Urenio Watch Watch: Innovation Measurement

The CIP Index

The competitive industrial performance (CIP) index, developed by UNIDO for developing countries mainly, benchmarks competitive industrial activity by countries against the backdrop of liberalization and globalization. The index is based on four variables that capture different aspects of competitive performance.

1. Manufacturing value added (MVA) per capita, is a proxy of a country’s level of industrialization, and is deflated by population to adjust for the size of the economy.

2. Manufactured exports per capita, indicate the ability of countries to produce goods competitively and, implicitly, to keep abreast of changing technologies.

3. Industrialization intensity, is is measured by the simple average of the share of MVA in gross domestic product (GDP) and the share of mediumand high-technology (MHT) activities in MVA. The former captures the role of manufacturing in the economy and the latter the technological complexity of manufacturing.

4. Export quality, is measured by average of the share of manufactured exports in total exports and the share of MHT products in manufactured exports.

Each component of the index is normalised by its range in the relevant year, with the highest (lowest) value given by the best (worst) performer in the sample. The normalised scores are then averaged to yield the final CIP index, where no a priori weight is attached to any component.

Five factors are considered as major drives of competitive industrial performance: (1) skills, (2) technological effort, (3) inward FDI, (4) technology licensing, and (5) modern infrastructure.

Skills are measured by the level of tertiary enrolments in technical subjects (technical subjects here are science, mathematics and computing, and engineering). Technological effort is measured by formal research and development (R&D) financed by productive enterprises (or business enterprise R&D, BERD, in OECD terminology). Even technology ‘followers’ have to undertake R&D to absorb complex technologies and use them effectively. FDI can provide, apart from capital, several industrial inputs from abroad: new technology, access to international markets, advanced skills, supplier networks, state-of-the-art management techniques, and so on. It is measured by total FDI, including investment in services, privatisation, agriculture and so on. Royalties and technical fees measure measure technology imports both via FDI (affiliates paying their parents for new technology) and via arm’s-length contracts between independent firms. Modern infrastructure, is measured by the spread of telephone mainlines.

Source: UNIDO Industrial Development Report 2004, Chapter 8