LIMITATIONS OF COMPOSITE INDICES IN COMPETITIVENESS MEASUREMENT

U ekonomskoj teoriji i praksi analiziraju se različiti aspekti konkurentnosti (produktivnost, odnos izvoza i uvoza, devizni kurs, razvijenost institucija itd.). Zbog toga, merenje nacionalne konkurentnosti podrazumeva sagledavanje i vrednovanje brojnih mikroekonomskih, makroekonomskih i institucionalnih faktora koji opredeljuju konkurentnost nacionalne privrede. Danas se merenje konkurentnosti najčešće vezuje za okvir postavljen od strane Svetskog ekonomskog foruma, Doing Business-a i Heritage fondacije. Zato će u radu biti detaljnije objašnjena metodologija koja se koristi za izračunavanje indeksa konkurentnosti navedenih organizacija. U radu se razmatra način ocenjivanja i rangiranja konkurentnosti nacionalnih privreda prema različitim kompozitnim indeksima (Svetskog ekonomskog foruma, Doing Business liste i Heritage fondacije), kao i o ograničenjima pojedinih indikatora. U radu se testira hipoteza da kompozitni indeksi u merenju konkurentnosti ne odslikavaju u potpunosti razvijenost jedne privrede, što će se pokazati Pirsonovim koeficijentom korelacije između indeksa globalne konkurentnosti i GDP/per capita za izabrane zemlje u periodu od 2012-2017. godine..


Introduction
In the pursuit of prosperity and the highest possible rate of economic growth, which is imposed as a necessary condition for the development of an economy in modern business conditions, great attention is focused on national competitiveness. In the context of limited resources, the inevitability of the existing state of national economies, given comparative advantages and disadvantages, and the inability to completely change earlier policies and orientations, the main preoccupation of the authorities remains to enhance the competitive advantages of the national economy as well as to find new growth potentials. This view explains Michael Porter's claim that "national prosperity is not inherited but created" (Porter M. E., 2008), which emphasizes that a nation's competitiveness depends on its economy's ability to advance and compete with other countries, analogous to micro-level competition between companies. Strengthening national competitiveness also enhances the competitiveness of companies within that economy, thereby gaining advantages over global competitors through operations in given economic structures, institutions and market environments. When an economy specializes in the production of goods for which it has a comparative advantage, the total production in the economy increases, and this increase leads to an overall improvement (Mankiw & Taylor, 2008). Some countries manage to gain advantages in certain segments of the world market precisely because their home environment is more advanced, dynamic and more challenging than others'. Paul Krugman, on the other hand, points out that domestic factors dominate the GDP per capita and the well-being of the economy, and not the national competitiveness confirmed in the world market (Krugman, 1994). According to Krugman and Obstfeld, national economies operate by specializing in low-cost, lower-cost products (Krugman & Obstfeld, 2003).
National competitiveness is the economic structures and institutions of the state that stimulate economic growth within the structure of the global economy (Marković & Radukić, 2014). Increasing national competitiveness is an important task for every economy, because only a competitive economy can withstand the pressures of other players in the domestic and international markets, ensuring sustainable economic growth and development, and raising the standard of living of the population. For this reason, it is necessary to establish an effective system for measuring competitiveness and considering its constituent elements, in order to adequately determine the position of an economy in international frameworks and to establish a system that effectively and objectively respects all aspects of competitiveness within a single economy. However, in assessing the state of the economy, composite indices may exhibit some disadvantages, so it can be assumed that they do not fully reflect the level of development of an economy, and, accordingly, the hypothesis can be that composite indices in measuring competitiveness may not fully reflect the development of an economy.

Theoretical Framework and the Definition of Competitiveness
The key determinants of the competitiveness of an economy are labor costs, exchange rates and interest rates, while governments try to encourage and improve the competitiveness of their economy through various policies and changes to these and other factors. In addition to these determinants, perhaps the most important condition and concept of competitiveness at the national level is the concept of productivity (Porter M. E., 2008). Namely, the growth of an economy depends on the growth of its citizens' standard of living, which is directly proportional to the productivity growth of a national economy, so that if a country effectively identifies the true source of its competitiveness, then it will face fewer problems during its economic development (Porter, Sachs, & McArthur, 2001). Productivity will depend on the ability to make adequate use of primarily labor and capital, while sustainable productivity growth, as a condition of sustainable economic growth and improving competitiveness, requires a continuous improvement of the economy, adaptation to market flows, and at the same time a high degree of innovation and progress.

