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40 n 0 Q IMPROVING UZBEKISTAN'S POSITION IN INTERNATIONAL RATINGS L U L O AND INDEXES: THEORY, PRACTICE, AND STRATEGY
UZBEKISTAN'S POSITION IN INTERNATIONAL RANKING AND INDICES EVALUATING STATE INSTITUTIONAL QUALITY AS A KEY DETERMINANT FOR
FOREIGN DIRECT INVESTMENT Murtozaev Sardorbek
PhD student, UWED https://doi.org/10.5281/zenodo.10139689
Abstract. This article emphasizes the importance of state institutions in attracting foreign direct investment and promoting economic development. It also discusses international ratings and indices that assess the quality of state institutions. The analysis delves into Uzbekistan's placement within indices such as the "Worldwide Governance Indicators", "Corruption Perceptions Index", and "Index of Economic Freedom", highlighting areas requiring improvement. Additionally, it explores Uzbekistan's efforts to be included in the "Global Competitiveness Index " and examines potential benefits. The article underscores the crucial role of institutional quality in attracting foreign direct investment and its significance to investors and policymakers interested in Uzbekistan's investment landscape.
Keywords: international ranking, international indices, state institutions, Worldwide Governance Indicators, Corruption Perceptions Index, Index of Economic Freedom, Global Competitiveness Index, FDI.
Foreign Direct Investment (FDI) is increasingly becoming an important factor in the economic growth and development of the modern global world. FDI is crucial for host countries because it brings in capital, knowledge, and jobs, thereby fueling economic growth and development1. FDI often facilitates the transfer of advanced technologies and best practices, boosting the competitiveness of local industries. It also encourages infrastructure development, improves export opportunities, increases tax revenues, and reduces a host country's reliance on foreign aid, leading to improved living standards and economic stability.
The role of state institutions in attracting FDI is significant. State institutions include legislative, regulatory, and administrative frameworks that shape the country's economic system. They play a crucial role in ensuring stability, transparency, and predictability, which directly influence investors' decisions. Countries that have successfully established strong public institutions can create a favorable environment for foreign investment that promotes economic growth and development while supporting innovation and technological progress2.
In recognition of the significance of institutional quality, various international indexes and organizations have emerged, dedicated to measuring and analyzing the quality of institutions in different countries. These measures provide invaluable insights to investors, businesses, and policymakers, helping them identify the most promising destinations for their investments. In this exploration, we delve into some of the prominent international indexes and organizations that play a crucial role in assessing institutional quality, thus shaping the landscape for FDI. Understanding these indices is not only beneficial for investors but also for governments and institutions seeking to attract foreign capital and foster economic growth.
1 Adams, S. (2009). Can foreign direct investment (FDI) help to promote growth in Africa. African Journal of Business Management. https://doi.org/10.5897/AJBM09.001.
2 Cavallo, E., & Daude, C. (2008). Public Investment in Developing Countries: A Blessing or a Curse?. https://doi.org/10.2139/ssrn.1820935.
0 n 0 Q IMPROVING UZBEKISTAN'S POSITION IN INTERNATIONAL RATINGS L U L O AND INDEXES: THEORY, PRACTICE, AND STRATEGY
In the table provided below, we present a selection of international indices designed to gauge the institutional quality of nations.
Table 1
Global indices evaluating countries' institutional quality
Global indices Brief classification
World Bank's Worldwide Governance Indicators (WGI) World Bank Worldwide Governance Indicators (WGI) provides a ranking of 215 countries and territories based on six dimensions of governance, including political stability, government effectiveness, and control of corruption3.
Transparency International's Corruption Perceptions Index The Corruption Perceptions Index (CPI) ranks of countries around the world, based on how corrupt their public sectors are perceived to be4.
Heritage Foundation's Index of Economic Freedom Index of Economic Freedom measures economic freedom of 184 countries based on trade freedom, business freedom, investment freedom, and property rights5.
World Economic Forum's The Global Competitiveness Index (GCI) The Global Competitiveness Index (GCI), a highly comprehensive index, which captures the microeconomic and macroeconomic foundations of national competitiveness. Competitiveness as the set of institutions, policies, and factors that determine the level of productivity of a country6.
