The Networked Readiness Index framework: A methodological note

The Global Information Technology Report series and the Networked Readiness Index (NRI) were launched by the World Economic Forum in 2001. This represented one of the first attempts to make conceptual sense of the complex information and communication technologies (ICT) reality, identifying the common factors that enable countries to use technology effectively. The networked readiness framework that underpins the NRI was intended to provide guidance for policymakers and civil society on the factors that they need to take into account to fully leverage ICTs in their growth strategies.

The economic literature has largely established the fundamental role of innovation in boosting long-term productivity and growth. Although networked readiness represents only one ingredient in the innovation process, it has become an increasingly important one. Several studies have established the link between ICTs and productivity gains, especially in advanced economies.¹ This will be particularly important in the next decades as the Fourth Industrial Revolution transforms the way economies work and the way societies organize themselves.

The impact of ICTs on our lives goes well beyond their effects on productivity and growth; they also act as a vector of social development and transformation. ICTs can improve access to basic services, enhance connectivity, and create new employment opportunities. Ultimately, ICTs hold significant potential to improve the quality of people’s lives and to enhance the way they live, communicate, interact, and engage among themselves and with their governments.

In recent years, the emphasis has moved from the issue of ensuring access to the question of how to make the best use of ICTs in order to improve business innovation, governance, citizens’ political participation, and social cohesion. In light of this shift in emphasis, and after two years of research and consultations with experts, the Impact subindex was added to the NRI framework in 2012.² Yet there is still room to improve the way we measure the actual impact of ICTs because the availability of data remains limited to only some of the relevant areas of impact. In addition, the complex relationships between ICTs and socioeconomic performance are not fully understood and their causality not fully established. However, our hope is to highlight the opportunities offered by ICTs and provide an indication of the ways they are transforming economies and societies around the world.

The networked readiness framework, briefly outlined in the chapter, rests on six principles:

• A high-quality regulatory and business environment is critical in order to fully leverage ICTs and generate impact.
• Similarly, ICT readiness—as measured by ICT affordability, skills, and infrastructure—is a pre-condition to generating impact.
• Fully leveraging ICTs requires a society-wide effort. All stakeholders—the government, the business sector, and the population at large—have a role to play.
• ICT use should not be an end in itself. The impact that ICTs actually have on the economy and society is what ultimately matters.
• The set of drivers—the environment, readiness, and use—interact, co-evolve, and reinforce each other to create greater impact. In turn, greater impact creates more incentives for countries to further improve their framework conditions, their readiness for ICTs, and their use of ICTs, thus creating a virtuous cycle. Conversely, weaknesses in any particular dimension are likely to hinder progress in others.
• Finally, the networked readiness framework should provide clear policy guidance.

Structure of the Networked Readiness Index

The networked readiness framework translates into the NRI, a composite index made up of four main categories (subindexes), 10 subcategories (pillars), and 53 individual indicators distributed across the different pillars. The full list of indicators, grouped by pillars and subindexes, is provided below.

In this list, the number preceding the period indicates the pillar to which the variable belongs (e.g., indicator 2.05 belongs to the 2nd pillar; indicator 8.03 belongs to the 8th pillar). The numbering of the indicators matches the numbering of the data tables at the end of the Report.

The computation of the NRI is based on successive aggregations of scores, from the indicator level (i.e., the most disaggregated level) to the overall NRI score (i.e., the highest level). Scores for indicators derived from the World Economic Forum’s Executive Opinion Survey (the Survey) are always measured on a 1-to-7 scale and therefore do not require transformation prior to aggregation. These are identified in the list of indicators by an asterisk (*). All the other indicators come from external sources, as described in the Technical Notes and Sources section at the end of the Report. In order to align them with the Survey’s results, we apply a min-max transformation, transforming them into a 1-to-7 scale.³Unless noted otherwise, we use an arithmetic mean to aggregate individual indicators within each pillar and also for higher aggregation levels (i.e., pillars and subindexes).⁴

Throughout the Report, scores in the various dimensions of the NRI pillars are reported with a precision of one decimal point. However, exact figures are always used at every step of the computation of the NRI.

