Appendix A: Calculation of the Sustainability-adjusted GCI
As described in the text, the two areas of sustainability—social and environmental—are treated as independent adjustments to each country’s performance in the Global Competitiveness Index (GCI). The adjustment is calculated according to the following steps.
In the first step, the individual indicators in each area are normalized on a 1-to-7 scale and aggregated by averaging the normalized scores, such that a social sustainability score and an environmental sustainability score are calculated for each country.
In the second step, these scores are normalized again on a 0.8-to-1.2 scale,a which is based on the distribution of each of the two sustainability components. The purpose of this methodology is to reward the countries attaining a relatively good performance on the two sustainability components while penalizing those that register a poor performance. Applying this methodology corresponds to transforming actual averages into coefficients ranging from 0.8 to 1.2. For example, the worst performer on the social sustainability pillar obtains a score of 0.8 and the best performer a 1.2. The same calculation is conducted for the environmental sustainability pillar.
Normalizing on a 0.8-to-1.2 scale and using the actual sample maximum and minimum are corroborated by the statistical distribution of the data, so as to ensure that the final data are not skewed. In the absence of empirical evidence, the selection of the impact limits (0.8–1.2) relies on the best judgment of the authors and is based on the assumption that countries can experience either an opportunity if they manage their resources well or a weakness if they do not.
The selection of this methodology is not intended to be scientific, but it represents a normative approach aimed at stimulating discussions on policy priorities and possibly stimulating scientific research in this field.
In the third step, the GCI score of each country is multiplied twice: once by its social sustainability coefficient and once by its environmental sustainability coefficient, to obtain two separate sustainability-adjusted GCI scores. Finally, an average of the two scores provides an overall measure of the sustainability adjustment.
Structure of the sustainability pillars
The computation of the sustainability components is based on an arithmetic mean aggregation of scores from the indicator level.b
Variables that are not derived from the Executive Opinion Survey (the Survey) are identified by an asterisk (*) in the following pages. To make the aggregation possible, these variables are transformed into a 1-to-7 scale in order to align them with the Survey results. We apply a min-max transformation, which preserves the order of, and the relative distance between, country scores.c
Indicators marked with a “(log)” subscript are transformed applying the logarithm (base 10) to the raw score.
Social sustainability pillar
- S01 Income Gini index*
- S02 Youth unemployment*
- S03 Access to sanitation*d(log)
- S04 Access to improved drinking water*d
- S05 Access to healthcare servicesd
- S06 Social safety net protection
- S07 Extent of informal economy
- S08 Social mobility
- S09 Vulnerable employment*
Environmental sustainability pillar
- S10 Stringency of environmental regulationse
- S11 Enforcement of environmental regulationse
- S12 Terrestrial biome protection*
- S13 No. of ratified international environmental treaties*
- S14 Baseline water stress*
- S15 Wastewater treatment*
- S16 CO2 intensity*(log)
- S17 Fish stocks overexploited*(log)
- S18 Forest cover change*
- S19 Particulate matter (2.5) concentration*(log)
- S20 Quality of the natural environment
The sample minimum and sample maximum are, respectively, the lowest and highest country scores in the sample of economies covered by the sustainability-adjusted GCI in each pillar.
The sample minimum and sample maximum are, respectively, the lowest and highest country scores in the sample of economies covered by the sustainability-adjusted GCI. In some instances, adjustments were made to account for extreme outliers. For those indicators for which a higher value indicates a worse outcome (e.g., CO2 emission, income Gini index), the transformation formula takes the following form, thus ensuring that 1 and 7 still corresponds to the worst and best possible outcomes, best possible outcomes, respectively: