Abstract

This paper examines the relationship between competitiveness and economic sustainability through a construction of a new productivity indicator for counties and cities in Taiwan, this paper discusses two different approaches, namely, principle component analysis and equal-weighted average, for constructing competitiveness indicators based on five different dimensions, i.e. investment; skills; innovation; entrepreneurship; competition. The findings are summarized as follow: (1) parsimony principle can be used to construct competitiveness indicator; (2) all variables used in this study are positively related to economic sustainability; (3) both newly constructed and traditional competitiveness indicators can be used as a leading indicator for economic development; (4) traditional drivers for economic development can only partially explain the economic sustainability. In the context of Taiwan’s economy, an economic development policy will also be discussed.