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The competitiveness of an economy can also be determined by the ability to: (1) Earn profits over identical industries in other countries, (2) Attract factors of production relative to other industries within one country (region) or from other countries, and (3) Adapt to changes in the socio-economic environment (Toming, 2011).
Improving the competitiveness of a national economy, which is becoming the most important task of the government of every country, cannot be seen through some comprehensive theory, but all the definitions of competitiveness emphasize the state's ability to achieve sustained high rates of economic growth, measured by GDP per capita, with the ability to produce goods and services that meet the world market test (Maksimović, 2012). Over time, many ways have been developed to measure national competitiveness, precisely because of the great importance it has. The essence of ranking the competitiveness of a national economy and its performance relative to other countries is to identify potential institutional and market weaknesses and economic policy weaknesses that could threaten future economic growth. (Milovanović & Veselinović, 2009). Economic policy correction, strengthening of market institutions, as well as the rule of law institutions, are necessary and largely determine the further course of improving the competitiveness and development of an economy.
Numerous analyzes have shown that countries that are highly ranked in terms of competitiveness, are also ranked high in terms of per capita income or standard of living (Maksimović, 2012). The role of the state is reflected in the achievement of macroeconomic and political stability through the establishment of stable state institutions, the improvement of microeconomic capacity and efficiency, and the establishment of rules for all market participants.
The concept of institutional reform is of great importance in the process of improving the competitiveness of an economy. Once constituted, institutions do not function forever in an unchanged form. They are never static, but over time they become exposed to the corresponding changes, in accordance with the real socio-economic conditions, and in the process many of them are replaced by completely new institutions. Specifically, socio-economic development and changes in the conditions under which economic activities take place make some institutions obsolete, causing the need to create new ones. (Leković, 2010). Based on the observation, measurement and comparison of institutional indicators with the relevant indicators of other countries, it is possible to determine the place of the observed country in the international environment and to draw appropriate conclusions about the observed economy and its competitiveness in international markets.
In addition, the role of the state includes creating an environment that enables accelerated development and refining existing structures, thereby contributing precisely to the realization and advancement of competitive advantages. With a good framework of action and an adequate reaction of market players to advancing the key determinants of competitiveness, the national economy, in the process of international trade, finds its place in the international market in which it actively competes.
In the following sections, we will discuss ways to evaluate and rank national economies according to different composite indices, created by internationally recognized specialized organizations for assessing the market environment. Also, the limitations of individual indicators and ways of evaluating particular dimensions of competitiveness will be pointed out. In a later presentation, the analysis will focus on concrete data for the Republic of Serbia, the quality of its institutions according to international criteria and adequate comparison with the economies in the region. Subsequently, applying the Pearson correlation coefficient, the relationship between the global competitiveness index and the development of an economy as measured by GDP per capita will be examined.

Ways to Measure the Competitiveness and Evaluation of Institutions
A number of factors can be identified that affect a country's long-term ability to produce and compete in the global market, such as: the efficiency with which financial markets transform savings into investment, Bugarčić F. Limitations of Composite Indices in Competitiveness Measurement menadžmenta i političkih odluka vlade i drugi faktori (Dani, 2007). U skladu sa raznovrsnošću koncepata konkurentnosti, razvijeni su i različiti pristupi u merenju konkurentnosti, pri čemu se mogu izdvojiti dve opcije u njenom merenju. Prva se bazira na određivanju dohotka per capita ili rastu produktivnosti, a druga na određivanju učinka u međunarodnoj trgovini (McFetridge, 1995).
Svi indikatori Svetskog ekonomskog foruma ocenjuju se na osnovu transparentne metodologije i konzistentnih kriterijuma. Tako se ulazne veličine, koje podrazumevaju statističke podatke i odgovore dobijene putem anketa, kao i algoritmi njihove obrade, pravila agregiranja i finalni rezultati, publikuju u the ability and speed to embrace technological innovation, the ability of workers to acquire the skills required by the market performance, quality of business management decisions and government policy decisions, and other factors (Dani, 2007). In line with the diversity of competitiveness concepts, different approaches to measuring competitiveness have been developed, with two options in measuring it. The first is based on determining per capita income or productivity growth, and the second is based on determining performance in international trade (McFetridge, 1995).
Given that there is no single concept for determining competitiveness (Sieggel, 2006), several different aspects of the competitiveness of an economy must be taken into account when making a final assessment, and thus measuring national competitiveness requires broader research. The research is most often linked to the framework set by the World Economic Forum, that is, the Global Competitiveness Index (GCI), then the Economic Freedom Index published by the Heritage Foundation, as well as the Doing Business list determined by the World Bank.
