Cities 48 (2015) 7685

Contents lists available at ScienceDirect

Cities
journal homepage: www.elsevier.com/locate/cities

Benchmarking urban competitiveness in Europe to attract investment

Luca Sez a,, Iaki Periez b
a
Faculty of Economics and Business, Dept. of Financial Economy II, Avda Lehendakari Aguirre 83, 48015 Bilbao, University of the Basque Country (UPV/EHU), Spain
b
Faculty of Economics and Business, Dept. of Financial Economy II, University of the Basque Country (UPV/EHU), Spain

a r t i c l e i n f o a b s t r a c t

Article history: The current context of the global economy and a shortage of capital is putting cities all over the world under
Received 13 March 2015 great pressure and increasing competition between them. The competitive position of a city does not
Received in revised form 29 May 2015 remain stable over time: it changes due to both internal and external factors such as the appearance of
Accepted 1 June 2015
new technologies, new competitors and changes in the preferences and desires of its target groups. Cities
Available online 18 June 2015
therefore need to understand the strengths and weaknesses that inuence not just their own ability to com-
pete but also that of their competitors. This paper seeks to benchmark the competitiveness of European
Keywords:
cities as locations for businesses and in terms of their ability to attract investment. Urban competitiveness
Globalisation
Urban competitiveness
is a complex, multidimensional issue, so a scale of measurement has been created based on a synthetic
Innovation index called the Urban Competitiveness Index (UCI), which comprises various sub-indices representing
Benchmarking its various dimensions. In the present study we focus on the basic dimension, the efciency dimension
Index and the innovation dimension. The study covers 159 cities located in 26 European Union countries.
2015 Elsevier Ltd. All rights reserved.

1. Introduction
The globalisation of the worlds economy at the end of the 20th
century gave rise to far-reaching changes in cities all over the world.
Those changes were not just economic but also social, cultural, polit-
ical and structural. This process was accompanied by a concurrent
process of localisation, giving rise to a global/local duality; global
opportunities arise that must be developed using local capabilities
and initiatives, thus increasing the economic and political power
of both cities and the regions to which they belong. Combined with
technological advances and the advent of new information and com-
munication technologies (ICTs), this has turned the worlds econ-
omy into a global, information economy (Castells, 1997). It is
global because production, consumption and the circulation of cap-
ital are all organised on a global scale either directly or via a network
of links between the main economic actors. It is information-based
because productivity does not depend solely on conventional pro-
duction factors but also on the ability to generate and process infor-
mation and knowledge strategically (Dosi, Freeman, Nelson,
Silverberg, & Soetel, 1988; Foray & Freeman, 1992).
But globalisation has also produced changes in territorial struc-
tures: its direct effects can be seen in the appearance of a number
of global systems that operate in a context of worldwide ows and
communication. Indirectly, this has resulted in a restructuring of
Corresponding author.
E-mail addresses: lucia.saez@ehu.es (L. Sez), inaki.perianez@ehu.es
(I. Periez).
territories and the formation of global cities (Sassen, 1991, 1994,
2007), in a new trend towards the formation of mega-regions/
mega-cities (Florida, 2009; Florida, Gulden, & Mellander, 2007)
and an increase in cross-border ows that connect cities at
different levels of the urban hierarchy (Camagni, 2004), in which
hierarchical forms and forms of cooperation are mixed in links
between cities. Thus, cities face the challenge of redesigning
themselves as systems that can handle difculties and adapt
quickly and effectively to the new challenges and opportunities
entailed by a highly dynamic global environment. That redesign
must enable them to shift from industrial societies to information,
knowledge and/or learning societies.
These are societies in which individual and collective abilities to
obtain knowledge and learn enable processes of regeneration and
economic revitalisation to be undertaken with some assurance of
success. Thus, globalisation must be factored into city manage-
ment, and cities nd themselves competing with one another to
attract anything that can create wealth (Darchen & Tremblay,
2010; Zenker, 2009) and employment.
This increase in competition between cities means that their tar-
get groups pick whichever city best suits their wishes and needs,
that is, whichever offers the greatest added value. Cities therefore
need to identify their competitors and determine where their com-
petitive advantage lies if they are to achieve growth and economic/
social protability. This means analysing, interpreting and assessing
their positions relative to their competitors in regard to a number of
characteristics or attributes which cities may or may not possess. In
short, cities need to engage in benchmarking to help their managers

