By  on November 27, 2007

GENEVA — The U.S. retained the top ranking as the world's most competitive economy in 2007, partly because of innovative companies and its efficient markets, according to a World Economic Forum study.

However, the WEF's "Global Competitiveness Report 2007-2008" warned that weaknesses caused by macroeconomic imbalances will continue to threaten the U.S.'s overall competitiveness and the global economy as a whole.

"The danger has most recently been demonstrated by the fallout contagion caused by the country's subprime mortgage crisis and ensuing global credit crunch," said Xavier Sala-i-Martin, professor of economics at Columbia University and co-author of the report.

Switzerland ranked second in the report followed by Denmark, Sweden, Germany, Finland, Singapore, Japan, the U.K. and the Netherlands.

The report ranked 131 countries based on a survey of more than 11,000 business leaders worldwide. It also considered 12 macroeconomic benchmarks of competitiveness, including market efficiency, innovation, business sophistication, infrastructure, education and technological readiness.

The report said more competitive economies "tend to be able to produce higher levels of income for their citizens. The productivity level also determines the rates of return obtained by investors in an economy."

Among emerging countries with major textiles and apparel exporting sectors, strong gains were posted by Sri Lanka and Turkey. Sri Lanka moved up 11 slots to 70th place, marked by improvements in the areas of business sophistication and innovation. Turkey was ranked 53rd, up from 58th last year, boosted by a combination of comparatively efficient allocation of goods in the economy and relatively sophisticated business operations.

China, the world's biggest emerging economy, advanced one slot to 34th based on the comparative advantage of its huge domestic and foreign market size, which the report said allows the country's companies to benefit from economies of scale. The study noted that China needs to address some major weaknesses such as the poor ratings of its banks, poor transparency of government policy making and lack of judicial independence. Moreover, Chinese corporate boards "receive poor ratings for efficacy, protection of minority shareholder's interests, insufficient auditing and reporting standards, and lack of ethical behavior by firms."

India's ranking fell to 48th from 42nd a year earlier, a drop caused by the lack of macroeconomic stability marked by a large budget deficit and inflation in excess of 6 percent at a time when inflation has been reduced around the globe.

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