The Global Competitiveness Index is a composite index consisting of twelve pillars of competitiveness organized into three groups. The first group consists of the Basic Requirements, which include the following pillars of competitiveness: 1) Institutions, 2) Infrastructure, 3 This construction of the Global Competitiveness Index encompasses both microeconomic and macroeconomic competitiveness factors, as well as institutional development factors, enabling, through joint review, the determination and assessment of the competitiveness of a national economy. The Global Competitiveness Index is a composite index and is formed as a weighted average of all the pillars of competitiveness. Competitiveness pillars also represent composite indices formed on the basis of weighted averages of subindicators derived from primary and secondary sources. All data, whether obtained from primary or secondary sources, are normalized on a scale of 1 to 7 with 1 being the worst and 7 being the best. This scale is also valid for the values of the sub-indicators, the pillars of competitiveness, as well as the Global Competitiveness Index in its summary. In the analysis, we distinguish between two types of data, primary and secondary. The share of primary data in the GIK is approximately 70%, while the share of secondary data is approximately 30% (World Economic Forum, 2017-2018).
Specifically, primary data are obtained from standardized surveys conducted in the countries covered each year. Top managers of the companies that make up a representative sample are surveyed, and the data obtained through this is referred to as soft data. Such data, obtained through primary survey-based analysis, are used to calculate those subindicators that are not subject to quantitative analysis and cannot be captured through secondary data processing. The data obtained through the survey provides insight into business conditions, legal regulations, market environment, political situation, etc. There are no internationally comparable databases for the data thus obtained, and for this reason they can only be obtained through a survey (Ristić & Tanasković, 2011).
On the other hand, for the assessment and calculation of competitiveness indicators such as tax level, inflation rate, budget deficit, or number of procedures to start an entrepreneurial activity, quantitatively used data is available and is present in the databases of international economic and financial institutions such as the IMF, the World Bank, the World Trade Organization, the United Nations, etc. This data is called hard data.
The aggregation of individual indicators uses the arithmetic mean within each category, while the more accurate determination of indicator values uses the percentage of importance of each category within each pillar. Depending on the development stage of a particular country, certain competitive factors play a greater role in driving competitiveness. Thus, for the low-developed countries, the "Basic Requirements" are first considered, for the middle-developed countries the most important role in the economic recovery is the "Efficiency Factors", while in the most developed countries the "Innovation and Sophistication Factors" have the largest impact on the level of competitiveness and the overall value of the GCI (Ristić & Tanasković, 2011). In constructing the Global Competitiveness Index score, the development phase in which a particular economy is located is taken into account by attributing greater relative weights to the pillars, or greater percentage participation in the rating structure. In order to implement this concept, the pillars are organized into three sub-indices, each of which, as mentioned above, is specific to a particular stage of development. The criterion used in this estimate is GDP per capita as shown in Table 1  For further evaluation in order to construct the overall index, a rating is used next to each category within the relevant indicators representing the weight, that is, the importance of that category in the observed pillar of competitiveness. Within the framework of basic requirements, whose participation in the overall assessment ranges from 20-60%, and which includes assessments of institutions, infrastructure, macroeconomic stability, as well as health and primary education, all four pillars of competitiveness within the basic requirements participate equally in its requirements scores with 25% each. Efficiency factor ratings account for 35-50% of the overall index, and within this group of indicators, higher education and training, commodity and labor market efficiency, financial market sophistication, technological equipment and market size all have an equal impact on the assessment with a 17% share each. Innovation and sophistication factors participate in the construction of the overall index score with 5-30% share, and both subcategories within this group have an equal impact of 50% in the formation of this group's rating (World Economic Forum, 2017-2018).
Indikatori is made on the basis of the minimum and maximum values of the obtained indicators, thus providing order and establishing a difference between countries. Individual indicators occur in two different pillars, so their value is halved in each of the pillars to avoid double calculation. The specific reduction of the indicator to a value on a scale from 1 to 7 is done according to the following formula: After this, aggregating the ratings and their values gives the overall ranking of a particular economy. In order to get a more accurate picture, some parameters need to be carefully considered, as in the case of inflation, which, within the pillar of macroeconomic stability, as well as other parameters, comes down to a rating of 1 to 7. At the same time, for inflation levels of 0.5 to 2.9%, the country gets the highest score of 7, while moving away from these values and with the existence of higher or lower inflation (deflation), the score decreases.