http://dx.doi.org/10.1016/j.cities.2015.06.002
0264-2751/ 2015 Elsevier Ltd. All rights reserved.
 L. Sez, I. Periez / Cities 48 (2015) 7685
identify competitors, establish competition proles and determine
where their competitive advantage may lie on the one hand, and
to develop distinctive positioning strategies on the other. Various
authors (Bronisz, Heijman, & Miszczuk, 2008; Cabrero, 2012;
Cabrero, Orihuela, & Ziccardi, 2005; Chesire, Carbonaro, & Hay,
1986; Freudenberg, 2003; Huggins, 2003; Jiang & Shen, 2010;
Lukovics & Lengyel, 2006; Suan, 1993; Villaverde, 2007) and insti-
tutions (Beacon Hill, 2007; European Union Regional Policy, 2011;
IMD, 2008; Ni, 2012; WEF, 2012) have drawn up studies for bench-
marking cities from a number of perspectives (outcomes, inputs and
a combination of the two) and using different indicators and meth-
ods. However, none of these studies refers exclusively to cities in
Europe, where the expansions of the EU in 2004 and 2007 have
resulted in a union of territories, countries, regions and cities with
widely varying levels of economic development.
The main contribution of this study is a benchmarking of
European cities in terms of how competitive they are when it
comes to getting businesses to locate in them and attracting
investment. Urban competitiveness is a complex, multidimen-
sional issue, so a scale of measurement has been drawn up
based on a synthetic index, referred to here as the Urban
Competitiveness Index (UCI). This index is made up of
sub-indices representing its various dimensions, namely, the basic
dimension, the efciency dimension and the innovation dimen-
sion. To that end, 31 indicators are used, most of which are drawn
from Eurostat (Appendix A), in relation to these three dimensions.
Our sample comprises 159 cities from 26 European Union coun-
tries, classed as LUZs (Large Urban Zones), which means that they
have a population of at least 100,000.
2. The concept of competitiveness applied to cities
In recent years academic studies have paid more and more
attention to the concept of territorial (regional and urban) compet-
itiveness (Ache & Andersen, 2008; Begg, 1999; Buck, 2005;
Cabrero, 2012; Cabrero et al., 2005; Camagni, 2002; Gardiner,
Martin, & Tyler, 2004; Gordon, 1999; Jensen-Butler, 1999; Jiang &
Shen, 2010; Lengyel, 2004; Lever, 1999; Lukovics & Lengyel,
2006; Martin, 2003; Turok, 2004). Their interest has also extended
to regional and urban political discourses. Several international
organisations (European Commission, 2011; IMD, 2008; OECD,
2005) have dened the term competitiveness in regard to terri-
tories. They coincide at least in positing that competitiveness refers
on the one hand to the actual, physical setting and on the other
hand to the concept of productivity. Accordingly, getting a higher
yield from natural resources, labour and capital is essential, but
not necessarily sufcient in itself, to make a territory more com-
petitive. In political discourse, the idea that territories, regions
and cities compete with one another and that there is room for
manoeuvre through strategic actions to improve their capabilities
and competitive edge is deeply rooted. Kitson, Martin, and Tyler
(2004: 991), state that . . .policy has raced ahead of conceptual
understanding and empirical analysis, and Turok (2004: 1076), uses
the term institutionalised competition, based on the idea that it is
governments and public institutions which are chiey responsible
for improving competitiveness in their regions and cities. Thus, in
Europe, competitiveness has been identied as a prime objective in
regional policy, and is considered the most important means of
promoting balanced development and territorial cohesion
(Enyedi, 2000; Hall, Smith, & Tsoukalis, 2001). But there are also
dissenting voices such as that of Krugman (1996, 1998), who holds
that it is not nations (or, by extension, regions or cities) that com-
pete with one another but rather businesses, understanding that
actions which only makes sense at microeconomic (business) scale
have been transferred to the macroeconomic (territory) scale.
77
The concept of urban competitiveness was dened by Lever and
Turok (1999: 792) as . . . the degree to which cities can produce goods
and services which meet the test of wider regional, national and inter-
national markets, while simultaneously increasing real incomes,
improving the quality of life for citizens and promoting development
in a manner which is sustainable. In this denition the authors take
into account not just the nancial protability which a city needs to
be competitive, but also social protability. This mean that cities
like the regions in which they are located can either help rms to
be competitive or become the main obstacle to their being so.
Other authors, such as Porter (1991, 1995, 1996), Moori-Koening
and Yoguel (1998), Begg (2002) and Sobrino (2002), hold that com-
petitiveness is a process of generating and disseminating compe-
tencies which depends not only on microeconomic factors
(businesses) but also on the ability of areas to offer features that
facilitate economic activities. In other words, the idea is to create
a physical, technological, social, environmental and institutional
setting conducive to attracting and developing economic activities
that can create wealth and jobs. Cities can promote or create such
conditions and thus turn competitiveness into a determinant factor
for their economic development. This may even lead to cities com-
peting directly with one another through actions and policies
implemented by their authorities. In a globalised setting the most
economically successful cities are those that act with some degree
of autonomy from their national economies and are able to compete
internationally. The performance of the economy of a country thus
depends on the actions of its cities on the international stage, but
those cities are less dependent on the performance of their domes-
tic markets as a whole (Camagni, 2002; Lever, 1999).
The concepts of competition and competitiveness are linked but
are not synonymous: the latter is a consequence of the former. It is
the degree of competition that currently exists between cities at
domestic and international levels that forces them to be competi-
tive. Thus, competitiveness becomes a determining factor for the
economic development of cities; when a city is capable of creating
a setting that is conducive to and suitable for competitiveness it
can be referred to as a competitive city. Accordingly, a city (and by
extension a country or region) can be seen as competitive insofar
as its production activities and its public, social and private organi-
sations as a whole are effective, efcient, enterprising and innova-
tive. This means that they need to have the support of
infrastructure, amenities, human capital and the institutions
required to put their competitive advantage to good use and make
them truly competitive. Not all cities compete in the same condi-
tions, and not all have the same resources or capabilities to deal with
competitors.
There are cities which have unique attractions which are hard
to imitate, and which distinguish themselves and furnish them
with a competitive edge. The rest must be able to develop their
resources and generate their own hard-to-imitate competitive
edge if they are to implement processes of urban regeneration
and revitalisation successfully. Thus, the resources of a city and
its ability to manage, develop and maintain those resources give
rise to a sustainable competitive edge that can be defended against
competitors. The fact that cities compete with one another at
national and/or international level does not mean that they cannot
cooperate or even form partnerships to tackle particular chal-
lenges. However, such cooperative arrangements are ultimately
intended to make them more competitive (Borja & Castells,
1997), so they cooperate in order to compete better. This is known
as coopetition (Brandenburger & Nalebuff, 1996).
Following this explanation of why the concept of competitive-
ness is applicable to cities, the next step is to explain the Urban
Competitiveness Index (UCI), the synthetic index drawn up for
benchmarking cities. It uses a weighted aggregate of the
