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diamond. Many government departments and agencies
impinge on competitiveness, as do government entities at
the provincial, state, and city levels.The question is not
whether government has a role,but what that role should
be and how to coordinate policies across parts of government. Many countries have sought to limit the inappropriate roles of government while ignoring its positive
roles.Government must set the right rules and incentives
and make the public investments needed for a productive
economy.
National endowments such as natural resources play a
declining role incompetitiveness as the resource intensity
of the economy falls and as technology substitutes for
resources or opens up new resource locations.The real
prices of most resources or resource-intensive goodshave
been falling over the decades. It is the productivity with
which natural resources can be utilized, not the resources
themselves, that normally have the strongest influence on
prosperity.Abundant natural resources also carry a risk. In
countries where natural resources are abundant or dominate economic activity, forces are set in motion that limit
the development of policies, skills, andattitudes enhancing
competitiveness. Exploiting and redistributing resource
spoils can become the dominant orientation rather than
enhancing productivity.We explore the relationship

betweennatural resource endowments and competitiveness in a later section.
Clusters and economic development

An improving business environment gives rise to the formation of clusters. Clusters aregeographically proximate
groups of interconnected companies, suppliers, service
providers, and associated institutions in a particular field,
linked by commonalities and complementarities. Clusters,
suchas software in India or high-performance cars in
Germany, are often concentrated in a particular region
within a larger nation, and sometimes in a single town.
Clusters affect competitiveness in...
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