Finance:Economic Complexity Index

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Short description: Holistic measure of the productive capabilities of large economic systems
Rank in the Economic Complexity Index (2015)

The Economic Complexity Index (ECI) is a holistic measure of the productive capabilities of large economic systems, usually cities, regions, or countries. In particular, the ECI looks to explain the knowledge accumulated in a population and that is expressed in the economic activities present in a city, country, or region. To achieve this goal, the ECI defines the knowledge available in a location, as the average knowledge of the activities present in it, and the knowledge of an activity as the average knowledge of the places where that economic activity is conducted. The product equivalent of the Economic Complexity Index is the Product Complexity Index or PCI.

Higher economic complexity as compared to country's income level drives economic development.

Background

The ECI was developed by Cesar A. Hidalgo, from the MIT Media Lab and Ricardo Hausmann, from Harvard University's Kennedy School of Government. ECI data is available in The Observatory of Economic Complexity. The original formulation of the Economic Complexity Index was published in PNAS in 2009.[1]

Formulation

In its strict mathematical definition, the ECI is defined in terms of an eigenvalue of a matrix connecting countries to countries, which is a projection of the matrix connecting countries to the products they export. Since the ECI considers information on the diversity of countries and the ubiquity of products, it is able to produce a measure of economic complexity containing information about both the diversity of a country's exports and their sophistication. For example, Japan or Germany, with high ECIs, export many goods that are less common and that are produced by highly diversified countries, indicating that these are diverse and sophisticated economies. Countries with low ECI, like Angola or Botswana, export only a few products, which are of relatively high ubiquity and which are exported by countries that are not necessarily very diversified, indicating that these are countries that have little diversity and that the products that they export are not very sophisticated.

Utility

Hidalgo and Hausmann propose the concept of ECI not only as a descriptive measure, but also as a predictive tool for economic growth and income inequality. According to the statistics models presented in their Atlas of Economic Complexity (2011),[2] the ECI is a more accurate predictor of GDP per capita growth than traditional measures of governance, competitiveness (World Economic Forum's Global Competitiveness Index) and human capital (as measured in terms of educational attainment). ECI also shows a strong negative correlation with income inequality, suggesting that more knowledge intense productive structures are more inclusive in terms of income distribution, and providing a statistically more powerful explanation of cross-national variations in income inequality than Kuznets Curve.[3]

Economic development requires the accumulation of productive knowledge and its use in both more and more complex industries. According to this metric- many low-income countries, including Bangladesh, Venezuela, and Angola have failed to diversify their knowhow and face low growth prospects while those like India , Turkey, and the Philippines have added productive capabilities to enter new sectors and are expected by some drive growth over the coming years.[4]

