “Technological readiness” by using CCA.
For answering the first sub question, based on table 3, we can see a meaningful positive correlation in
significance level of 0.05 between the most of “Financial market Development” sub-indexes and
“Technological readiness” sub-indexes. “Availability of financial Services” and “Availability of latest
technologies” have the strongest correlation and “soundness of banks” and “Internet users” have the least
correlation in this table. Several interesting relationships were detected in Table 3.For example in
“Financial market Development” sub-indexes, “Availability of financial Services” has the most correlation
and “Legal rights index” has the least correlation with “Firm-level technology absorption”. Also
“Availability of financial Services” has the most correlation and “Legal rights index” has the least
correlation with “FDI and technology transfer”. !
Table 3. Correlation coefficient between “Financial market Development” and “Technological readiness”
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Table 4. Canonical Correlation Analysis summary
Table 4 is showing enveloped data variation by CCA. The extracted variance for “Financial market
Development” and “Technological readiness” is showing that 100%of canonical roots are covered by
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utilization. !
Table 5. Statistical tests
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Technological readiness
Number of variables
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Extracted variance
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100.00%
Redundancy index
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Internet users
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Internet bandwidth
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E?*&)&/*),$ 5)(G'#$ ;'6',+85'&#H)&9$ E-'/.&+,+0*/),$ (')9*&'""H$ *"$ 9'#'(5*&'9$ :1$ /)&+&*/),$
/+((',)#*+&$C_/D$)&9$>*0'&$6),7'$C_/LD4$$
[)"'9$+&$#):,'$X<$ P*("#$6)(*):,'$_/$*"$KM4MZd$)&9$_/L$*"$\!4!Jd4$['/)7"'$_/$$/)&&+#$9*('/#,1$8('8)('$
#.'$".)('9$6)(*)#*+&<$3'$7#*,*e'$('97&9)&/1$*&9'B4$_'97&9)&/1$*&9'B$2+($_/L$*"$*&$57,#*8,'$('0('""*+&$
)&),1"*"4$$
Table$ W$ *"$ ".+3*&0$ #.)#$ 3'$ /)&$ 8('9*/#$ 5+('$ #.)&$ XK4Y!d$ +2$ /.)&0'"$ *&$ E-'/.&+,+0*/),$
(')9*&'""H$:1$"#791*&0$/.)&0'"$*&$E?*&)&/*),$ 5)(G'#$ ;'6',+85'&#H4N,"+$ 3'$ /)&$ 8('9*/#$ 5+('$ #.)&$
XM4JKd+2$ /.)&0'"$ *&$ E?*&)&/*),$ 5)(G'#$ ;'6',+85'&#H$ :1$ "#791*&0$ /.)&0'"$ *&$ E-'/.&+,+0*/),$
(')9*&'""H4$ $ $ -.'"'$ P*&9*&0"$ )('$ 5'&#*+&*&0$ )$ 5')&*&027,$ (',)#*+&".*8$ :'#3''&$ E?*&)&/*),$ 5)(G'#$
;'6',+85'&#H8*,,)($ )&9$ E-'/.&+,+0*/),$ (')9*&'""H$ 8*,,)(4$ %&$ )99*#*+&<$ #.'1.)6'$ )$ 8+"*#*6'$ '22'/#$ +&$
')/.$+#.'(4$!
Table 6. Meaningful canonical variables in “Financial market Development” & “Technological readiness”.
A)&+&*/),$6)(*):,'$!
A)&+&*/),$6)(*):,'$L
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For answering second and third sub-questions, we used canonical cross loading for evaluating the
importance of every criterion in meaningful canonical variable. In general the researcher faces the choice
of interpretation of the functions using canonical weights (standardized coefficients), canonical loadings
(structure correlations) or, canonical cross loadings. Given a choice, it is suggested that cross loadings are
superior to loadings, which are in turn superior to weights [7].
According to table 6, all variables in both sets have a high canonical cross loading (>0.3) in creating a
canonical variable in their sets. So they are very effective in creating a meaningful relationship between
“Financial market Development” and “Technological readiness”. In “Financial market Development” sub-
indexes, “Availability of financial Services”, “Affordability of financial services”, and “Regulation of
securities exchanges” have the highest effect and “Legal rights index” has the lowest effect in creating this
relationship. Furthermore, in the “Technological readiness” sub-indexes, “Availability of latest
technologies”, “Firm-level technology absorption” and “FDI and technology transfer” have the highest
effect and “Internet users” has the lowest effect in creating this relationship. In addition, based on high
amount of canonical cross loading in both sets, we can conclude that “Financial market Development”sub-
indexes have a positive impact on “Technological readiness” sub-indexes.
!
,+)9*&0
A(+""$,+)9*&0
,+)9*&0
A(+""$,+)9*&0
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M4KM!K
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M4YMLX
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M4\MYJ
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!"#$%&#'(&)#*+&),,5th%National%
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6. Conclusion
This research intended to investigate the relationship between “Financial market Development”and
“Technological readiness” by using CCA for GCI 2010 data. First, we studied literature of
Competitiveness, GCI, Financial market Development, Technological readiness, and CCA. Then, we used
the Global Competitiveness report data in 2010 to do our secondary analysis. The population in this study
was 139 countries whose data was included in GCI report in 2010. Eventually, we utilized Canonical
Correlation Analysis (CCA) through SAS9 software then analysis output was obtained.
According to research findings, there is a meaningful relationship between “Financial market
Development” pillar and “Technological readiness” pillar. Also, they have a positive effect on each other.
In “Financial market Development” sub-indexes, “Availability of financial Services”, “Affordability of
financial services”, and “Regulation of securities exchanges”and in “Technological readiness” sub-
indexes, “Availability of latest technologies”, “Firm-level technology absorption” and “FDI and
technology transfer” have the most impact on creating a meaningful relationship.
Being familiar with national competitiveness indexes provides a suitable ability for different industry
agents to analyze their country environment with regional countries and even world countries. Generally,
the findings of this research increased our knowledge about the relationship between indexes of “Financial
market Development” and “Technological readiness”.
!
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