sub-indicators that represent its various dimensions.
78 L. Sez, I. Periez / Cities 48 (2015) 7685
3. The UCI for the location of businesses and attracting of
investment
3.1. Urban competitiveness factors
Competitiveness, as applied to cities, is a complex, multidimen-
sional concept which is hard to measure. It is made up of numerous
underlying factors, some tangible and others intangible, concerned
with inputs and outputs. Authors such as Porter (1991), Begg
(1999), Martin (2003), Turok, Bailey, and Atkinson (2004),
Gardiner et al. (2004), Lengyel (2004), Schwab and Porter (2008),
Schwab (2009) and Ferrara and Nistic (2014), and organisations
such as the Institute for Management and Development (IMD)
(2008), European Union-Regional Policy (2011) via the Joint
Research Centre (JRC) and the World Economic Forum (2012), con-
sider that competitiveness can be applied to territories in terms of
their attractiveness as locations for businesses and for investment
from a multi-dimensional perspective that combines input and
output factors. Although they do not agree entirely as to what fac-
tors actually determine, help and improve levels of urban compet-
itiveness, they do coincide in categorising them under such aspects
as social capital, human capital, quality-of-life, infrastructure, pro-
ductivity and public institutions that favour the workings of mar-
kets. One point on which there is more and more agreement is in
identifying intangible factors such as knowledge, innovation, cre-
ativeness, human capital, the distinctive identity of a city and,
more recently, city branding (Ashworth & Kavaratzis, 2010;
Kavaratzis & Ashworth, 2007; Moilanen & Rainisto, 2009; Sez,
Periez, & Mediano, 2013; Zhang & Zhao, 2009), as a source of dis-
tinctiveness and a means of creating sustainable competitive
advantage that can be defended over time and against competitors.
Following on from the publications mentioned, our study distin-
guishes between three dimensions of competitiveness (Table 1):
The basic dimension (B), The efciency dimension (E) and The innovation
dimension (I). These dimensions are made up of different competi-
tiveness factors that cover both inputs and outputs and affect cities
differently depending on their level of economic development. The
basic dimension covers those factors which are understood to be nec-
essary for the operation of any urban economy. Their importance in
determining the level of competitiveness of a city decreases as its
level of economic development increases. The efciency dimension
covers factors that describe a more developed, more distinctive urban
economy in which higher education becomes especially important
and the jobs available require a more highly qualied workforce.
The importance of the factors that make up this dimension increases
as the level of economic development of the city increases. Finally,
the innovation dimension covers factors concerned with generating
knowledge and with ICTs. Cities need to adapt to rapid, complex tech-
nological changes by incorporating new technologies into their man-
agement and production processes. The most powerful cities in
regard to this dimension are those which are most competitive in
terms of attracting businesses and investments.
3.2. The multidimensional structure of urban competitiveness
To study the multidimensional nature of urban competitiveness
we put forward the following main hypothesis: Urban competitive-
ness in terms of attractiveness for the location of businesses and invest-
ment is a multidimensional concept made up of dimensions that cover
basic, efciency-related and innovation-related factors. On that basis
we set out three null sub-hypotheses, one for each dimension.1 To
test these hypotheses, we analyse the relationships between
1
The indicators corresponding to the basic dimension/efciency dimension/innova-
tion dimension are mutually uncorrelated, so the said dimension does not form part of
the multidimensional concept of urban competitiveness for attracting businesses and
investment.
observable indicators (correlations) so that it is possible by grouping
individual indicators in terms of sub-indicators to check whether
they are good choices for describing the phenomenon in question.
We thus apply factor analysis, more specically principal com-
ponent analysis (PCA), to examine how the different dimensions
that make up each compound indicator are linked statistically.
Each dimension is a composite designed to describe a particular
aspect of the latent phenomenon to be measured (the level of
urban competitiveness in our case). As these aspects are not
directly observable, they are measured by a set of observable indi-
cators which, by denition, are related to the aspect they are sup-
posed to describe and, consequently, to each other. In an ideal
situation, each dimension would show a unique, most relevant
PCA component accounting for a large degree of the variability
associated with the full set of indicators. Moreover, all the indica-
tors should contribute roughly to the same extent and with the
same orientation to the most relevant component. PCA is applied
to check the internal consistency of each Urban Competitiveness
Index dimension. This allows us to detect non-inuencing indica-
tors, or indicators describing something else or something more
than they were supposed to. To begin the analysis we gauge the
suitability of the sample on each of the three dimensions consid-
ered by using the KMO (KaiserMeyerOklin) indicator, which
shows whether the observable indicators are jointly correlated or
not by making a comparison of their overall signicance on a scale
from 0 to 1. This comparison is conducted using Bartletts statisti-
cal test, which gives statistically signicant gures in all three
cases (Table 2). This means that the indicators proposed for each
dimension are suitable for obtaining the factors that make up each
sub-indicator of the UCI. The main hypothesis is thus accepted.
3.3. Constructing the UCI
A synthetic index or compound indicator is a mathematical func-
tion that associates each element or unit of analysis with a number
that depends on the characteristics of the element in question, and
which results in a hierarchical ordering of elements. Thus, if each
element i is dened by a vector of components X i xi1 ; xi2 ;    ; xin
that describes its characteristics then the indicator is a function f
that allocates to each element i a number Ii , according to the values
of the associated vector. A synthetic indicator is required to have
reasonable properties that make its application plausible, such as
monotony, scale invariance, translation invariance, continuity and
independence of irrelevant alternatives. It must be pointed out that
no synthetic indicator can be found that simultaneously meets the
requirements of scale and translation invariance, and given that our
unit of analysis is cities and that non-homogenous characteristics
are assessed, scale invariance is considered more suitable for cata-
loguing their relative importance, while translation invariance
would be more suitable for classifying them in absolute terms.
The synthetic indices or compound indicators used here are
based on the Nash product (Nash, 1950), which is taken from
cooperative game theory. It consists of allocating to each city the
products of the components of its vector of characteristics.
Formally: N x1 ; x2 ;    ; xn x1  x2    xn . This indicator weights all
the components or characteristics of a city in the same way.
Alternatively, characteristics could be weighted in terms of relative
weight if the analyst deems it necessary (Freudenberg, 2003). This
makes it possible to consider alternative synthetic indicators result-
ing from the weighting of components by means of a system of rel-
x
ative weights x xk nk1 ; N x1 ; x2 ;    ; xn xx x2 xn
1  x2    xn . In
1
other words each characteristic k is weighted according to its impor-
tance with a weight xk , so that each component is given its relative
weight, and nally the product of the relative weights is obtained.
As regards the weighting xk , our study covers three dimensions
(basic, efciency-related and innovation-related), and given the
 L. Sez, I. Periez / Cities 48 (2015) 7685 79

