Constructing an Index for Regional Competitiveness

This paper constructs an index to measure regional variations in competitiveness. Regional competitiveness is defined as an ability of regions to perpetuate and attract mobile production factors. The index contains available statistical indicators that approximate regional variations in human capital, innovativeness, agglomeration and accessibility. We find that the index is highly correlated with traditional long-term indicators of economic well-being, such as per capita GDP and personal income. However, the association between the index and short-term outcome indicators, such as change in production, employment and population is clearly lower than that in the long-term indicators. We conclude that our index, which captures various aspects of competitiveness, is essentially a long-term indicator, and its evolution can be described by traditional terms known as cumulative causation and vicious circles.