Source: The table was created by the author
The Worldwide Governance Indicators (WGI) is a comprehensive dataset developed by the World Bank. It offers a broad assessment of the quality of governance in various countries around the world. The WGI comprises multiple indicators and dimensions that cover various aspects of governance, including:
Voice and Accountability: This dimension assesses the extent to which citizens are able to participate in the selection of their government, as well as the freedom of expression and association.
Political Stability and Absence of Violence: It gauges a country's susceptibility to political violence, including terrorism, civil unrest, and other forms of instability.
Government Effectiveness: This dimension evaluates the government's capacity to formulate and implement sound policies, regulations, and services efficiently.
Regulatory Quality: It focuses on the ability of the government to provide a favorable regulatory environment for business and economic development.
Rule of Law: This aspect assesses the quality of contract enforcement, property rights protection, and the impartiality of the legal system.
3 https://globaledge.msu.edu/global-
resources/resource/470#:~:text=World%20Bank%20Worldwide%20Governance%20Indicators.with%20rankings% 20beginning%20in%201996.
4 https://www.transparency.org/en/cpi/2020
5 https://www.heritage.org/index/about
6 https://databank.worldbank.org/metadataglossary/africa-development-
indicators/series/GCI.INDEX.XQ#:~:text=The%20Global%20Competitiveness%20Index%20(GCLof%20productiv ity%20of%20a%20country.
0 n 0 Q IMPROVING UZBEKISTAN'S POSITION IN INTERNATIONAL RATINGS L U L O AND INDEXES: THEORY, PRACTICE, AND STRATEGY
Control of Corruption: It measures the extent to which corruption is prevalent within a country's public sector.
The Worldwide Governance Indicators are assessed within a range typically spanning from -2.5 to 2.5. In this scoring system:
a score of 2.5 indicates a very high level of governance or institutional quality in the specific dimension being assessed.
a score of 0 reflects a moderate or average level of governance or institutional quality. a score of -2.5 indicates a very low level of governance or institutional quality in that particular dimension.
Table 2
The result of Republic of Uzbekistan in the WGI
Indicators Estimate* Rank**
Voice and Accountability -1,33 12,56
Political Stability and Absence of Violence -0,20 39,62
Government Effectiveness -0,33 38,21
Regulatory Quality -0,55 31,60
Rule of Law -0,85 21,70
Control of Corruption -0,76 24,53
* Estimate of governance (ranges from approximately -2.5 (weak) to 2.5 (strong) governance performance)
** Percentile rank among all countries (ranges from 0 (lowest) to 100 (highest) rank)
Source: Daniel Kaufmann and Aart Kraay (2023). Worldwide Governance Indicators,
2023 Update (www.govindicators.org), Accessed on 14.10.2023
The table provides an overview of Uzbekistan's performance in various dimensions of governance as assessed by the Worldwide Governance Indicators (WGI).
Uzbekistan's relatively low estimate in "Voice and Accountability" suggests challenges in these areas, and its 12.56th percentile rank indicates that it performs better than 12.56% of countries in this category.
Uzbekistan's estimate in "Political Stability and Absence of Violence" is closer to the midpoint, suggesting moderate performance. Its 39.62nd percentile rank means it fares better than approximately 39.62% of countries in this regard.
In "Government Effectiveness" Uzbekistan's estimate is somewhat lower, indicating room for improvement in this area, and its 38.21st percentile rank means it performs better than around 38.21% of countries.
In "Regulatory Quality" Uzbekistan's estimate is relatively lower, indicating that regulatory quality may be an area of concern. Its 31.60th percentile rank means it outperforms about 31.60% of countries.
Uzbekistan's estimate in "Rule of Law" suggests that there is room for improvement in this area, and its 21.70th percentile rank indicates it performs better than approximately 21.70% of countries.
In "Control of Corruption" Uzbekistan's estimate indicates that addressing corruption is an ongoing challenge. Its 24.53rd percentile rank means it outperforms around 24.53% of countries. In summary, Uzbekistan's WGI results reveal both strengths and areas for improvement in its governance and institutional quality. The country appears to perform relatively better in political stability but faces challenges in areas such as voice and accountability, regulatory quality, rule of
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IMPROVING UZBEKISTAN'S POSITION IN INTERNATIONAL RATINGS AND INDEXES: THEORY, PRACTICE, AND STRATEGY
law, government effectiveness, and control of corruption. These results can serve as valuable insights for policymakers, investors, and organizations seeking to engage with or assess Uzbekistan's governance environment.