Another possible way of looking at the level of development of an economy, in terms of ease of doing business and market regulation, is through the Doing Business List report. Unlike the Global Competitiveness Index, this notes and measures the regulations that enable or prevent private sector participants from starting, running and expanding their businesses. This regulation is evaluated using 11 indicators that affect the ability and ease of doing business, namely: 1) conditions for starting a new business, 2) obtaining a building permit, 3) generating electricity, 4) registering property, 5) obtaining a loan, 6) protecting minorities, 7) investors, 8) tax payment, 9) international trade, 10) contractual obligations, and 11) insolvency resolution. In addition, the labor market is evaluated, but this criterion is not included in the ranking (World Bank, 2017).
These parameters are aimed at evaluating primarily small and medium-sized enterprises and the environment in which they operate. One of the innovations of 2017 is the introduction of more efficient monitoring of taxes, tax breaks and tax audit, as well as the focus on gender equality and the share of women engaged at higher level management positions.
The data to be analyzed is based on a thorough insight into national laws, regulations and administrative requirements. The report covers 190 countries, including some of the smallest and poorest economies for which only a small amount of data and information is available. The data is collected through several rounds of communication with expert respondents from both the private and public sectors. All relevant information is obtained through responses to pre-prepared questionnaires, conferences, correspondence and visits by expert teams. The Doing Business List relies on four main sources of information: relevant laws and regulations; respondents; government and World Bank regional teams.
The Doing Business list indicators are calculated based on World Bank's data as well as business management surveys. Such research provides an insight into the main advantages and obstacles for the development of business activity and gives insight into the severity of certain problems. The higher value of the indicators points to better regulations and more efficient functioning of institutions, as well as a simpler way of adopting certain regulations at lower costs for their implementation. The assessment is made on the principle of determining the value of a given parameter and putting it in relation to the rest, which results in the ranking of countries. Each of the indicators relates to a specific segment of the business and requires a separate and adequate approach to its assessment (World Bank, 2017).
The World Bank's Doing Business List methodology is designed in such a way that it is easy to repeat the way to determine specific aspects of business regulation. When using data, the benefits and limitations of these indicators must be kept in mind, and ensuring comparability of data globally is a central consideration when constructing Doing Business list indicators. They are based on a standardized case scenario with specific assumptions. Valuation of starting a business is done by evaluating the required number of procedures, the time required and the minimum means to start your own business. The issuance of building permits is also evaluated on the basis of the speed of obtaining all the necessary documents for construction and the assessment of the quality and safety of Bugarčić F. Limitations of Composite Indices in Competitiveness Measurement prilikom ocene registracije imovine takođe koristi merilo zahtevanog vremena i troškovi sticanja i prenosa vlasničkih prava. Proces izdavanja kredita i zaštite imovinskih prava ocenjuje se na osnovu zakonskih propisa u ovim oblastima. Plaćanje poreza takođe obuhvata ocenu propisa i visine pojedinačnih poreskih stopa, a međunarodna trgovina ispituje se prema vremenu i troškovima izvoza, kao i sagledavanjem komparativnih prednosti. Efikasnost sprovođenja ugovora procenjuje se na osnovu vremena i troškova rešavanja sporova i kvaliteta sudskih procesa, a efikasnost procesa rešavanja nesolventnosti poistovećuje se sa potrebnim vremenom i snagom finansijskog sistema i pravnog okvira koji se tiče ove oblasti, što važi i za ocenu tržišta rada (World Bank, 2017). Ovi parametri ocenjuju se prema utvrđenoj skali ocena i pripisuju se ovim kategorijama, čime je moguće ustanoviti stepen efikasnosti svih pojedinačnih indikatora, kao i izvršiti rangiranje ukupne liste.
