Israel dropped one place, from 26th to 27th, in the annual competitiveness ranking among the world's economies issued by the World Economic Forum on Wednesday. However, the country ranked third for innovation, benefiting in part from the high level of research and development here.

Compared to the 2011 Global Competitiveness Report, Israel dropped five slots overall. Similarly ranked with Israel this year are South Korea, in 26th place, and Ireland (28th).

The Forum, which hosts the annual gathering of global business and political leaders in the Swiss ski resort of Davos every winter, ranks a country’s competitiveness according to factors such as the quality of its infrastructure and its ability to foster innovation. Among other measures by which Israel scored well this year are its number of patents (sixth place), and its eighth place ranking in access to capital.

Klaus Schwab, the Forum’s founder and executive chairman, said innovation was increasingly the key ingredient in an economy’s ability to prosper. “I predict the traditional distinction between countries being ‘developed’ or ‘less developed’ will gradually disappear,” he said, “and we will instead refer to them much more in terms of being ‘innovation rich’ versus ‘innovation poor’ countries.”

On the negative side, the Forum said Israel needed to invest more in education, particularly in math and science, without which the country's long-term competitiveness could be hurt.

The cost of doing business here was also high, the group said, with Israel ranked 83rd. But the report authors attributed that to the fragile security situation here, although it said the country's macroeconomic situation, in 72nd, could also use improvement.

Qatar is top-ranked 
in the Middle East

Among other Middle Eastern countries, the emirate of Qatar had the highest ranking overall (13th), while the United Arab Emirates were 19th. Saudi Arabia is in 20th place, down two slots from last year. Jordan is in 68th place and Egypt, which has been the scene of tremendous instability over the past year, sank 11 places to 118th.

The most competitive economies, the Forum said, were Switzerland (No. 1) followed by Singapore, then Finland, all three unchanged in their rank from last year. Germany moved up to fourth, from sixth last year, reflecting high-quality infrastructure, an efficient goods market and a high capacity for innovation.

The competitiveness of the United States among global economies is rising again after four years of decline and is now 5th, up from 7th. Northern European countries continue to dominate the rankings published annually by the World Economic Forum. Six European countries dominated the top 10: Switzerland, Finland, Germany, Sweden, the Netherlands and the United Kingdom. The remaining three slots were Asian: Singapore, Hong Kong and Japan. Although remaining in the top 10, Britain, the Netherlands and Sweden lost ground compared to last year.

The U.S. turnaround reflects “a perceived improvement in the country’s financial market as well as greater confidence in its public institutions,” the report concluded. Hong Kong moved up to seventh and Japan advanced to ninth. But Sweden dropped to sixth, while the Netherlands sank to eighth, and Britain moved down to 10th, reflecting what the Forum called the distractions of public debt problems and concerns about the future of the euro currency. Neither Britain nor Sweden use the European currency themselves.

Switzerland topped the rankings of the 148 economies for the fifth consecutive year. The Forum said Switzerland’s standing rests notably on its innovation, labor market efficiency, sophistication of its business sector and top-notch scientific research institutions.

The survey also found that countries in southern Europe, such as Spain, Italy, Portugal and Greece, continue to suffer numerous economic problems, including weakness in their financial markets and poor access to financing.