Table 1 4. Results of the analysis of urban competitiveness in Europe for

Dimensions and urban factors.
attracting investment
B. Basic dimension
B1 Transport 4.1. Benchmarking of urban competitiveness in Europe
B2 Health
B3 Primary and secondary education The rst step is to analyse the level of competitiveness of the
E. Efciency dimension cities studied in terms of sub-indicators, as shown in Fig. 1.
E1 Economic activity An analysis of the results for the UCI as a whole, as shown in
E2 Labour market Fig. 2, reveals a downward trend in the positions of the 159
E3 Human capital/high education
European cities that make up the sample. This is indicative of dif-
I. Innovation dimension ferences in their ability to compete in terms of attracting busi-
I1 Business sophistication
nesses and investment. The downward slope enables distinctions
I2 R+D, Knowledge society
I3 Information society
to be drawn between ve groups of cities with different levels of
competitiveness. Wide gaps can be seen between the top and bot-
Table 2
tom cities on the UCI, providing evidence of the enormous differ-
KMO and Bartletts test. ences in their ability to compete with other cities.
As expected, the top positions are occupied by global cities,
Basic Efciency Innovation
with London and Paris standing out from the rest. Both these cities
KaiserMeyerOlkin measure .621 .778 .849 are major economic hubs and also hold positions of signicant eco-
of sampling adequacy
nomic leadership on a worldwide level. They form the rst group,
Bartletts test of sphericity Approx. 973.533 2826.433 1773.886
chi-square well ahead of all the rest. The Globalisation and World Cities Study
Df 36 66 45 Group and Network (GaWC, 2008) classies the leading cities in
Sig. .000 .000 .000 our UCI (London, Paris, Madrid, Milan, Barcelona, Rome, Munich,
The bold values show whether the observable indicators are jointly correlated or
Athens, Frankfurt, Hamburg, Stuttgart, Vienna, Stockholm,
not by making a comparison of their overall signicance on a scale from 0 to 1. This Brussels, Copenhagen, Ruhrgebiet, Dsseldorf, Amsterdam and
comparison is conducted using Bartletts statistical test, which gives statistically Manchester, among others) as alpha world cities which stand
signicant gures in all three cases. out for their size and importance at world level in economic, social
and cultural terms. In its 2010 State of European Cities report, the
differences in the levels of economic development of the cities European Commission (2010: 39) denes them as Principal
studied, we have divided them into three groups according to the Metropolises, cities that are characterised not just by the size of
same criteria applied by the European Commission in its regional their populations and their economic activities but also as account-
policy. Thus, cities with a PPP2 per capita GDP below 75% of the ing for the most dynamic innovation activity in Europe and as the
EU average are classed as having a medium level of economic biggest urban labour markets, with the service sector being espe-
development. Cities with a PPP per capita GDP of between 75% and cially important (tertiarisation of the economy).
100% of the EU average are classed as intermediate level, and cities In the competition proles that result from the UCI (Appendix B)
with a PPP per capita GDP of 100% of the EU average or more are London and Paris are followed by a second group of 13 cities with high
classed as high level. The various dimensions dened affect cities levels of economic development. Seven of them Madrid, Rome,
to a greater or lesser extent depending on their level of economic Athens, Vienna, Stockholm, Brussels and Copenhagen are major
development (European Union Regional Policy, 2011; WEF, 2012). European capitals. Their level of competitiveness in comparison to
We therefore believe that the three dimensions need to be weighted, the rest of the cities in the sample can be described as very high.
because as the level of economic development of cities increases, the Germany has more cities in this group than any other country
efciency and innovation dimensions acquire greater weight and with four. The third group comprises 50 cities, 40 of them with
importance. The weights allocated are as follows (Schwab, 2009; high levels of economic development and the remaining 10 with
Schwab & Porter, 2008.): for the basic dimension sub-indicator a intermediate levels. It includes capital cities such as Amsterdam,
reduction is applied as the economic development level of cities Helsinki, Berlin, Warsaw, Lisbon, Prague, Budapest, Luxembourg
increases, so that xMedium Basic = 0.5, xIntermediate Basic = 0.3 and and Bucharest. The level of competitiveness of the cities can be
xHigh Basic = 0.2. For the efciency sub-indicator the weighting allo- dened as high. It includes nine cities in Germany, seven in the
cated is the same for cities with intermediate and high levels of UK and six in France. It is also noteworthy that 5 of the Dutch cities
development but lower for the medium level, so that in the sample can be found in this group. The next group is the
xMedium Efficiency = 0.4, xIntermediate Efficiency = 0.5 and xHigh Efficiency = 0.5. most numerous, with 64 cities. It includes ve European capitals:
Finally, the weighting allocated to the innovation sub-indicator Nicosia, Bratislava, Ljubljana, Vilnius and Tallinn. The group
is greatest for cities with a high level of economic development includes cities from practically all the countries in the sample,
and smallest for those of medium level, so that though it is the UK, Germany, France and Italy which have most
xMedium Innovation = 0.1, xIntermediate Innovation = 0.2 and xHigh Innovation = 0.3. representatives. Thirty ve percent of these cities have high levels
This means that the weights allocated at each stage of economic of economic development, 55% have intermediate levels and 9%
development of cities (medium, intermediate and high) equal one, have medium levels. Their level of competitiveness compared to
depending on the dimension considered (basic, efciency-related the other cities in the sample can be classed as medium.
and innovation-related): x xk nk1 . Finally, the UCI is obtained Finally, there is a group of 30 cities whose level of competitiveness
as the weighted aggregate of the three sub-indicators: is classed as low. Twenty nine of them have medium levels of
development and only one Wrexham in the UK has intermedi-
U:C:I:i xkB Sub-indicator xkE Sub-indicator xkI Sub-indicator ate level. This group includes three European capitals: Soa, Riga
Basic Efficiency Innovation
and Valletta. It is worth noting that most of the cities in this last
group are located in Eastern Europe. Almost 86% of the Polish cities
2 in the sample can be found here.
The Purchasing Power Parity (PPP) is the level of the nominal exchange rate such
that the purchasing power of a unit of currency is exactly the same in the foreign In general, the cities with the best results under the UCI in
economy as in the domestic economy, once it is converted into foreign currency at terms of attractiveness for the location of businesses and for
that rate.
80 L. Sez, I. Periez / Cities 48 (2015) 7685

