The role of individual and institutional factors of competitiveness in the European Union regions

Abstract

While it is generally believed that territorial competitiveness is based on firm-level (individual-level) competitiveness, existing theories and empirical researches largely focus on the institutional context. The different directions of the literature seem to be distinct from each other, and the integration of individual and institutional factors is almost completely missing from the literature. This paper aims to present a new conceptual model reflecting to this contradiction and introduces a composite indicator based on the combination of the two approaches. The Input-Competence-Institution-Outcome Model (ICIOM) highlights the main interfaces between individual and institutional approaches. The Complex Regional Competitiveness Index (CRCI) measures the competitiveness of the 151 NUTS2 regions of the European Union. The primary aim of the CRCI is to explain relative differences in economic growth and development in a way that makes the competitiveness of firms (in this case the SME sector) and regions comparable at both individual and institutional levels through a uniform methodology and benchmarking. The data show a moderately strong relationship between individual and institutional factors, at least partly on different tracks. Institutionally strong regions in developed countries do not necessarily have high individual competence scores, while some of the regions that are rather underdeveloped in institutional terms have surprisingly high individual competence scores. This again suggests that both types of factors need to be taken into account when examining regional competitiveness, otherwise misleading results may be obtained. The CRCI scores show well the significant differences between regions.

As expected, large, mainly capital cities and surrounding areas are more competitive then less developed rural regions. Moreover, Western and Northern European regions are in a much stronger position than their Eastern and Southern counterparts. The CRCI can also be useful for enterprise development policy, which can be used to develop and, after further development, possibly analyse the impact of different measures, both territorially based institutional and individual competence based enterprise promotion procedures and policies. The CRCI has a strong theoretical basis, so by taking into account the availability of data, it can be used to develop and further develop business incentive procedures and policies, and to analyse the impact of various measures.