U procenjivanju uslova u ove četiri kategorije, indeks uključuje 12 specifičnih komponenti ekonomske slobode koji su standardizovani i podobni za stvaranje ukupne ekonomske procene svake privrede. Rang ukupne ocene se kreće u intervalu od 0 do 100, pri čemu sa većim stepenom ekonomske slobode raste i rang ocene. Zemlje su klasifikovane u zavisnosti od ocene u 5 kategorija, od "potisnute" do these procedures. The assessment of electricity generation takes into account the time required to connect to the electricity grid, security of supply and transparency of the tariff system, while the assessment of property registration also uses the measure of required time and the cost of acquiring and transferring ownership rights. The process of granting loans and protecting property rights is evaluated on the basis of legal regulations in these areas. Payment of taxes also includes the assessment of regulations and the amount of individual tax rates, and international trade is examined according to the time and cost of exports, as well as considering the comparative advantages. The effectiveness of contract implementation is evaluated on the basis of the time and cost of dispute resolution and the quality of litigation, and the efficiency of the insolvency resolution process is equated with the time and strength of the financial system and the legal framework relevant to this area, which also applies to labor market assessments (World Bank, 2017). These parameters are evaluated according to the established rating scale and are assigned to these categories, which makes it possible to determine the degree of efficiency of all individual indicators and to rank the overall list.
The governments of countries benefit from such research when reviewing and evaluating economic policies and identifying the strengths and weaknesses of the current situation, while researchers benefit from the ability to make certain estimates based on insights into the ranking of countries. Individual data may be irrelevant for drawing conclusions, and for this reason the overall ranking is considered as a relevant representative of the development of the market environment and institutions. The adequacy of the market environment and its suitability for business is analyzed through case studies and focuses on rules that are relevant to the analysis. The unique data set enables analysis in order to better understand business regulation, the current situation, and the ability to achieve sustainable growth and development.
An examination of the state of an economy and its performance can also be done through a report published by the Heritage Foundation, through the Index of Economic Freedom. According to this report, economic freedom is a key element of human well-being and a major factor in maintaining the freedom of human society. The key determinants of this attitude are that each country's path to growth and development must be adapted to its own culture, history and unique conditions. However, there are certain basic characteristics common to all countries, so nations with greater degrees of economic freedom tend to fully utilize and capitalize on the knowledge and capabilities of each individual in their society. For society as a whole, this will create the conditions for dynamic economic growth, increased innovation and efficient allocation of resources. An individual is economically free if they have complete control over their work and property, without government interference. The role of the state is reduced to protecting such a defined freedom, and the ideal (highest) degree of economic freedom provides an individual with an absolute right of private property, complete freedom of movement of capital, labor and trade in goods, according to a report by the Heritage Foundation (Economic Freedom, 2017).
The Economic Freedom Index provides compelling evidence of the wide range of tangible benefits of living in a society with greater degrees of economic freedom. The index analyzes the development of economic policy in 186 countries that are rated and ranked within the 12 criteria of economic freedom, and which assess the rule of law, size of public administration and public sector, regulatory efficiency and market openness.
Within the rule of law, property rights, the efficiency of the judiciary and the integrity of the state are evaluated separately. The analysis of the size of the public sector includes tax burden, government spending management and "fiscal health", the state of public finances. Regulatory efficiency assesses business freedom, freedom of the labor market and monetary institutions, while market openness implies free trade, financial and investment freedoms. The assessment of each individual criterion, in accordance with the set scale, gives an overall rating of each country, which gives an insight into its position and the degree of economic freedom in relation to other countries (Economic Freedom, 2017).
In assessing the conditions in these four categories, the index includes 12 specific Bugarčić F. Limitations of Composite Indices in Competitiveness Measurement "slobodne". 1 Zemlje su rangirane po ukupnoj oceni, ali i po regionima kojima pripadaju, pa je tako omogućeno preciznije poređenje i donošenje zaključaka.
Uvažavajući navedene zahteve, neophodno je objektivno sagledati vrednosti podindikatora i stubova konkurentnosti i utvrditi načine components of economic freedom that are standardized and eligible for generating an overall economic assessment of each economy. The ranking of the overall grade ranges from 0 to 100, where higher degree of economic freedom increases the ranking of the grade. Countries are classified according to grade in 5 categories, from "suppressed" to "free". 1 Countries are ranked by overall rating and by region to which they belong, hence providing more accurate comparisons and conclusions.

Disadvantages of the Existing Ways of Measuring Competitiveness and Assessing the Institutional Setting
When calculating and measuring how competitive an economy really is, one can come across a number of shortcomings and omissions that result from the inadequacy of the chosen methodology and how to construct individual composite indices. For this reason, the actual situation may deviate to a greater or lesser extent from the summary indicator presented, depending on the weighting, inclusion and omission of individual subindicators and the valuation of particular positions to be included in the final assessment. In addition, there are opinions that such a high level of detail of factors can result in hiding the very essence of competitiveness and how to improve it (Matejić, 2003). When looking at competitiveness assessments, one can notice the overestimation, as well as the underestimation, of individual countries according to the existing criteria, which indicates that the current criteria provide an insufficient overview of the current competitiveness of countries, and that there is space for improvement concerning existing indicators (Djogo & Stanisic, 2016).
