The political, legal, and macroeconomic underpinnings of competitiveness and economic development are becoming better understood. Yet a stable political context and sound macroeconomic policies are necessary but not sufficient to ensure a prosperous economy. As important – or even more so – are the microeconomic foundations of economic development, rooted in firm operating practices and strategies as well as in the business inputs, infrastructure, institutions, and policies that constitute the environment in which a nation’s firms compete. Unless there is appropriate improvement at the microeconomic level, political and macroeconomic reform will not bear full fruit. Last year’s Global Competitiveness Report marked the first time that the microeconomic foundations of economic development could be examined statistically across a wide array of countries. Microeconomic differences account for much of the variation across countries in GDP per capita. Last year’s GCR introduced an Index of microeconomic competitiveness, which allowed a ranking of countries that was complementary to the overall GCR ranking. This paper presents the results of the second microeconomic ranking. This year’s results reflect richer data, a broader sample of countries, and additional analyses not included in last year’s report. In addition to overall rankings, we present subrankings of company competitiveness and micro-business environment competitiveness, explore the overall patterns of microeconomic reform in the world economy, and identify the most pressing agenda items in each country for corporations and for business environment upgrading based on the analysis. Overall, this year’s results provide even stronger support for the importance of microeconomic conditions for economic development. The findings again verify the striking and regular pattern of microeconomic changes that occur with economic development. While there may be some natural tendency for some microeconomic conditions to improve as GDP per capita grows, such improvement appears to be far from automatic. In all areas, the rate of microeconomic improvement can be affected markedly by action in both government and the private sector. Our results highlight the pressing need to better integrate microeconomic and competitive thinking into the economic reform process. If reform efforts in developing countries remain limited to IMF-style macroeconomic adjustments, we will face a continued succession of disappointments. In advanced countries, which have largely gotten their macro policies right, it is micro reform that holds the key to reversing unemployment problems and translating economic growth into a rising standard of living. In Canada, New Zealand, and the United Kingdom, for example, macro reforms have triggered spurts of investment and growth but have not yet materially increased the prosperity of the average citizen. Microeconomic foundations of economic development Standard of living is determined by the productivity of a nation’s economy, which is measured by the value of goods and services (products) produced per unit of the nation’s Microeconomic Competitiveness: Findings from the 1999 Executive Survey 30 Microeconomic competitiveness: Findings from the 1999 Executive Survey By Michael E Porter, C Roland Christensen Professor of Business Administration, Harvard Business School 1 The microeconomic index highlights the importance of microeconomic factors in country and corporate competitiveness