13.000
Basic Sub-indicator
12.000
Although there is a big gap between the top five cities and the
11.000
10.000 rest, it can be seen that the drop is smooth and gradual. In terms
9.000
of the basic dimension, which covers the factors necessary for
Score

8.000
7.000 the operation of any urban economy independent of its level of
6.000
5.000
economic development, the differences between cities seem
4.000 unlikely to be a determinant when it comes to improving or
3.000
guaranteeing a good competitive position in a global setting.
11
21
31
41
51
61
71
81
91
101
111
121
131
141
151
1

Rank

13.000
Eciency Sub-indicator
12.000
A steep downward slope enables five groups of cities to be
11.000
10.000 distinguished in line with their level of competitiveness on the
9.000
efficiency dimension. The differences between them reveal clear
Score

8.000
7.000 disparities in their abilities to compete on this dimension. The
6.000
5.000
factors considered under the efficiency dimension can be
4.000 understood to define the level of urban competitiveness in terms
3.000
of locating businesses and attracting investments.
10
19
28
37
46
55
64
73
82
91
100
109
118
127
136
145
154
1

Rank

13.000
Innovaon Sub-indicator A steep downward slope enables six groups of cities to be
12.000
11.000
10.000
distinguished in line with their level of competitiveness on the
9.000 innovation dimension. The differences between them reveal clear
Score

8.000
7.000 disparities in their abilities to compete on this dimension The
6.000
5.000
factors considered under the efficiency dimension can be
4.000
understood to define the level of urban competitiveness in terms
3.000
10
19
28
37
46
55
64
73
82
91
100
109
118
127
136
145
154

of locating businesses and attracting investments.

1

Rank

Fig. 1. Level of competitiveness by sub-indicator.

13.000 are in the top 10, but cities such as Las Palmas de Gran Canaria
Very High
Urban Compeveness Score

12.000 and Cordoba in Spain and Tarento and Caserta in Italy are at the
High
11.000 bottom of the ranking. This highlights the great disparities that
Medium
10.000
Low exist in terms of attractiveness and urban competitiveness in these
9.000
countries. The cities with the worst results are mainly located in
8.000
7.000
Eastern Europe; the only Eastern European cities to obtain good
6.000 results are national capitals, indicating the extent to which factors
5.000 for competition are concentrated in them.
4.000
3.000
4.2. Correlation between the UCI and its dimensions
103
109
115
121
127
133
139
145
151
157
13
19
25
31
37
43
49
55
61
67
73
79
85
91
97
1
7

It may be concluded that the UCI developed here as an aggre-

Rank
Fig. 2. Urban Competitiveness Index (UCI).
investment tend to be located in northern and central Europe, e.g.
the main cities of France (FR), the United Kingdom (UK), Denmark
(DK), Sweden (SE), Finland (FI), the Netherlands (NL) and western
Germany (DE) are all among the top 50. This indicates their eco-
nomic power and their potential for becoming attractive, compet-
itive cities at the international level. Italy (IT) and Spain (ES) have
cities which are among the best and the worst positioned in the
UCI: Madrid and Barcelona in Spain and Milan and Rome in Italy
gate of the three sub-indicators (basic, efciency-related and
innovation-related) gives a true picture of the ability of European
cities to compete in attracting businesses and investment.
However, we believe that it is necessary to determine the extent
to which the correlations between the UCI and the three
sub-indicators of which it is comprised are statistically signicant.
Table 3 shows that those correlations are indeed statistically signif-
icant. There is only moderate correlation between the UCI and the
basic sub-indicator (0.465), but the correlation with the efciency
indicator (0.970) and with the innovation indicator (0.973) is high.
The correlation between the three sub-indicators is moderate but
 L. Sez, I. Periez / Cities 48 (2015) 7685 81

Table 3
Correlation matrix between UCI and its sub-indicators.

U.C.I. Basic sub-indicator Efciency sub-indicator Innovation sub-indicator

Pearson correlation U.C.I. 1.000 .464 .970 .973
Basic sub-indicator .464 1.000 .443 .362
Efciency sub-indicator .970 .443 1.000 .953
Innovation sub-indicator .973 .362 .953 1.000
Sig. U.C.I. .000 .000 .000
Basic sub-indicator .000 . .000 .000
Efciency sub-indicator .000 .000 .000
Innovation sub-indicator .000 .000 .000

The bold values show that there is moderate correlation between the UCI and the basic sub-indicator (0.465), but the correlation with the
efciency indicator (0.970) and with the innovation indicator (0.973) is high. Bold values (signicance) show that those correlations are indeed
statistically signicant.

Table 4
Correlation matrix between UCI, sub-indicators and PPP per capita GDP 2009.

Basic sub-indicator Efciency sub-indicator Innovation sub-indicator UCI gdp_cap_pps

Basic sub-indicator Pearson correlation 1 .443 .362 .464 .459
Sig. (2-tailed) .000 .000 .000 .000
Efciency sub-indicator Pearson correlation .443 1 .953 .970 .746
Sig. (2-tailed) .000 .000 .000 .000
Innovation sub-indicator Pearson correlation .362 .953 1 .973 .702
Sig. (2-tailed) .000 .000 .000 .000
UCI Pearson correlation .464 .970 .973 1 .740
Sig. (2-tailed) .000 .000 .000 .000
gdp_cap_pps Pearson correlation .459 .746 .702 .740 1
Sig. (2-tailed) .000 .000 .000 .000

The bold values show that the correlation between the three sub-indicators and PPP per capita GDP reveals that, with the exception of the Basic sub-indicator, for which the
gure is just 0.459 (though this is still statistically signicant), high correlation levels of more than 0.7 are obtained. And there is statistically signicant correlation between
the UCI and PPP per capita GDP (0.740).

signicant in the case of the basic sub-indicator and high between

the efciency and innovation sub-indicators. The UCI can therefore
be said to give a true picture of the sub-indicators that make up
each of its dimensions, though we believe that robustness tests
should be carried out to conrm its soundness.