Country rankings 2021

Country Complexity Rankings [5]
Rank Country Index
(2021) 		5-year
change 		10-year
change
1 Japan 2.06 Steady Steady
2 Switzerland 1.94 Steady Increase 1
3 Taiwan 1.93 Increase 4 Increase 8
4 South Korea 1.82 Decrease 2 Decrease 2
5 Germany 1.81 Steady Decrease 1
6 Singapore 1.74 Decrease 2 Increase 1
7 Czechia 1.56 Decrease 1 Increase 2
8 Sweden 1.54 Steady Decrease 3
9 Austria 1.50 Steady Increase 5
10 United States 1.46 Increase 3 Increase 3
11 United Kingdom 1.43 Increase 1 Increase 1
12 Slovenia 1.42 Increase 2 Decrease 1
13 Finland 1.42 Decrease 2 Decrease 5
14 Hungary 1.36 Decrease 2 Increase 3
15 France 1.35 Steady Increase 1
16 Slovakia 1.31 Decrease 2 Decrease 1
17 Ireland 1.29 Steady Decrease 7
18 Belgium 1.28 Steady Increase 6
19 Italy 1.27 Steady Steady
20 Israel 1.21 Increase 6 Increase 3
21 Hong Kong 1.16 Decrease 1 Decrease 1
22 Netherlands 1.09 Increase 2 Increase 9
23 Mexico 1.09 Steady Decrease 2
24 Malaysia 1.09 Decrease 3 Decrease 6
25 China 1.07 Steady Increase 5
26 Romania 1.07 Increase 3 Increase 1
27 Denmark 1.02 Steady Decrease 5
28 Poland 1.01 Increase 2 Increase 4
29 Thailand 0.97 Decrease 7 Decrease 1
30 Lithuania 0.91 Increase 1 Decrease 1
31 Saudi Arabia 0.90 Increase 5 Increase 10
32 Canada 0.90 Decrease 4 Decrease 7
33 Belarus 0.84 Increase 1 Increase 1
34 Croatia 0.81 Increase 3 Increase 6
35 Spain 0.78 Increase 3 Increase 10
36 Serbia 0.74 Increase 33 Increase 71
37 Philippines 0.72 Decrease 4 Increase 1
38 Norway 0.69 Increase 1 Decrease 2
39 Bosnia and Herzegovina 0.65 Increase 2 Steady
40 Bulgaria 0.63 Increase 2 Increase 2
41 India 0.61 Decrease 1 Increase 5
42 Turkey 0.61 Increase 10 Increase 8
43 Portugal 0.56 Decrease 8 Decrease 8
44 Ukraine 0.49 Decrease 1 Steady
45 Russia 0.46 Steady Decrease 2
46 New Zealand 0.46 Decrease 2 Increase 8
47 Lebanon 0.35 Increase 4 Increase 10
48 Kuwait 0.34 Increase 10 Increase 37
49 Brazil 0.33 Decrease 2 Decrease 1
50 Greece 0.32 Decrease 4 Decrease 24
51 Panama 0.31 Decrease 1 Decrease 2
52 Costa Rica 0.24 Increase 11 Increase 11
53 Tunisia 0.22 Increase 2 Increase 7
54 North Macedonia 0.20 Decrease 5 Decrease 3
55 United Arab Emirates 0.16 Increase 2 Decrease 3
56 Colombia 0.14 Increase 4 Decrease 3
57 Uruguay 0.10 Increase 11 Increase 8
58 Vietnam 0.10 Increase 24 Increase 23
59 South Africa 0.10 Decrease 11 Increase 8
60 Argentina 0.07 Decrease 6 Decrease 5
61 Indonesia 0.04 Increase 1 Increase 1
62 Jordan 0.03 Increase 18 Increase 6
63 Dominican Republic −0.00 Decrease 7 Decrease 7
64 Georgia −0.01 Increase 1 Decrease 3
65 Moldova −0.02 Decrease 1 Increase 21
66 El Salvador −0.04 Increase 1 Increase 4
67 Iran −0.09 Decrease 6 Decrease 34
68 Egypt −0.10 Increase 25 Increase 28
69 Kyrgyzstan −0.12 Decrease 3 Increase 3
70 Qatar −0.17 Increase 4 Decrease 6
71 Armenia −0.19 Decrease 18 Decrease 13
72 Albania −0.19 Steady Increase 1
73 Oman −0.20 Decrease 14 Decrease 14
74 Chile −0.22 Decrease 42 Decrease 37
75 Jamaica −0.23 Increase 14 Increase 36
76 Guatemala −0.24 Increase 7 Steady
77 Kazakhstan −0.28 Decrease 2 Increase 1
78 Morocco −0.28 Decrease 1 Decrease 9
79 Uzbekistan −0.38 Decrease 8 Decrease 32
80 Paraguay −0.38 Increase 18 Increase 9
81 Sri Lanka −0.39 Decrease 3 Decrease 15
82 Australia −0.41 Decrease 9 Decrease 11
83 Kenya −0.46 Increase 14 Increase 17
84 Honduras −0.50 Increase 11 Decrease 9
85 Azerbaijan −0.52 Increase 33 Decrease 8
86 Turkmenistan −0.55 Decrease 2 Increase 5
87 Pakistan −0.55 Increase 3 Decrease 5
88 Senegal −0.59 Increase 12 Increase 28
89 Benin −0.61 Decrease 2 Decrease 1
90 Niger −0.62 Increase 1 Increase 12
91 Peru −0.63 Decrease 6 Decrease 4
92 Cambodia −0.64 Decrease 11 Decrease 18
93 Botswana −0.67 Increase 16 Decrease 1
94 Tajikistan −0.69 Decrease 15 Increase 12
95 Laos −0.70 Decrease 7 Decrease 2
96 Zambia −0.74 Increase 12 Increase 5
97 Namibia −0.77 Increase 19 Increase 7
98 Zimbabwe −0.78 Decrease 4 Decrease 1
99 Ethiopia −0.80 Decrease 3 Decrease 20
100 Togo −0.81 Increase 19 Increase 33
101 Bangladesh −0.85 Decrease 31 Increase 21
102 Burma −0.85 Decrease 16 Decrease 12
103 Algeria −0.88 Decrease 4 Increase 2
104 Ecuador −0.89 Decrease 12 Decrease 20
105 Uganda −0.92 Decrease 3 Decrease 7
106 Bolivia −0.97 Increase 11 Increase 2
107 Republic of the Congo −1.02 Increase 13 Increase 11
108 Nicaragua −1.03 Decrease 2 Decrease 14
109 Madagascar −1.07 Decrease 2 Decrease 26
110 Venezuela −1.08 Increase 1 Increase 5
111 Tanzania −1.09 Increase 4 Increase 6
112 Iraq −1.12 Decrease 7 Decrease 13
113 Yemen −1.15 Decrease 12 Decrease 18
114 Libya −1.18 Increase 18 Increase 13
115 Cote d'Ivoire −1.19 Decrease 1 Decrease 12
116 Afghanistan −1.20 Decrease 4 Increase 3
117 Mongolia −1.23 Decrease 41 Decrease 37
118 Ghana −1.27 Decrease 15 Decrease 6
119 Mauritania −1.32 Increase 2 Increase 1
120 Sudan −1.33 Decrease 16 Decrease 10
121 Cameroon −1.36 Decrease 8 Decrease 7
122 Mozambique −1.36 Increase 7 Increase 2
123 Gabon −1.41 Decrease 1 Decrease 4
124 Angola −1.37 Increase 1 Decrease 3
125 Mali −1.43 Increase 3 Increase 3
126 Nigeria −1.53 Increase 4 Steady
127 Burkina Faso −1.79 Decrease 4 Decrease 2
128 Democratic Republic of the Congo −1.81 Increase 5 Increase 1
129 Papua New Guinea −1.84 Decrease 19 Decrease 20
130 Guinea −1.84 Decrease 3 Decrease 3
131 Chad −1.93 Decrease 7 Steady