A description of each subindex and pillar are provided below, along with the rationale for their inclusion.¹⁰

Environment subindex

The success of a country in leveraging ICTs depends in part on the quality of the overall operating environment. The Environment subindex therefore assesses the extent to which a country’s market conditions and regulatory framework support entrepreneurship, innovation, and ICT development.

The Political and regulatory environment pillar (nine indicators) assesses the extent to which a country’s political and regulatory environments facilitate ICT penetration and the development of business activities. It does so by measuring the extent of intellectual property rights protection, the prevalence of software piracy, the efficiency and independence of the judiciary, the efficiency of the law-making process, and the overall quality of regulations pertaining to ICTs.

The Business and innovation environment pillar (nine indicators) gauges the extent to which the business environment supports entrepreneurship by taking into account measures of red tape, the ease of starting a business, and taxation. It also measures the conditions that allow innovation to flourish by including indicators on the overall availability of technology, the intensity of competition, the demand conditions for innovative products (as proxied by the development of government procurement of advanced technology products), and the availability of venture capital for funding innovation-related projects.

Readiness subindex

The Readiness subindex measures the extent to which a country has in place the infrastructure and other factors to support the uptake of ICTs.

The Infrastructure pillar (four indicators) captures the state of a country’s ICT infrastructure as well as infrastructure that matters for ICT development: mobile network coverage, international Internet bandwidth, secure Internet servers, and electricity production.

The Affordability pillar (three indicators) assesses the affordability of ICTs in a country through measures of mobile telephony usage costs and broadband Internet subscription costs, as well as an indicator that assesses the state of liberalization in 17 categories of ICT services, because more intense competition tends to reduce retail prices in the long run.

The Skills pillar (four indicators) measures the capacity of the population to make effective use of ICTs by taking into account the enrollment rate in secondary education, the overall quality of the education system, and of mathematics and science education in particular, and the adult literacy rate.

Usage subindex

The Usage subindex assesses the level of ICT adoption by a society’s main stakeholders: government, businesses, and individuals.

The Individual usage pillar (seven indicators) measures the level of diffusion of selected ICTs among a country’s population, using mobile telephony penetration, Internet usage, personal computer ownership, and the use of social networks.

The Business usage pillar (six indicators) captures the extent to which businesses in a country use the Internet for business-to-business (B2B) and business-to-consumer (B2C) operations, as well as their efforts to integrate ICTs in their operations. It also measures the capacity of firms to come up with new technologies by taking into account the number of patent applications under the Patent Cooperation Treaty (PCT). Finally, it measures the extent of staff training as a proxy for the capacity of management and staff to innovate.

The Government usage pillar (three indicators) assesses the leadership and success of the government in developing and implementing strategies for ICT development, as well as in using ICTs, as measured by the availability and quality of government online services.

Impact subindex

The Impact subindex gauges the broad economic and social impacts accruing from ICTs.

The Economic impacts pillar (four indicators) measures the effect of ICTs on competitiveness through technological and non-technological innovations in a country—as measured by the number of patent applications as well as by the role of ICTs in the development of new products, processes, and organizational models. It also measures the overall shift of an economy toward more knowledge-intensive activities.

The Social impacts pillar (four indicators) aims to assess a country’s societal progress brought about or enhanced by the use of ICTs. Such progress includes—but is not limited to—access to education and healthcare, energy savings, and more-active civil participation. Currently, because of data limitations, this pillar focuses on assessing the extent to which ICTs allow access to basic services (education, financial services, and healthcare); the use of the Internet at school, as a proxy for the potential benefits that are associated with the use of ICTs in education; the impact of ICTs on government efficiency; and the quality and usefulness of information and services provided by a country for the purpose of engaging its citizens in public policymaking through the use of e-government programs.