4.3. Robustness analysis

The use of compound indicators or synthetic indices is not with-

out its limitations and drawbacks. If an index is poorly constructed
it will not be robust. It is therefore necessary to run a series of tests
to check its soundness.
Robustness testing is seen as an important stage of our research,
since the UCI comprises an aggregate of compound sub-indicators
each of which is made up in turn of the aggregation of various fac-
tors. Huggins (2003, 2006), IMD (2008), European Union Regional
Policy (2011) and Ni (2012), all hold that the rst stage to deter-
mining the robustness of the outputs obtained should be an anal-
ysis of the correlation between the UCI and the sub-indicators of
which it is formed on the one hand and PPP per capita GDP on
the other, as a simple indicator that denotes whether a city is more
or less economically successful. Table 4 and Fig. 3 show that there
is a close, statistically signicant correlation between the UCI and Fig. 3. Relationship between UCI and PPP per capita GDP 2009.

PPP per capita GDP (0.740). This means that the sub-indicators
used are, in general, closely related to PPP per capita GDP and that
the method used for constructing the compound indicator or syn-
thetic index is sound. An examination of the correlation between
the three sub-indicators and PPP per capita GDP reveals that, with
the exception of the Basic sub-indicator, for which the gure is just
0.459 (though this is still statistically signicant), high correlation
levels of more than 0.7 are obtained.
To obtain a more detailed picture of how robust the UCI is, and
thus conrm the suitability of its construction based on the three
sub-indicators obtained, a second test was run that comprises
varying the weights initially allocated according to the levels of
development of each city for each of the dimensions examined
(basic, efciency-related and innovation-related) (Table 53).
3
The range of variation allocated to the weights was obtained using Excel, which is
capable of generating pseudo-random numbers from a uniform distribution between
zero and one with the function = a + (b  a) RANDOM (), where a = bottom end and
b = top end.
82 L. Sez, I. Periez / Cities 48 (2015) 7685
Table 5
Range of variation assigned to weights wij.
Parameter Reference value Range of variability
xMB 0.5 U[0.4; 0.6]
xME 0.4 U[0.3; 0.5]
xMI 0.1 U[0.05; 0.15]
xIB 0.3 U[0.2; 0.4]
xIE 0.5 U[0.4; 0.6]
xII 0.2 U[0.1; 0.3]
xHB 0.2 U[0.1; 0.3]
xHE 0.5 U[0.4; 0.6]
xHI 0.3 U[0.2; 0.4]
Twenty ve different cases or scenarios are considered and the vari-
ations in the hierarchical order initially obtained are analysed. If the
variability is small then the UCI setup is consistent with the different
classications presented, which supports its robustness.
An analysis of the 25 scenarios shows that the UCI generated is
consistent in general terms with the classication shown in each
scenario. Moreover, it emerges that there is more variability in
the middle positions of the classication than at the top and bot-
tom. After the two robustness tests it can be concluded that the
UCI developed is sound and capable of benchmarking levels of
urban competitiveness in terms of attractiveness for the location
of companies and for investment for the cities in the sample.
5. Conclusion
The large urban zones of Europe are the main sources of knowl-
edge and innovation, as they are in a unique position to offer busi-
nesses and investors dynamic settings in which to operate. This
makes them hubs in a globalising world economy. But this global-
ising context means increased competition between cities to
secure the scant resources available.
Drawing up a diagnosis of the ability of a particular urban econ-
omy to compete is no easy task, as there is no single indicator that
can be used to sum up its position relative to other cities. Urban com-
petitiveness in terms of attracting businesses and investment appears
to be a complex, multidimensional phenomenon which is hard to
measure and which combines input and output factors. Attempting
to reduce complex, multidimensional phenomena to a single indica-
tor may be an oversimplication, so we suggest measuring via the
UCI, built up from sub-indicators that represent the performance of
the various dimensions that make up the complex phenomenon in
question: the basic dimension, the efciency dimension and the inno-
vation dimension. A scale for measuring the urban competitiveness of
European cities based on these three dimensions makes it possible to
analyse, interpret and assess the competitive position of a city on the
basis of a number of characteristics or attributes that it may or may
not possess in comparison with a set of competing cities. In short,
the idea is to conduct a benchmarking exercise that can help city man-
agers to identify their competitors through their competition proles
and see where they can nd a competitive edge.
Given the high level of heterogeneity of European cities, espe-
cially after the 2004 and 2007 enlargements, our aim has been to
weight different cities according to their level of development. It
is, in fact, clear that different dimensions affect different cities dif-
ferently: the competitiveness of a city close to London or Paris is
driven by factors which are intrinsically different than those which
can drive the competitiveness of Eastern European cities.
The socio-economic conditions of cities change and other deter-
minants become more important for their level of competitiveness
depending on their level of economic development. For this reason,
the best way to improve competitiveness of more developed cities
is not the same as the best way to make less developed cities more
competitive.
After benchmarking the 159 cities in our sample we obtained ve
competition proles that reveal the disparities that exist between
European cities when it comes to competing at a global level. It
can be concluded that Europe has two great urban agglomerations
in London and Paris, and a large number of major cities or large
urban zones with high levels of economic development (PPP per cap-
ita GDP in excess of 100% of the EU average) where factors for com-
petition concerned with the efciency and innovation dimensions
are concentrated. It is these dimensions that mark the difference
in a citys ability to compete. The top cities are located mainly in
northern and central Europe, and include the major cities of
Denmark, Sweden, Finland, the Netherlands, U.K., France and
Germany. These cities are characterised not just by the size of their
populations but also by the fact that they have the largest urban
labour markets and require the most highly-qualied labour forces.
They represent the most dynamic innovation, knowledge generation
and use of ICTs in Europe, and the service sector is particularly
important to them. Since generation of innovation and knowledge
require constant effort and are the driving forces of economic
change, there is plenty of scope for policy support with an urban
focus even in the most prosperous cities and regions of Europe.
The cities with the worst results are mostly in Eastern Europe, where
the only cities to obtain good results are national capitals. This
shows how highly concentrated competition factors are there. It will
be a task of coherent policy to support local actors in identifying suit-
able economic sectors and developing strategies for urban and
regional knowledge-based growth.
Although the EU has no direct political authority over territorial
and urban development, it does recognise the importance of draw-
ing up urban policies at all levels of government, since economic,
social and territorial cohesion has an urban dimension, and its
development cannot be isolated from other European policies.
That is why the regional and urban dimension was recognised as
fundamental when the Europe 2020 strategy for intelligent (devel-
oping an economy based on knowledge and innovation), sustain-
able (promoting a more resource efcient, greener and more
competitive economy), and integrated (fostering a high-
employment economy delivering economic, social and territorial
cohesion) growth in Europe was established.
These three priorities are interrelated and will help cities to move
from one level of competitiveness to the next. Better training and
education help employability, and progress in increasing the
employment rate helps to reduce poverty. More capacity for
research and development, as well as innovation across all sectors
of the economy, combined with increased resource efciency will
improve competitiveness of cities and job creation. Investing in clea-
ner, low carbon technologies will help the environment, contribute
to ghting climate change and create new business and employment
opportunities. Leadership, commitment and effective attitudes
toward change and practices will be necessary across the EU.
5.1. Directions for future research
In later stages of this research we intend to complement this
study with other methodologies. More specically, we intend that
a parametric and non-parametric analysis of variance will be used
to test whether the classication of the cities into the three devel-
opment stages (medium, intermediate and high) is appropriately
reected by the three sub-indicators (basic, efciency and innova-
tion). To this end, ANOVA will be applied to test the difference in
the means of the three sub-indicators using the development stage
as the classicatory variable. Furthermore, a non parametric anal-
ysis will be applied to the same data to test the discriminating
power of the three sub-indicators with respect to the stage of
development.
 L. Sez, I. Periez / Cities 48 (2015) 7685 83

