Countries’ governance and competitiveness: business environment mediating effect

Bontempo, Paulo Cesar

doi:10.1108/RAUSP-11-2020-0253

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Sumário

Research Paper • RAUSP 57 (1) • Jan-Mar 2022 • https://doi.org/10.1108/RAUSP-11-2020-0253 copy

Countries’ governance and competitiveness: business environment mediating effect

Authorship SCIMAGO INSTITUTIONS RANKINGS

Abstract

Purpose

The purpose of this study is to analyze how institutional governance and business environment affect countries’ competitiveness and their relative importance.

Design/methodology/approach

In this paper, the authors analyze how institutional governance and business environment affect countries’ competitiveness, their relative importance and what are the implications for Brazil. The authors have collected data from 131 countries related to the institutional governance, business environment and competitiveness of these countries. For the analysis of the mentioned influences, the technique of partial least squares structural equations modeling is used.

Findings

Results indicate that the main role in countries’ competitiveness is played by the quality of institutional governance. The quality of the business environment reinforces the positive effect of the quality of institutional governance on countries’ competitiveness (mediation effect). Brazil has poor governance quality indicators when compared to high-middle income countries, especially regarding government effectiveness, political stability and control of corruption.

Research limitations/implications

The study provides a better understanding of the relative importance of governance quality and business environment quality for countries’ competitiveness. One limitation of this study is that the research was restricted to data related to the year 2019.

Practical implications

For strategists and decision-makers, understanding these effects on countries’ competitiveness and their relative importance is fundamental to understanding what makes their companies internationally competitive.

Social implications

The presence and appreciation of institutional governance quality need to be cultivated in society.

Originality/value

Instead of using the original diamond model, which presents circular relationships, the authors have used the business environment construct, composed of elements of the diamond model to test the relationships between the quality of institutional governance, competitiveness and the business environment.

Keywords
Competitiveness; Structural equation modeling; Business environment; Mediating effect; Institutional governance

Income group	Country
High income	Australia, Austria, Bahrain, Belgium, Brunei, Canada, Chile, Croatia and Cyprus
	Czech Rep., Denmark, Estonia, Finland, France, Germany, Greece and Hong Kong
	Hungary, Iceland, Ireland, Israel, Italy, Japan, Korea, Rep., Kuwait, Latvia and Lithuania
	Luxembourg, Malta, Mauritius, the Netherlands, New Zealand, Norway, Oman and Panama
	Poland, Portugal, Qatar, Romania, Saudi Arabia, Singapore, Slovak Republic and Spain
	Slovenia, Sweden, Switzerland, Trinidad and Tobago and the United Arab Emirates
	UK, USA and Uruguay
Upper middle income	Albania, Argentina, Armenia, Azerbaijan, Bosnia and Herzegovina and Botswana
	Brazil, Bulgaria, China, Colombia, Costa Rica, Dominican Republic, Ecuador and Georgia
	Guatemala, Indonesia, Jamaica, Jordan, Kazakhstan, Lebanon, Malaysia and Mexico
	Montenegro, Namibia, Paraguay, Peru, Russian Federation, Serbia and South Africa
	Thailand and Turkey
Lower middle income	Algeria, Angola, Bangladesh, Benin, Bolivia, Cambodia, Cameroon and Cape Verde
	Côte d’Ivoire, Egypt, El Salvador, Eswatini, Ghana, Honduras, India, Kenya and Nepal
	Kyrgyz Republic, LAO PDR, Mauritania, Moldova, Mongolia, Morocco and Nicaragua
	Nigeria, Pakistan, Philippines, Senegal, Sri Lanka, Tanzania, Tunisia, Ukraine and Zambia
Low income	Burkina Faso, Burundi, Chad, Congo, Dem. Rep., Ethiopia, Gambia, Guinea and Haiti
Low income	Madagascar, Malawi, Mali, Mozambique, Rwanda, Tajikistan, Uganda and Zimbabwe

Indicator
Voice and accountability	Reflects perceptions of the extent to which a country’s citizens can participate in selecting their government, as well as freedom of expression, freedom of association, and a free media
Political Stability and absence of violence/terrorism	Political Stability and Absence of Violence/Terrorism measures perceptions of the likelihood of political instability and/or politically motivated violence, including terrorism
Government effectiveness	Reflects perceptions of the quality of public services, the quality of the civil service and the degree of its independence from political pressures, the quality of policy formulation and implementation, and the credibility of the government’s commitment to such policies
Regulatory quality	Reflects perceptions of the ability of the government to formulate and implement sound policies and regulations that permit and promote private sector development
Rule of law	Reflects perceptions of the extent to which agents have confidence in and abide by the rules of society, and in particular the quality of contract enforcement, property rights, the police, and the courts, as well as the likelihood of crime and violence
Control of corruption	Reflects perceptions of the extent to which public power is exercised for private gain, including both petty and grand forms of corruption, as well as “capture” of the state by elites and private interests

