Atlas of Economic Complexity
I came across something called the Atlas of Economic Complexity. It’s an attempt to measure the “productive knowledge” of each country using network analysis techniques on the flows of trade – a bit like Google analyses internet links to rank websites. From the Atlas:
Ultimately, what countries make reveals what they know. Take medical imaging devices. These machines are made infew places, but the countries that are able to make them, such as the United States or Germany, also export a large number of other products. We can infer that medical imaging devices are complex because few countries make them, and those that do tend to be diverse. By contrast, wood logs are exported by most countries, indicating that many countries have the knowledge required to export them.
Now consider the case of raw diamonds. These products are extracted in very few places, making their ubiquity quite low. But is this a reflection of the high knowledge-intensity of raw diamonds? Of course not. If raw diamonds were complex, the countries that would extract diamonds should also be able to make many other things. Since Sierra Leone and Botswana are not very diversified, this indicates that something other than large volumes of knowledge is what makes diamonds rare.
Think of a particular country and consider a random product. Now, ask yourself the following question: if this country cannot make this product, in how many other countries can this product be made? if the answer is many countries, then this country probably does not have a complex economy. On the other hand, if few other countries are able to make a product that this country cannot make, this would suggest that this is a complex economy.
Let us illustrate this with a few examples. According to our measures, Japan and Germany are the two countries with the highest levels of economic complexity. Ask yourself the question: if a good cannot be produced in Japan or Germany, where else can it be made? That list of countries is likely to be a very short one, indicating that Japan and Germany are complex economies.
Now take an opposite example: if a product cannot be made in Mauritania or Sudan, where else can it be made? For most products this is likely to be a long list of countries, indicating that Sudan and Mauritania are among the world’s least complex economies.
In fact, as we show in this atlas, the gap between a country’s complexity and its level of per capita income is an important determinant of future growth: countries tend to converge to the level of income that can be supported by the knowhow that is embedded in their economy.
Makes a lot of sense, and especially the part about predicting economic growth is interesting. The authors of the Atlas claim their method does wonders in this area: (more on that in an Economist article entitled Complexity Matters)
In fact, it beats measures of competitiveness such as the World Economic Forum’s Global Competitiveness Index by a factor of 10 in predicting growth for the following decade. It also beats by similar margins measures of human capital and governance.
So what are the predictions for economic growth? The Atlas includes countries with a population above 1.2 million, trade above USD 1 billion and reliable data. Altogether 128 countries meet those criteria. In the map below they are all ranked according to their expected GDP growth to 2020:
So it looks like East Africa is the place to be (and India), but West Africa isn’t looking too bad either.
What about the Ivory Coast?
Unsurprisingly the Ivory Coast doesn’t rank very high on economic complexity on a global scale. It’s 99th out of the 128 countries surveyed, and 11th out of 26 Sub-Saharan countries.
Since the Ivory Coast is slightly poorer than it’s economy is “un-complex”, plus having a fast growing population, prospects for economic growth are relatively good. The Ivory Coast ranks 28th of 128 in expected total GDP growth up to the year 2020.
The top of this list is made up of:
However, if one removes the population growth and looks at expected GDP growth per capita, the African countries fall back a bit. Ivory Coast ranks 76th/128 in expected per capita growth to 2020 – and that’s based on figures from 2008. And well, the question is if the Ivory Coast can move away from practically only exporting pretty simple stuff. Here are Ivory Coast’s exports in 2008:
UPDATE: Found two interesting articles about economic complexity:
The Art of Economic Complexity – New York Times
Complexity and the Wealth of Nations – Harvard Magazine