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Pengfei Ni: The conceptual framework and index system of Global Urban Competitiveness Report

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There have been scores of benchmarking studies of a city’s standing with regard to other cities in economic, social, business, retirement, education, culture and many other aspects of its situation.  The work done in this Report differs significantly is several ways.  First is its extent.  Almost all other benchmarking studies have limited themselves to cities of one country or region or type.  This Report included 500 cities from all continents and all states of development.  For this reason the concepts and variables used in this exercise may strike the reader as being occasionally a bit curious.  This is necessarily the case since we include data on enterprises that range from the most sophisticated and advanced in their structure and operation to those that operate in countries in which the level of economic development and the norms for doing things are quite different.  Nonetheless, we are fully convinced that the variables used do capture the essence of what it is we are trying to measure.

       Second is the methodology.  Other studies are very simple in their methodology.  They take several variables that relate to the aspect they are seeking to evaluate, find the place of each city, and then sum the positions to ascertain the place of each city in the hierarchy.  In this Report, the methodology is far more sophisticated, as the reader will learn upon reading this chapter and Chapter 2.  While this material may not be of great interest to many readers, who may wish to skip to Chapter 3, it does behoove us to be clear with regard to methodology for those who

       Global urban competitiveness is defined as a city’s ability to attract and transform resources, control and dominate the market, thus creating more wealth in a faster and bet­ter manner as well as providing welfare for its citizens, this is the result of the combination of urban enterprise operational elements with industrial systems in comparison with other cities in the world. In the light of the definition, There are two conceptual frameworks about global urban competitiveness and two index systems in the way of the input-output.

The Input Framework

The root of city economic competitiveness is based on its capacity to create values and provide  welfare  to customers. To the essence, wealth or value is created by people organized by enterprises. Let us assume that benefits from city values equal are to the total amount of benefits created by all enterprises in the city, and then we can analyze city competitiveness (i. e. benefits from city values and capacities) by analyzing the benefits created from city enterprises’ production.  In other words, this chapter presents an approach to describing and analyzing the operations of firms and basic economic processes that are explicitly appropriate to analysis and measurement of urban competitiveness in this Report.  As such it differs from the standard textbook treatment.

The Output Framework

From the definition of urban competitiveness, we know it means the ability to continuously creating the most wealth at the lowest cost within the shortest time. From the perspective of output, we can assess global urban competitiveness with the following framework:

UC2= F (C, S, L, A, E, P, G, I, D)

UC2 is the output of urban competitiveness, also referred to as urban comprehensive competitiveness in the Report.

C = cost, S = Economic scale, E = Employment, A = Aggregation, L = Development Level, P = Labor Productivity, I = Innovation, G = Economy Growth, and D = Decision-making Ability.

Cost is the most important comparative advantage of a city and the most significant source of urban competitiveness. Obviously, commodities of the same quality can obtain greater market share if they are sold at a lower price. The ratio of the nominal exchange rate to the real exchange rate, an important index of urban competitiveness, can partially reflect the price advantage of a city in a country in price compared with that of cities of other countries.

Economic scale is also an indicator of competitiveness. Economies of scale promote market competitiveness through reducing the unit cost of products. If market share is an important index of competitiveness, then the magnitude of GDP is a reflection of the market share of a city in both internal and external markets.

Economic growth is a reflection of a city’s potential competitiveness. The growth rate of GDP, especially long-term growth rate, is an important index of a city’s economic vitality.

Development level is a reflection of the city’s competitiveness and stage of development. GDP per capita is an important indicator of a city or a region’s development level and the incomes of its residents.

Production efficiency is the decisive factor for urban competitiveness and development. To a significant degree, competitiveness is directly linked to the production efficiency. Labor productivity, the key to production efficiency, reflects the value added or wealth created by per unit of labor.

Employment also reflects a city’s competitive performance in global competition. It is also an important reflection of citizens’ welfare. Therefore, we consider it to be an important indicator of urban competitiveness.

Economic aggregation promotes competitiveness through a reduction of the transaction cost. The aggregation effect can lead to knowledge sharing, technology spillovers, brand identification, external economies and other economic effects. GDP per square kilometer is an important indicator of output aggregation resulting from the aggregation of production factors. It is also an important indicator of efficiency, reflecting the amount of wealth created per square kilometer.

Technological innovation is at the core of urban competitiveness and its achievements are an important reflection of urban competitiveness. The number of international patent applications is another useful indicator of urban competitiveness. Due to the diffusion effect in the transformation of scientific and technological results, we use the gross index instead of the average index.

Decision-making ability shows the extent to which a city acts as a control center in the world economy. This ability is reflected in the number of multinational corporations located in a city, and we use this as an indicator of urban competitiveness.

the index system of output competitiveness

Based on the above analysis, the output index system of global urban competitiveness is listed as below.

Table 1.4 Index System of Urban Comprehensive Competitiveness

Index

Implications of the Index

GDP

A city’s products and service market share

GDP per capita

A city’s development level and residents’ welfare level

GDP per square kilometer

Degree of economic aggregation

GDP growth rate

Economic vitality

Labor productivity

Economic efficiency

Employment rate

Important macro economy performance and residents’ welfare level

Ratio of nominal exchange rate to real exchange rate

Advantage in the price of commodities and services

Number of international patent applications

Ability of scientific and technological innovation

Multinational Corporation Score 

Economic decision-making and controlling ability

 Theoretically, UC1 = UC2, but they are not completely equal to each other in reality due to statistical and other data-related factors.

—— From“Global Urban Competitiveness Report(2007-2008)”,Pengfei  Ni with Peter Karl Kresl