Item	Question
Skillset of secondary-education graduates	Response to the survey question “In your country, to what extent do secondary-education graduates possess the skills needed by businesses?” [1 = not at all; 7 = to a great extent]
Skillset of university graduates	Response to the survey question “In your country, to what extent do university graduates possess the skills needed by businesses?” [1 = not at all; 7 = to a great extent]
Extent of market dominance	Response to the survey question “In your country, how do you characterize corporate activity?” [1 = dominated by a few business groups; 7 = spread among many firms]
Competition in professional services	Response to the survey question “In your country, how competitive is the provision of professional services (legal services, accounting, engineering, etc.) [1 = not at all competitive; 7 = extremely competitive]”
Competition in retail services	Response to the survey question “In your country, how competitive is the provision of retail services” [1 = not at all competitive; 7 = extremely competitive]
Quality of vocational training	Response to the survey question “In your country, how do you assess the quality of vocational training?” [1 = extremely poor among the worst in the world; 7 = excellent among the best in the world]
State of cluster development	Response to the survey question “In your country, how widespread are well-developed and deep clusters (geographic concentrations of firms, suppliers, producers of related products and services, and specialized institutions in a particular field)?” [1 = non-existent; 7 = widespread in many fields]
Buyer Sophistication	Response to the survey question: “In your country, how do buyers make purchasing decisions?” [1 = based solely on the lowest price; 7= based on a sophisticated analysis of performance atributes]

Latent			Indicator		Composite	Cronbach’s
Variable	Indicators	Loadings	Reliability	AVE	Reliability	Alpha
Business	Buyer sophistication	0.837	0.701	0.731	0.956	0.947
Environment	Competition in professional services	0.765	0.585
Quality	Competition in retail	0.752	0.566
	Extent of market dominance	0.872	0.760
	Quality of vocational training	0.903	0.815
	Skillset of secondary-education graduates	0.916	0.839
	Skillset of university graduates	0.895	0.801
	State of cluster development	0.883	0.780
Governance	Government effectiveness	0.970	0.941	0.855	0.972	0.965
Quality	Political stability	0.832	0.692
	Regulatory quality	0.965	0.931
	Rule of law	0.978	0.956
	Accountability	0.820	0.672
	Control of corruption	0.968	0.937

Relationship	Path coef.	p values	95% conf intervals	Significance
Relationship	Path coef.	p values	95% conf intervals	(p < 0.05)
Business environment-competitiveness	0.284	0.002	0.089–0.458	Yes
Governance-competitiveness	0.534	0.000	0.365–0.679	Yes
Governance-business environment	0.775	0.000	0.710–0.825	Yes

Effect	Path coef.	p values	95% conf intervals	Significance
Effect	Path coef.	p values	95% conf intervals	(p < 0.05)
Direct effect	0.534	0.000	0.365–0.679	Yes
Indirect effect	0.220	0.003	0.069–0.357	Yes
Total effect	0.754	0.000	0.661–0.818	Yes

Indicator	Business environment	Governance
Competition in retail	0.128
Control of corruption		0.196
Extent of market dominance	0.142
Government effectiveness		0.207
Labor productivity
Political stability		0.148
Quality of vocational	0.157
Regulatory quality		0.195
Rule of law		0.199
Skillset of graduates	0.160
Skillset of university graduates	0.148
State of cluster	0.148

Indicator	High income	Upper middle	Brazil	Lower middle	Low income
Indicator	High income	Upper middle	Brazil	Lower middle	Low income	Buyer sophistication	4.11	3.57	3.59	3.19	2.91
Competition in professional services	5.41	5.13	5.20	4.49	4.01
Competition in retail	5.52	5.17	5.32	4.85	4.59
Extent of market dominance	4.34	3.73	3.77	3.45	3.29
Quality of vocational training	4.67	4.03	3.32	3.75	3.72
Skillset of graduates	4.66	3.99	3.20	3.72	3.65
Skillser of univ. graduates	4.94	4.28	3.51	4.02	3.99
State of cluster development	4.38	3.78	3.92	3.51	3.26

Indicator	High income	Upper middle	Brazil	Lower middle	Low income
Indicator	High income	Upper middle	Brazil	Lower middle	Low income	Voice and accountability	87.24	48.49	58.62	42.07	25.62
Political stability	74.75	49.99	24.76	39.46	22.95
Government effectiveness	87.59	50.85	43.75	34.21	20.51
Regulatory quality	88.86	49.09	48.08	34.21	20.51
Rule of law	87.41	48.92	47.60	34.86	20.37
Control of corruption	85.33	48.43	42.31	36.92	21.09

Universidade de São Paulo Avenida Professor Luciano Gualberto, 908, sala F184, CEP: 05508-900, São Paulo , SP - Brasil, Telefone: (11) 3818-4002 - São Paulo - SP - Brazil
E-mail: rausp@usp.br

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[1] *Corresponding author Paulo Bontempo can be contacted at: Paulo.bontempo@unialfa.com.br