Acknowledgements thank the Institute of Applied Business Economics, Emilio

Soldevilla Foundation, and they are especially grateful to Jos
The authors are very grateful to Ali Modarres (editor) and two Manuel Zarzuelo, Professor and Head of the Department of
anonymous referees for their insightful comments and suggestions Applied Economics IV at UPV/EHU-University of the Basque
that have signicantly improved this paper. The authors also Country.

Appendix A. List of indicators

Indicators Abbreviation Source Geographical Reference year Dimension of

level the U.C.I.
Number of road freight vehicles per 1000 resident freight_road EUROSTAT LUZ 20072009 Basic-B1
population
Road freight transport. load. (tons) road_go_load EUROSTAT LUZ 20072009 Basic-B1
Road freight transport. unload. (tons) road_go_unload EUROSTAT LUZ 20072009 Basic-B1
Healthcare personnel/number of practicing helth_care_per EUROSTAT LUZ 20072009 Basic-B2
physicians per 1000 resident pop.
Deaths from diseases of the respiratory system per death_rs_inv EUROSTAT LUZ 20072009 Basic-B2
1000 resident pop. (reversed)
Deaths from prostate cancer, per 1000 resident death_pc_men_inv EUROSTAT LUZ 20072009 Basic-B2
pop. (reversed)
Number of students in upper and further edu_te2 EUROSTAT LUZ 20072009 Basic-B3
education (ISCED level 3 and 4) per 1000
resident pop.
Share of working age population qualied at level act_edu2_rt EUROSTAT LUZ 20072009 Basic-B3
3and 4 (ISCED)
Number of students qualied at level 2 or less edu_te1 EUROSTAT LUZ 20072009 Basic-B3
(ISCED) per 1000 resident pop
Added value of energy, manufacturing (NACE C to va_ce_t ESPON LUZ 20072009 Efciency-E1
E)
Added value of construction (Nace F) va_f_t ESPON LUZ 20072009 Efciency-E1
Added value of trade, hotel-rest and transport va_ghi_t ESPON LUZ 20072009 Efciency-E1
(NACE G to I)
Added value of administration, education health va_l_p_t ESPON LUZ 20072009 Efciency-E1
and other services (NACE L to P)
GDP per inhabitant in PPS (purchasing power gdp_pps_t ESPON LUZ 20072009 Efciency-E1
standards)
Employment rate of adults aged 1564 empl_ec5 EUROSTAT LUZ 20072009 Efciency-E2
Female employment rate, persons aged 1564 empl_ec36 EUROSTAT LUZ 20072009 Efciency-E2
years
Older persons employment rate, persons aged 55 empl_oldper EUROSTAT LUZ 20072009 Efciency-E2
64 years
Youth unemployment rate, persons aged 1524 unempl_youth_inv EUROSTAT LUZ 20072009 Efciency-E2
years (reversed)
Share of working age population qualied at level act_edu3_rt ESPON LUZ 20072009 Efciency-E3
5 or 6 ISCED
Persons aged 2564 years with tertiary education edu_isced5/6 EUROSTAT LUZ 20072009 Efciency-E3
(ISCED levels 5 and 6)
Share of participation of adults aged 2564 in trng_lfse EUROSTAT LUZ 20072009 Efciency-E3
education and training
Added value of business and nancial services va_jk_t ESPON LUZ 20072009 Innovation-I1
(NACE J and K)
Number of headquarters of Transnational rms in transn_t ESPON LUZ 20072009 Innovation-I1
the 2000 biggest world rms whose
headquarters is in the LUZ
Sales of transnational rms in the 2000 biggest transn_sales ESPON LUZ 20072009 Innovation-I1
world rms whose headquarters is in the LUZ
Patents for 1,000,000 inhabitants, average patent_rt ESPON LUZ 20072009 Innovation-I2
Share of total GDP in research and development rd_gdp_rt ESPON LUZ 20072009 Innovation-I2
Share of scientic and technical employment on emp_sc_rt ESPON LUZ 20072009 Innovation-I2
total employment
Share of households with broadband connection hholds_bc EUROSTAT NUTS_3 20072009 Innovation-I1
Share of households with Internet access at home hholds_internet EUROSTAT NUTS_3 20072009 Innovation-I3
Share of people who regular use internet reg_use_internet EUROSTAT NUTS_3 20072009 Innovation-I3
Share of online purchases (goods and services) by buy_gs_internet EUROSTAT NUTS_3 20072009 Innovation-I3
internet for private use
 84
Appendix B. Rank of Urban Competitiveness Index