In the analysis through the Global Competitiveness Index, particular bias of the ratings can be seen in the so-called soft indicators resulting from the survey. However, the quality of the sub-indicators used in making the final assessment and whose values are derived from international comparative bases and which are quantitative in nature, can be constructive because the same methodology is applied to all countries. Even if the methodology is incorrect, it is valid and the same for all countries, so a valid international comparison can be made (Ristić & Tanasković, 2011). In general, the biases in comparisons and ratings obtained from "hard data" are smaller compared to "soft data" obtained from the survey.
When using subjective assessments in the international comparison process, certain shortcomings may occur and therefore jeopardize the validity of the assessments obtained. When assessing the quality of particular institutions in the survey process, despite the consensus of respondents about a particular problem, their ranking may be pessimistic or optimistic, and thus different evaluations and different ratings of a particular phenomenon may occur. Bias in this type of evaluation can affect the shift of the country ranking in international comparison.
In addition, there may be a problem of selecting a reference point, i.e. what the respondent will relate to as a role model in their assessment. Depending on observation of more or less developed environment in the comparison of phenomena in relation to which assessment is formed, the ranking of the ratings may differ. Also, since respondents are in managing positions, they may exhibit bias when evaluating.
One of the important elements in the subjective evaluation is the information of the respondents, their perception of the environment, as well as any current dissatisfaction with the existing state that can be projected on the given assessment. The layout of the questions and the construction of the survey can also have an impact on the final assessment of the economic environment (Bertrand & Mullainathan, 2011).
One of the problems of this evaluation can also arise when evaluating health institutions and health care. The impact of certain diseases on the rank of the rating is manifested through their frequency and costs of treatment, and these factors are also considered in relation to situations in other countries on the basis of which the rating rank is formed. The problem can be due to the lack of data for certain diseases when the frequency is Bugarčić F. Limitations of Composite Indices in Competitiveness Measurement dobijanja njihove ocene kako bi bili sigurni da krajnji indikatori na odgovarajući način reflektuju stanje određene privrede. Uvidom u vrednosti ocena za analiziranu zemlju mogu se uočiti nedostaci konkretne privrede ali, isto tako, moguće je pronaći prostor za napredak u određenim segmentima. Kao reper poređenja mogu poslužiti privrede sličnog institucionalnog ambijenta, sličnog nivoa razvijenosti, bogatstva i efikasnosti iskorišćenja resursa.
In view of the above requirements, it is necessary to objectively consider the values of the sub-indicators and pillars of competitiveness and to determine ways of obtaining their assessment in order to be sure that the end indicators adequately reflect the state of a particular economy. An insight into the value of the ratings for the analyzed country can reveal the shortcomings of a particular economy, but it is also possible to find room for progress in certain segments. As a benchmark, economies with a similar institutional environment, and similar levels of development, wealth and resource efficiency can serve as benchmarks.
The shortcomings present in the Doing Business list, and the assessment of the market environment within that analysis, are reflected in the neglect of areas not covered by their analysis. Areas not included in the final assessment are: macroeconomic stability, development of the financial system, quality of the workforce, corruption, size of the market, as well as security gaps.
In addition, there are areas that are not covered by the analysis and are in the area under study and included in the ranking of the overall Doing Business list. For example, the analysis of tax payments does not include the personal income tax rate, while the analysis of credit conditions does not include the position of monetary policy or the availability of credit conditions. Likewise, in the area of trade analysis across borders, international trade, no attention is paid to export and import tariffs and subsidies. In resolving the insolvency of the economy, the rules for resolving individual cases of insolvency of market participants and their bankruptcies were ignored (World Bank, 2017).
The economic freedom rating, according to the criteria of the Economic Freedom Index within the Heritage Foundation, is characterized by a clear attitude in the correlation of economic growth and the degree of freedom of different institutions and segments of the economy that affect business in a given economy. However, it should be noted that ratings, which are mostly subjective and can be formed without the ability to access and view all relevant information, can represent a particular economy in a degree of freedom that is different from the real situation (Economic Freedom, 2017).
Certain positions that emphasize the degree of freedom are difficult to measure and are not fully projectable on a given rating scale. One of the drawbacks of this index is that, when analyzing, it considers 12 criteria within 4 groups of indicators, but in its assessment ignores the macroeconomic indicators present in the construction of other indices of freedom, as is the case with the Canadian Fraser Institute index EFW.
