Competitiveness, innovation and productivity of the country

Abstract

This study discusses and investigates the key determinants of country competitiveness. An analysis of the available literature relating to the key determinants of the country’s competitiveness makes it possible to mention that their determinants are not yet completely explored. The issue is that the current literature examines the impact of GDP per capita and human capital while omitting important factors affecting a country’s competitiveness. Knowledge capital is one of the main factors of economic growth and competitiveness. Indigenous innovation contributes to the production of knowledge capital, while FDI and import trade are two major pathways for technological diffusion. As a result, when studying the causes of a country's competitiveness, the effects of these elements are not negligible. The following logical processes are used to investigate the topic of main factors of a country's competitiveness: first, a theoretical model outlining the primary factors of a country's competitiveness is studied; second, acceptable measurements for a country's competitiveness are selected; third, a balanced panel data set is created, and unknown parameter estimation is carried out. The GMM two-step panel data estimation technique is the major methodological instrument used in the article. Annual data from 2001 to 2020 on eight macroeconomic variables are included in the database (total 1040 observations per macroeconomic variable (52 countries, 20 years)). The study proved both practically and theoretically that: 1) the lagged value of the dependent variable has a positive and considerable impact on the competitiveness of the country; 2) the labor productivity of a country is an essential factor of competitiveness; the higher a country's labor productivity, the more probable it is to produce and export; 3) human capital and research and development are major sources of knowledge creation that directly contribute to a country's competitiveness; 4) the influence of FDI and imports on competitiveness has been proven to be significant; 5) weak institutions in emerging and developing economies have a negative impact on export sophistication and, as a result, a country's competitiveness. The research findings should be relevant to economic policymakers and model developers interested in estimating and evaluating structural systems of equations