M/I/Ha Code City Score M/I/H Code City Score M/I/H Code City Score M/I/H Code City Score
H UK001L London 10,749 H DE012L Bremen 8,424 H UK016L Aberdeen 7,808 M IT008L Bari 7,307
H FR001L Paris 10,747 H NL001L The Hague 8,417 H NL007L Groningen 7,803 M IT010L Catania 7,305
H ES001L Madrid 9,847 H IT009L Bologna 8,409 H NL010L Heerlen 7,795 I UK026L Kingston 7,250
H IT002L Milan 9,710 I HU001L Budapest 8,407 I UK009L Cardiff 7,773 I DE018L Halle 7,226
H ES002L Barcelona 9,616 H BE002L Antwerp 8,400 H ES014L Pamplona 7,757 I DE021L Gottingen 7,214
H IT001L Roma 9,567 H DE017L Bielefeld 8,399 I DE009L Dresden 7,739 M IT005L Palermo 7,211
H DE003L Munich 9,532 H UK007L Edinburgh 8,345 H DE025L Darmstadt 7,732 I EE001L Tallinn 7,200
H EL001L Athens 9,388 H SE003L Malmo 8,339 H DK004L Aalborg 7,728 M PT002L Oporto 7,092
H DE005L Frankfurt 9,384 H IT007L Florence 8,334 I EL002L Thessalonica 7,709 I BE004L Charleroi 7,065
H DE002L Hamburg 9,325 H LU001L Luxemburg 8,328 I UK027L Stoke-on-trent 7,707 M PL005L Poznan 6,989
H DE007L Stuttgart 9,222 H ES019L Bilbao 8,323 H AT002L Graz 7,701 M PL003L Krakow 6,960
H AT001L Vienna 9,177 H IT028L Padua 8,268 I DE008L Leipzig 7,694 M IT021L Caserta 6,915
H SE001L Stockholm 9,152 H FR013L Rennes 8,215 H AT004L Salzburg 7,656 M BG001L Sopia 6,914
H BE001L Brussels 9,098 H IT012L Verona 8,147 H FR020L Dijon 7,654 I UK022L Wrexham 6,854

L. Sez, I. Periez / Cities 48 (2015) 7685

H DK001L Copenhagen 9,064 H IT011L Venice 8,144 H DE037L Mainz_Mag 7,622 M CZ002L Brno 6,846
I DE038L Ruhrgebiet 8,986 H DE040L Saarbrucken 8,133 I DE027L Freiburg 7,607 M PL004L Wroclaw 6,818
H DE011L Dsseldorf 8,985 H UK014L Leicester 8,127 H FI002L Tampere 7,589 M LV001L Riga 6,813
H NL002L Amsterdam 8,967 I FR008L Nantes 8,121 M IT003L Naples 7,582 M PL006L Gdansk 6,801
H UK008L Manchester 8,964 I ES021L Alicante 8,119 H DE028L Regensburg 7,580 M PL002L Lodz 6,763
H FR003L Lyon 8,961 I RO001L Bucharest 8,081 I IT027L Cagliari 7,563 M ES020L Crdoba 6,719
H DE004L Kln 8,952 H DK002L Aarhus 8,066 I FR016L Nancy 7,550 M CZ003L Ostrava 6,713
H IT004L Turin 8,935 H NL005L Eindhoven 8,061 I ES010L P. Mallorca 7,547 M IT022L Taranto 6,656
H FI001L Helsinki 8,923 H AT003L Linz 8,042 I DE032L Erfurt 7,538 M SK002L Kosice 6,510
I DE001L Berlin 8,921 I ES004L Seville 8,037 I IT019L Pescara 7,527 M PL008L Bydgoszcz 6,494
H PL001L Warsaw 8,825 H ES005L Zaragoza 8,021 I ES022L Vigo 7,519 M PL007L Szczecin 6,487
H PT001L Lisbon 8,809 I UK010L Shefeld 7,993 H SI001L Ljubljana 7,514 M PL009L Lublin 6,444
H UK201L Leeds-Bradford 8,777 H DE033L Augsburg 7,966 I UK018L Exeter 7,496 M SI002L Maribor 6,443
H NL004L Utrecht 8,685 I FR006L Strasbourg 7,932 I FR023L Caen 7,469 M RO003L Timisoara 6,415
H UK004L Glasgow 8,673 I ES006L Malaga 7,916 H DE042L Koblenz 7,459 M MT001L La Valetta 6,388
H UK002L Birmingham 8,658 H UK029L Nottingham 7,900 I NL008L Enschede 7,437 M PL012L Kielce 6,355
H DE014L Nuremberg 8,628 H UK012L Belfast 7,898 H DE016L Wuppertal 7,433 M RO002L Cluj_Na 6,339
H SE002L Gothenburg 8,621 I IT006L Geneva 7,891 H AT005L Innsbruck 7,432 M PL016L Opole 6,297
H NL003L Rotterdam 8,618 I FR032L Toulon 7,890 I FR035L Tours 7,410 M PL015L Rzeszow 6,281
I FR009L Lille 8,588 I UK013L Newcastle 7,890 I CY001L Nicosia 7,409 M PL014L Olsztyn 6,255
H DE013L Hannover 8,549 I DE034L Bonn 7,871 I LT001L Vilna 7,398 M HU002L Miskolc 6,126
H FR007L Bordeaux 8,534 H DE020L Wiesbaden 7,869 I BE005L Liege 7,385 M BG002L Plovdiv 6,052
H FR004L Toulouse 8,495 I ES007L Murcia 7,864 I UK024L Worcester 7,364 M BG003L Varna 5,981
I CZ001L Prague 8,474 I UK006L Liverpool 7,859 I DK003L Odense 7,350 M RO004L Craiova 5,978
I ES003L Valencia 8,453 H BE003L Ghent 7,854 M PL010L Katowice 7,336 M ES008L Las Palmas 5,762
H UK011L Bristol 8,446 H SK001L Bratislava 7,839 H UK025L Coventry 7,326
a
M = Medium Stage of Economic Development; I = Intermediate Stage of Economic Development; H = High Stage of Economic Development.
 L. Sez, I. Periez / Cities 48 (2015) 7685 85

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