In addition, an insight into the degree of freedom of a particular economy can broaden the picture of the whole economy. By supplementing quantitative economic indicators with the index of economic freedoms, it gets a complete impression of how market mechanisms work within one economy. The different ranking scales of the composite indices mentioned above may show some variations in the position of a particular country on the world list, but there is also an enviable degree of correspondence between the positions of countries on these lists.

Competitive Position and Quality of Serbian Institutions
The following section will analyze the current position of the Republic of Serbia, its institutions and key competitiveness indicators according to the reports of the World Economic Forum, Doing Business List as well as the Heritage Foundation, or the Economic Freedom Index. By looking at the specific values of the indicators and the position of Serbia according to these reports, as well as their comparison with the indicators of the countries from the region, it is possible to see the quality of the observed institutions and the current position in the regional and international frameworks.
According to the 2017 World Economic Forum report, Serbia ranks 90 th in the list of 138 countries, up four places from the previous year (when it was ranked 94 th on the list). The GDP per capita is US $ 5,119.8, and the value of the Global Competitiveness Index is 4.0 and represents a slight improvement over the previous period.
Prema Serbia has the highest score in the indicator group Basic Requirements where the pillar score is Health and Primary Education with a score of 6.0. The rating level of this pillar of competition is equal to the average of Europe and North America and to some extent raises the ranking of the overall rating. Looking at this pillar alone, Serbia ranks 53 rd out of 138 countries.
On the other hand, the weakest group of competitiveness indicators is the pillars of the Innovation and Sophistication Factors group, with a rating of (3.1). This is below the average of Western European countries, mainly due to the very low R&D allocation of domestic enterprises and poor procurement and introduction of modern technologies. This group of indicators ranked Serbia only 120 th on the list of ranked countries. Indicators of the other competitiveness group, the Efficiency Increasing Factors, are also below average. Higher education and training have the highest ranking in this group of indicators, and the ratings of these pillars of competitiveness have not changed significantly, although the status of Serbia and the possible advancement of competitive advantages are mostly determined by the status and movement of these indicators.
Comparing Serbia with other Balkan countries, we see from WEF data, based on the similarity of individual data, that these are countries that have undergone or are still undergoing a transition process. The most ranked economy according to the GIK is Bulgaria, which ranks 50 th in the list with the highest competitiveness score among the analyzed countries (4.4). Competitiveness pillars record the highest values of all countries observed. Romania (4.3) has a similar rating, while Croatia, the last associated EU member state, has by far the highest GDP per capita value of US $ 11,572.9, which is more than double that of Serbia. Bosnia and Herzegovina has the lowest ranking of the observed countries, ranks as 107 th in the list of competitiveness indicators.
What makes the difference when looking at the pillars of competitiveness of these countries are the second and third pillars of competitiveness, respectively, the factors of efficiency increase and the factors of innovation and sophistication. This indicates to us that the mentioned countries, which are now EU members, have made the most progress through the improvement of the sub-indicators of the mentioned pillars. However, the indicators of innovation and sophistication are still below the average of developed countries.
According to the degree of ease of doing business, or Doing Business list, Serbia ranks 47th out of 190 ranked countries. Progress over last year is significant given that in 2016 Serbia was ranked 59 th on this list. The overall rating is 72.29 (on a scale of 1-100), and the best position is in the field of International Trade, where Serbia is ranked 23 rd out of all ranked countries. The most unenviable situation is with the category Electricity Generation, by which parameter the Republic of Serbia is only in 92 nd place. A positive shift was made by facilitating tax payments, which increased the ranking of this indicator and caused the change of position from 143 rd to 78 th place in the list of ranked countries according to this criterion.  Observed countries in the region show a similar position to Serbia as in the Global Competitiveness Index. Romania and Bulgaria are ranked 36 th and 39 th , respectively, in the Doing Business list by overall ranking. Croatia ranks 43 rd and Bosnia and Herzegovina 81 st (World Bank, 2017). What sets Croatia and Romania apart, and largely contributes to their rating, is the highest possible estimate of the International Trade parameter. The relatively high rating of this parameter in all observed countries indicates the necessity of openness of these economies to the international environment, thus creating the opportunity for further economic growth and development. The negative finding of the parameters of the Doing Business list of the observed countries is the very low rating of the Obtaining Electricity indicator, whereby all the observed countries are in the low position on the global list.