Transparency International's Corruption Perceptions Index (CPI) ranks 180 countries and territories around the world by their perceived levels of public sector corruption, scoring on a scale of 0 (highly corrupt) to 100 (very clean)7.
Uzbekistan's score of 31 out of 100 and a rank of 126 out of 180 in a global index reflect areas of improvement needed in the assessed domains, such as transparency and governance.
Uzbekistan has been a steady improver on the CPI, gaining 14 points since 2013. In recent years, the country has prioritised preventing corruption, establishing an anti-corruption agency as well as a mandatory online public procurement platform to enhance transparency8. The positive score change of +3 since 2021 indicates that Uzbekistan is making progress and actively addressing these challenges, showing a commitment to improvement in these areas.
Picture 1
Score changes for Uzbekistan in the CPI from 2012 to 2022
Source: https://www.transparency.org/en/cpi/2022/index/uzb
Index of Economic Freedom measures economic freedom of 184 countries based on trade freedom, business freedom, investment freedom, and property rights.
The index measures economic freedom based on 12 quantitative and qualitative factors, grouped into four broad categories, or pillars, of economic freedom:
Rule of Law (property rights, government integrity, judicial effectiveness) Government Size (government spending, tax burden, fiscal health) Regulatory Efficiency (business freedom, labor freedom, monetary freedom) Open Markets (trade freedom, investment freedom, financial freedom) Each of the twelve economic freedoms within these categories is graded on a scale of 0 to 100. A country's overall score is derived by averaging these twelve economic freedoms, with equal weight being given to each.
Uzbekistan's economic freedom score is 56.5, making its economy the 109th freest in the 2023 Index. Its score is 0.8 point higher than last year. Uzbekistan is ranked 23rd out of 39 countries in the Asia-Pacific region, and its overall score is below the world average. Uzbekistan has been adopting policies that advance its economic freedom, transitioning to greater openness
7 https://www.transparencY.org/en/cpi/2022
8 https://www.transparencY.org/en/news/cpi-2022-eastern-europe-central-asia-growing-securitY-risks-
authoritarianism-threaten-progress-corruption
0 n 0 Q IMPROVING UZBEKISTAN'S POSITION IN INTERNATIONAL RATINGS L U L O AND INDEXES: THEORY, PRACTICE, AND STRATEGY
and modernization. There are institutional shortcomings that limit political and other fundamental freedoms, but positive changes have been taking root. After years of economic stagnation, Uzbekistan has proactively pursued critical reforms since 2017 to build a competitive market economy9.
Picture 2
Results of the Republic of Uzbekistan in the Index of Economic Freedom 2023
Source: https://www.heritage.org/mdex/country/uzbekistan
The index of economic freedom in the republic recorded positive changes in 7 out of 12 indicators, negative - in 5 indicators. The overall growth of the rating was influenced by a significant improvement in the situation with investment freedom (+10 points) and financial freedom (+10 points)10.
The Global Competitiveness Index (GCI) is a well-known economic indicator that assesses the competitiveness of countries and their ability to generate economic growth. It is published by the World Economic Forum (WEF) and provides insights into various aspects of a nation's competitiveness, such as infrastructure, innovation, macroeconomic stability, health, education, and more. The GCI is widely used by governments, businesses, and policymakers to analyze and compare the overall business and economic environment in different countries. It serves as a valuable tool for making informed decisions related to investments, policy development, and international competitiveness.
The World Economic Forum (WEF) has released the Special Edition 2020 of the Global Competitiveness Report. However, the Global Competitiveness Rankings have been suspended due to the unprecedented challenges posed by the COVID-19 pandemic11. The latest global competitiveness ranking was released in 2019 as part of the Global Competitiveness Index 4.0.
Uzbekistan has not previously been part of the Global Competitiveness Index. However, in recent years, efforts have been made to actively pursue inclusion in the index. the Ministry of Economy and Finance of Uzbekistan, together with representatives of the WEF are working on the inclusion of the republic in the GCI. WEF representatives confirm that the procedure may take a long time12.
9 https://www.heritage.org/index/country/uzbekistan
10 https://kun.uz/en/news/2023/03/07/uzbekistan-up-by-8-lines-in-the-index-of-economic-freedom
11 Klaus Schwab, K., and Saadia Zahidi. "The global competitiveness report special edition 2020: How countries are performing on the road to recovery." World Economic Forum. 2020.
