Economic Complexity


I was intrigued after reading about the latest research on the Economic Complexity Index of a nation. This is a new terminology that I was not aware of, so I decided to spend some time reading about the economic research. The article which triggered my interest is in Livemint newspaper – see it at “India’s economic complexity will foster rapid growth” .

The research work has been carried out by researchers from Harvard University and MIT – “The Atlas of Economic Complexity: Mapping Paths to Prosperity” – “Researchers find a country’s wealth correlates with its collective knowledge” .

The conclusion that China, India and Thailand would have a much higher growth rate compared to the rest stems from the fact that their GDP per capita is much lower than their respective ECI, so they had to grow faster to catch up with their economically complex compatriots in other advanced countries. On the other hand, those advanced countries obviously could not grow fast since their incomes are compatible with their ECI and hence there were fewer opportunities for further economic growth.

Impressive research, isn’t it ?

But I would beg to differ on one aspect. India is growing faster not because it is manufacturing a diverse set of products indicating a deployment of a collective knowledge of its workers. The Indian economy is growing at 7.6% (second fastest in the world next only to China’s 9% GDP growth rate) this year, and potentially at 8% next year, because of services growth. It is there for all the world to see that India is no manufacturing giant, and is still hobbled by severe infrastructural bottlenecks. The “collective knowledge” deployment in enhancing economic complexity comes from the ability to provide a wide range of services, eg., in Information Technology, Business Process Outsourcing, Knowledge Process Outsourcing, et al. Not from manufacturing diversity, such as what we witness in China and even in Thailand.

Yes, I agree with the basic premise of economic complexity, that measure provides yet another way in which we can predict economic growth rates of countries. It is indeed a wonderful research. But we should be cautious in deriving conclusions without further testing of the hypotheses in different circumstances and economic environments. I am not scholar, but I am sure able to understand the intricacies of the economic analyses that underpin such complex research, I do appreciate the same.

I am suggesting that my blog readers make themselves familiar with this concept of ECI sooner than later, as we are going to hear more on the topic soon !

Cheers,

Vijay Srinivasan
30th October 2011
Mumbai

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2 comments

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