The parameter that measures the degree of freedom of the market and market participants, the Economic Freedom Index (Heritage Foundation), ranks Serbia in 99 th place in the ranked countries of the world according to the criterion of economic freedoms with an index value of 58.9. This position is a setback compared to the previous year's report when Serbia ranked 77 th on this list (62.1 index points). The average score for the region of Europe is 68 index points, and among European countries, Serbia is ranked 39 th out of 45 ranked countries. According to the global level of assessment of economic freedoms, Serbia ranks among the "mostly unfree" economies. Of all the indicators of the state of market institutions and competitiveness assessment, this index characterizes the economy of Serbia with the worst rating.
According to this report, Serbia's economy is characterized by a low inflation rate of 1.4%, unemployment rate of 19% and a share of public debt in GDP of 77.4%, while the inflow of foreign direct investment in the previous year amounted to US$ 2.3 billion (Economic Freedom, 2017). Compared to the countries in the region, Serbia is characterized by a high public debtto-GDP ratio and a double-digit unemployment rate alongside Croatia. What is noticeable is that a positive inflation rate, out of all the analyzed countries, is present only in Serbia. In the neighboring countries, we see the presence of a slight amount of negative inflation, i.e. deflation.
Romania and Bulgaria have the highest rank on the criterion of economic freedom from these observed countries (Romania is 39 th , Bulgaria is 47 th on the list), while Serbia is in the most unenviable position among the observed countries of the region with the lowest Economic Freedom rating index. According to the rating categories, it appears that the market openness rating is satisfactory for all observed countries in the region, while the rule of law indicators are the worst rated.
The validity of the institutions' ratings and competitiveness parameters can be compared with economic growth, that is, the development of an economy as measured by GDP per capita. Chart 1 shows the ratio of competitiveness assessment to GCI and GDP per capita for the observed countries. For the observed period of five years, there is a concentration of data of certain countries according to these two parameters, but with certain deviations, especially when it comes to a significant change in the GCI estimate with the simultaneous stagnation of GDP per capita, which is noticeable in the case of Bosnia and Herzegovina and Romania. Also, we note that in all observed years, Croatia has recorded the highest amount of GDP per capita but not the highest score of the Global Competitiveness Index, which indicates a not very strong relationship between these two variables.
The more precise relationship between the observed variables and their interdependence over the last five years can be determined by the statistical method of correlation, more precisely the Pearson coefficient of linear correlation.
Applying this method will determine the direction and intensity of the link between the Global Competitiveness Index and GDP per capita assessment, which allows for an accurate insight into their relationship. The results obtained can be seen in Table 5.
The Pearson coefficient obtained is positive, indicating that there is a positive correlation between the Global Competitiveness Index score and GDP per capita, and the coefficient value of 0.447 (r = 0.447) shows that the ratio of these variables is medium.

Conclusion
The level of competitiveness of an economy is certainly one of the basic factors for the growth and improvement of the standard of living in any market-oriented economy. Achieving competitive advantages gives rise to the possibility of developing an entire economy whose positive effects can be felt by individual market players, but also the whole system of a national economy, especially if the appropriate strategy for improving competitiveness is applied in the long term.
The question of the adequacy of the assessment of certain aspects of competitiveness and the overall assessment of the competitiveness of an economy is undergoing a continuous examination process. In doing so, the authorized institutions in charge of ranking these parameters are constantly adapting to certain important determinants of competitiveness, striving to meet the needs of adequate assessment with their methodology and projection of the overall ranking. Certain parameters are debatable from the angle of validity and representativeness of the obtained values, so one can come to the position that the overall ranking does not show the true state of an economy or depict the inadequate relationship of individual world economies. In order to overcome this limitation, certain deficiencies should be constantly pointed out and, if possible, corrected in the short term. However, it is not easy to evaluate certain segments of the economy because of the way data is collected and the truthfulness of data, so it is advisable to reserve certain indicators and their values when making a final judgment. Economic policy makers, especially when it comes to countries that have recently left the transition process or are still in transition, should attach importance to improving the market environment, taking into account the improvement of indicators established by the institutions for assessing competitiveness and the state of the economy.
Considering the relations and analyzing the country's assessment of the Global Competitiveness Index and GDP per capita, it was concluded that there is a positive correlation between the two indicators, but it is at the intermediate level and shows some variations in the case of some observed countries. This confirms the hypothesis that composite indices in measuring competitiveness do not fully reflect the development of an economy, and the relationship between these two variables is at the mean level of correlation, as measured by the Pearson coefficient.