Canada has retained its ranking as the 14th most competitive nation economically among 148 countries ranked by the World Economic Forum.

The organization, which released its latest Global Competitiveness Report Wednesday, said Canada's efficient goods, labour and financial markets, excellent infrastructure, and well-functioning, transparent institutions helped the country hold on to its relatively high ranking but that there is room for improvement.

"Canada's competitiveness would be further enhanced by improvements in its innovation ecosystem, such as increased company-level spending on R&D (research and development) and government procurement of advanced  research products," the report said.

Innovation is what helped to keep Switzerland at the top of the rankings for the fifth consecutive year.

"Switzerland's top-notch scientific research institutions, along with other factors, make the country a top innovator," the report said. "Productivity is further enhanced by a business sector that offers excellent on-the-job training opportunities, both citizens and private companies that are proactive at adapting the latest technologies, and labour markets that balance employee protection with business efficiency."

Switzerland was followed by Singapore, Finland, Germany and the United States, which rose two notches in the rankings this year to No. 5, reversing a four-year slide.

Even though it is still clawing its way back to a full recovery, the U.S. economy remains very productive, the report found.

"U.S. companies are highly sophisticated and innovative, supported by an excellent university system that collaborates admirably with the business sector in R&D," it said. "Combined with flexible labour markets and the scale opportunities afforded by the sheer size of its domestic economy — the largest  in the world by far — these qualities continue to make the United States very competitive."

The World Economic Forum warned, however, that a pervasive mistrust within the business community of politicians and their ability to maintain arms-length relationships with the private sector and to allocate resources efficiently could hold the country back and prevent it from making the most of its competitive potential.

Europe dominates Top 10

Aside from the U.S. and three Asian economies (Singapore, Japan and Honk Kong), Europe dominated the top 10 places in the rankings.

Germany, in particular, put in a strong showing, moving up two notches to fourth place thanks to heavy investment in research and development and strong innovation.

German companies are among the most innovative in the world, the report said, and benefit from sophisticated production processes and distribution channels.

There is also intense local competition within the goods market, which is not dominated by large company monopolies.

Among Asian economies, Singapore was the clear star. It was the only economy to score in the top three of seven out of the 12 so-called pillars that are used to calculate the competitiveness index.

The city state has world-class infrastructure and "one of the world's best institutional frameworks," the report said, and it was second only to Finland in the quality of its higher education and training.

Sound macroeconomic and fiscal management helped it amass a budget surplus amounting to 5.7 per cent of its GDP in 2012.

Hong Kong lags on education

Another city-state-style economy, Hong Kong, also put in a strong showing, moving up two slots this year to seventh place. It was praised for its "outstanding" transportation infrastructure and the "efficiency, trustworthiness and stability" of its financial system.

Its education system, however, ranked 22nd in the world. The report pointed to the low quality of its research institutions and the limited supply of scientists and engineers as two problem areas in pressing need of improvement.

When assessing competitiveness, the authors of the report take into account key indicators such as GDP and population size and assess countries based on 12 broad categories:

  1. Institutions — public and private.
  2. Infrastructure 
  3. Macroeconomic environment
  4. Health and primary education
  5. Higher education and training
  6. Goods market efficiency — things like tax rates, trade tariffs and time it takes to start a business.
  7. Labour market efficiency
  8. Financial market development
  9. Technological readiness — the number of internet users and broadband subscriptions, for example.
  10. Market size
  11. Business sophistication
  12. Innovation