Economic Complexity Index 2022
0The Economic Complexity Index (ECI) is a measure that reflects the complexity and diversity of a country's productive capabilities, helping to explain the variation in income levels across nations. It was developed by economists Ricardo Hausmann and César Hidalgo as part of their work on the "Atlas of Economic Complexity." The index assesses how complex a country’s economy is based on the range and sophistication of the goods it produces and exports.
The core idea behind the ECI is that countries differ not just in the amount of products they make but in how complex those products are. Products that require a higher level of know-how and a wide variety of inputs are considered more complex. For instance, manufactured goods like electronics or automobiles are seen as more complex than raw materials like oil or agricultural products. A country that can produce and export more complex goods is assumed to have a higher level of productive knowledge.
The ECI works by analyzing trade data to identify which products a country exports and the diversity of products it produces. It then compares this data to the diversity and complexity of the products that other countries export. Countries that export a wide range of complex products score higher on the ECI, while those that rely on a narrow range of simpler products score lower.
One of the main insights from the ECI is that economic growth is closely linked to the complexity of a country's exports. Countries with higher economic complexity tend to experience faster growth in GDP per capita. This is because a more complex economy reflects a deeper pool of knowledge and capabilities, which enables innovation and adaptation in an ever-evolving global market.
The ECI is useful for policymakers because it provides insights into how to foster economic development. By understanding the kinds of products that are associated with higher complexity, governments can design policies that encourage the development of industries that will increase their country's economic complexity. For example, investing in education, infrastructure, and technology that supports more sophisticated production can help a country transition from simple to more complex products.
In summary, the Economic Complexity Index provides a quantitative framework for understanding a country’s economic development by focusing on the diversity and complexity of its exports. It highlights the importance of productive knowledge in driving economic growth and offers a roadmap for countries looking to improve their economic standing.