China, Vietnam and Indonesia among the fastest

image: Source: Atlas of Economic Complexity
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Credit: The Growth Lab at Harvard University. The Atlas of Economic Complexity.

Cambridge, MAChina, Vietnam, Uganda, Indonesiaand India are expected to be among the fastest growing economies by 2030. This is the conclusion of researchers from Harvard University’s Growth Lab who presented new growth projections in The Atlas of Economic Complexity. The release provides the first detailed look at 2020 trade data, including major disruptions to tourism and transport vehicle exports due to the global pandemic. As the effects of the pandemic dissipate, long-term growth is expected to take off between Asia, Eastern Europeand East Africa. China is expected to be the fastest growing economy per capita, although the projection shows that growth is slowing compared to what the country has achieved over the past decade. Research reveals that countries that have diversified their production into more complex sectors, such as Vietnam and Chinaare the ones that will experience the fastest growth in the coming decade.

Growth Lab researchers have released new country rankings of the Economic Complexity Index (ECI), which captures the diversity and sophistication of the productive capabilities embedded in each country’s exports. Despite the disruption to trade due to the pandemic, the economic complexity rankings of countries remain remarkably stable. The ECI ranking finds the most complex countries in the world stable with, in order, Japan,Swiss, Germany, South Koreaand Singapore at the top. Other notable countries include the UK at 10, the United States on the 12th, China at the 16th and Italy on the 17th. The measure of economic complexity is able to closely explain the differences in income levels of countries. Among the most complex countries, the biggest ranking improvements for the decade ending in 2020 were achieved by the Philippines (ICE: 30th),China(16th), and South Korea (4th). Developing economies that have made the most progress in improving their complexity include Vietnam (51st), Cambodia (72nd), Laos (89th), and Ethiopia (97th). Countries with the fastest declines in complexity rankings over the past decade have become increasingly commodity-dependent or have failed to diversify their exports, namely Botswana (111th), Zimbabwe (114th), Ecuador (119th), and Cuba (120th). Among the most complex countries, France (19th) fell the most, having lost 6 places in the standings.

Looking at growth projections to 2030, three growth poles are identified. Several Asian economies already possess the economic complexity needed to generate the fastest growth over the next decade, driven by China, Cambodia, Vietnam, Indonesia, Malaysiaand India. In East Africa, several economies are expected to grow rapidly, albeit driven more by population growth than by gains in economic complexity, including Uganda, Tanzaniaand mozambique. Per capita, Eastern Europe holds strong growth potential for its continued progress in economic complexity, with Georgia, Lithuania, Belarus, Armenia, Latvia, Bosnia, Romaniaand Albania all ranked in the top 15 projected economies on a per capita basis. Outside of these growth poles, projections also show potential for Egypt to achieve faster growth. Other developing regions face more challenging growth prospects by making fewer gains in their economic complexity, including Latin America and the Caribbean and West Africa.

Researchers place the diversity of tacit knowledge – or know-how – available to a society at the heart of its history of economic growth. This measure of economic complexity, such as the diversity and sophistication of a country’s know-how, is able to closely explain the differences in income between countries. According to Ricardo Hausmann, Director of the Growth Lab, Professor at Harvard Kennedy School (HKS) and Principal Investigator of the Atlas of Economic Complexity, “A stylized fact of the world today is that poor countries produce little that everyone knows how to produce, while rich countries produce a lot of things, including things that few countries know how to produce.Growth is driven by a process of diversification into increasingly complex production.

The real value of the economic complexity measure lies in its accuracy in predicting future growth, which it has been shown to do better than any other single measure in predicting growth. By identifying countries whose economic complexity exceeds expectations based on their income level, the researchers find a strong predictor of which countries will experience faster growth over the next decade. The Atlas of Economic Complexity offers data visualizations spanning over 5,000 goods and services to understand economic dynamics and growth opportunities for every country in the world.

Effects of the pandemic on world trade: recently released 2020 trade data

Initial predictions of the pandemic’s impact of a double-digit decline in global trade failed to materialize as trade volumes fell less than during the global financial crisis a decade earlier. The fall in trade in mid-2020 happened faster than previous shocks, but trade also recovered faster, mitigating the overall effect for the year. These global trends mask major divergences between specific countries, goods and services. Remarkably, China increased its export volumes in 2020, year-on-year, despite being the initial epicenter of the pandemic. Economies that depend on service exports, especially tourism and passenger travel, such as Jamaica and Kenyarecorded double-digit losses in export volume.

“The pandemic marks the first time since services exports became a major part of global trade that a shock hit services like travel and tourism more directly,” Hausmann said. Countries with a more diverse and complex export base, such as Thailandmay have suffered a new shock in their tourism sector, compared to countries where tourism is the main export sector.

Services exports fell by double digits globally in 2020, and more than double the drop in goods. Within services, travel and tourism lost nearly two-thirds of its export volume, down $900 billion. In contrast, exports of ICT services remained stable at their pre-pandemic level. Goods exports performed better than services, although several major product segments saw a sharp decline in trade in 2020, including oil, cars, aircraft, military weapons and steel. Other segments increased their trade, including pharmaceuticals, masks, home appliances and computers. This divergence in trading volumes between specific segments shows greater variance than during the global financial crisis.

About the Growth Lab
Led by Ricardo Hausmann, the Growth lab pushes the boundaries of economic growth and development policy research, collaborates with policymakers to design actions, and shares our ideas through teaching, tools, and publications, in pursuit of inclusive prosperity.

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