Measuring the impacts of ICTs remains a complex task, and the development of rigorous, international comparable statistics is still in its infancy. As a result, many of the areas where ICTs have a significant impact—especially those where the impact does not translate directly into commercial activities, as is the case in environment, healthcare, and education—are not captured in the NRI. Therefore the Impact subindex should be regarded as work in progress.

Methodology and data

The structure of the NRI is unchanged from the previous edition.

About half of the 53 individual indicators used in the NRI are sourced from international organizations. The main providers are the International Telecommunication Union (ITU); the World Bank; the United Nations Educational, Scientific and Cultural Organization (UNESCO); and other UN agencies. Carefully chosen alternative data sources, including national sources, are used to fill data gaps in certain cases. The other half of the NRI indicators are derived from the World Economic Forum’s annual Survey. The Survey is used to measure concepts that are qualitative in nature or for which internationally comparable statistics are not available for enough countries.¹¹

The Survey is administered annually to over 14,000 business executives in all the economies included in the NRI (see Browne et al. 2015 for more details). The Survey represents a unique source of insight into many critical aspects related to a country’s enabling environment, such as the extent of red tape and the degree of intellectual property protection; aspects related to the preparedness of its population, such as the quality of the education system; to ICT usage, such as its capacity to innovate and the importance of its government’s vision for ICTs; and to ICT impacts, such as the contribution of ICTs to the development of new products and services and to improving access to basic services.

Some of the indicators composing the Index are subject to significant changes in value from one year to the next. In particular, the two price measures (indicators 4.01 and 4.02) used to calculate the affordability pillar score can reflect changes in both the benchmarks used by the ITU and in the Purchasing Power Parity (PPP) estimates sourced from the World Bank. Although there have been no changes to the PPP methodology this year (the conversion factor used is still based on the International Comparison Program 2011),¹²figures for the costs in local currencies of four different services provided by the ITU have changed significantly for some countries.

For two indicators, the number of missing data points remains very high. Indicators 1.07 Software piracy rate and 9.04 Share of workforce employed in knowledge-intensive jobs are missing data for 35 and 29 economies, respectively, and were not included the calculation for those economies. For each of the other 53 indicators of the NRI, the number of missing data points does not exceed four. In addition, in the absence of data on the adult literacy rate (indicator 5.04) for as many as 22 Organisation for Economic Co-operation and Development (OECD) member countries and Hong Kong SAR, a value of 99 percent was assumed for the purpose of calculating the Skills pillar score.

Country coverage

The inclusion of an economy depends on the availability and quality of indicators. To be included in the NRI, the number of missing (or outdated) data points for an economy cannot reach five, or 10 percent of all indicators. Because almost half of the indicators entering the NRI are derived from the Executive Opinion Survey, which is the basis for the Global Competitiveness Report (GCR), the coverage of a country in the GCR is a necessary—but not a sufficient—condition for a country’s inclusion in the NRI.

References

Browne, C., A. Di Battista, T. Geiger, and T. Gutknecht. 2015. “The Executive Opinion Survey: The Voice of the Business Community.” In The Global Competitiveness Report 2015–2016. K. Schwab, editor. Geneva: World Economic Forum. 75–85.

Cardona, M., T. Kretschmera, and T. Strobel. 2013. “ICT and Productivity: Conclusions from the Empirical Literature.” Information Economics and Policy 25 (3): 109–25.

Draca, M., R. Sadun, and J. Van Reenen. 2006. “Productivity and ICT: A Review of the Evidence.” CEP Discussion Paper No. 749. Centre for Economic Performance (CEP). August.

Dutta, S., B. Bilbao-Osorio, and T. Geiger. 2012. “The Networked Readiness Index 2012: Benchmarking ICT Progress and Impacts for the Next Decade.” In The Global Information Technology Report 2012. S. Dutta and B. Bilbao-Osorio, editors. Geneva: World Economic Forum. 3–34.