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Economic Complexity Index

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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.

Rank in the Economic Complexity Index (2015)

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

Background

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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

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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

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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

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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  9
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

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References

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  1. ^ Cesar A. Hidalgo, Ricardo Hausmann (2009). "The Building Blocks of Economic Complexity". Proceedings of the National Academy of Sciences. 106 (26). PNAS: 10570–10575. arXiv:0909.3890. Bibcode:2009PNAS..10610570H. doi:10.1073/pnas.0900943106. PMC 2705545. PMID 19549871.
  2. ^ Ricardo Hausmann, Cesar Hidalgo; et al. "The Atlas of Economic Complexity". Puritan Press, Cambridge MA. Archived from the original on 18 May 2012. 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, arXiv:1505.07907, doi:10.1016/j.worlddev.2016.12.020, S2CID 45386522{{citation}}: CS1 maint: multiple names: authors list (link)
  4. ^ "India tops list of fastest growing economies for coming decade: Harvard study". The Economic Times. 2020-05-04. Retrieved 2020-10-31.
  5. ^ "Complexity rankings The Observatory of Economic Complexity". OEC. Retrieved 2023-05-02.
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