12 https://kun.uz/en/news/2019/10/18/uzbekistan-may-be-included-in-global-competitiveness-index-from-2021
0 n 0 Q IMPROVING UZBEKISTAN'S POSITION IN INTERNATIONAL RATINGS L U L O AND INDEXES: THEORY, PRACTICE, AND STRATEGY
Inclusion in the Global Competitiveness Index (GCI) is crucial for Uzbekistan as it elevates the country's international profile, attracting foreign investment and trade opportunities. The GCI serves as a valuable benchmark for assessing competitiveness and guides targeted policy decisions to enhance areas like business environment, infrastructure, and education. Furthermore, it helps identify competitive advantages, fosters international collaboration, and boosts public perception, ultimately contributing to economic development and stability. It encourages data-driven decision-making and transparency, promoting overall progress.
This article explores Uzbekistan's position in international rankings and indices that evaluate state institutional quality as a key determinant for attracting foreign direct investment (FDI). FDI is vital for economic growth and development as it brings in capital, knowledge, and jobs, along with advanced technologies and best practices, thus enhancing the competitiveness of local industries.
The article emphasizes the critical role of state institutions in attracting FDI, as these institutions shape a country's economic system and influence stability, transparency, and predictability, which are essential factors for investor decision-making. Several international indices and organizations assess institutional quality, offering valuable insights to investors and policymakers.
The article provides an overview of Uzbekistan's performance in these indices. For instance, the Worldwide Governance Indicators show strengths in political stability but challenges in areas like voice and accountability, regulatory quality, rule of law, government effectiveness, and control of corruption. Transparency International's CPI indicates room for improvement in transparency and governance.
Furthermore, the Index of Economic Freedom reveals Uzbekistan's progress in economic freedom, with positive changes in several indicators. The country is making efforts to advance its economic freedom and market openness.
The article also discusses Uzbekistan's aspirations to be included in the Global Competitiveness Index (GCI), highlighting the potential benefits of such inclusion, including elevating the country's international profile, attracting foreign investment, and promoting economic development and stability.
In summary, the article underscores the importance of state institutional quality in attracting FDI and the significance of international indices in assessing and improving Uzbekistan's governance environment. These insights are valuable for investors, policymakers, and organizations looking to engage with or evaluate Uzbekistan's investment opportunities.
REFERENCES
1. Adams, S. (2009). Can foreign direct investment (FDI) help to promote growth in Africa. African Journal of Business Management. https://doi.org/10.5897/AJBM09.001.
2. Cavallo, E., & Daude, C. (2008). Public Investment in Developing Countries: A Blessing or a Curse?. https://doi. org/10.2139/ssrn.1820935.
3. https://globaledge.msu.edu/global-resources/resource/470#:~:text=World%20Bank%20Worldwide%20Governance%20Indic ators,with%20rankings%20beginning%20in%201996.
4. https://www.transparency.org/en/cpi/2020.
5. https://www.heritage.org/index/about.
0 n 0 Q IMPROVING UZBEKISTAN'S POSITION IN INTERNATIONAL RATINGS L U L O AND INDEXES: THEORY, PRACTICE, AND STRATEGY
6. https://databank.worldbank.org/metadataglossary/africa-development-indicators/series/GCI.INDEX.XQ#:~:text=The%20Global%20Competitiveness%20Index %20(GCI,of%20productivity%20of%20a%20country.
7. https://www.transparency.org/en/cpi/2022.
8. https://www.transparency.org/en/news/cpi-2022-eastern-europe-central-asia-growing-security-risks-authoritarianism-threaten-progress-corruption.
9. https://www.heritage.org/index/country/uzbekistan.
10. https://kun.uz/en/news/2023/03/07/uzbekistan-up-by-8-lines-in-the-index-of-economic-freedom.
11. Klaus Schwab, K., and Saadia Zahidi. "The global competitiveness report special edition 2020: How countries are performing on the road to recovery." World Economic Forum. 2020.
12. https://kun.uz/en/news/2019/10/18/uzbekistan-may-be-included-in-global-competitiveness-index-from-2021.
13. Daniel Kaufmann and Aart Kraay (2023). Worldwide Governance Indicators, 2023 Update (www.govindicators.org), Accessed on 14.10.2023
14. https://www.transparency.org/en/cpi/2022/index/uzb.