See also

References

  1. ↑ Cesar A. Hidalgo, Ricardo Hausmann (2009). "The Building Blocks of Economic Complexity". Proceedings of the National Academy of Sciences (PNAS) 106 (26): 10570–10575. doi:10.1073/pnas.0900943106. PMID 19549871. Bibcode: 2009PNAS..10610570H. 
  2. ↑ Ricardo Hausmann, Cesar Hidalgo. "The Atlas of Economic Complexity". Puritan Press, Cambridge MA. Archived from the original on 18 May 2012. https://web.archive.org/web/20120518210853/http://atlas.media.mit.edu/book/. Retrieved 26 April 2012. 
  3. ↑ Dominik Hartmann, Miguel Guevara, Cristian Jara-Figueroa, Manuel Aristaran, Cesar Hidalgo (2018), "Linking Economic Complexity, Institutions, and Income Inequality", World Development 93: 75–93, doi:10.1016/j.worlddev.2016.12.020, https://www.sciencedirect.com/science/article/abs/pii/S0305750X15309876 
  4. ↑ "India tops list of fastest growing economies for coming decade: Harvard study". The Economic Times. 2020-05-04. https://m.economictimes.com/news/economy/indicators/india-tops-list-of-fastest-growing-economies-for-coming-decade-harvard-study/articleshow/64027625.cms. Retrieved 2020-10-31. 
  5. ↑ "Complexity rankings The Observatory of Economic Complexity". OEC. https://oec.world/en/rankings/eci/hs6/hs96. Retrieved 2023-05-02. 



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