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Cambridge, Massachusetts – South Asia and East Africa top the list, while oil-driven economies face the sharpest fall in new growth projections and rankings of productive dynamism for 128 countries, as presented by researchers at the Center for International Development at Harvard University (CID). Using their own measure of economic complexity that captures the productive capabilities embedded in a country’s exports, CID researchers paint a new picture of the economic growth landscape, which foresees growth in emerging markets to continue to outpace developed countries. They also predict important reversals among growth leaders, with India expected to overtake China.
After decades spent trailing the growth of its northern neighbor and economic rival, India now tops the projections of annual growth rates to 2023. This finding adds to the recent debate over India’s own revisions to its 2014 growth statistics, which showed India’s growth edging out China for 2014.
“Our Economic Complexity predictions find India’s disputed upper hand in growth will expand into a widening gap in the medium-term, with growth projections to 2023 predicted to be at 7.9 percent annually, well ahead of the 4.6 percent projected for China,” said Ricardo Hausmann, Professor of the Practice of Economic Development at Harvard Kennedy School (HKS), the leading researcher of The Atlas, and the director of CID.
Relative to China’s 9.1 percent annual growth of the past quarter century, this growth projection presents an important slowdown for China, but stands just below the 6 percent growth rate in 2020 predicted by the IMF and China’s leadership.
CID’s projections are also bullish on East Africa. Four East African countries – Uganda, Tanzania, Kenya, and Madagascar – rank in the top ten, with all predicted to grow at least 6 percent annually. The projections also favor Pakistan’s potential, at 5.1 percent predicted growth, presenting a clear picture of South Asia and East Africa’s positive growth outlook. Southeast Asia also includes several high-growth countries, driven by its largest country, Indonesia, which is anticipated to grow at 5.2 percent annually to 2023.
Outlooks for Europe and the U.S. show little optimism. The U.S. growth rate in 2023 is predicted to be 2.4 percent, while major European players range from 2.3 percent in Italy to 3.7 percent in Spain. Among OECD countries, Turkey holds the greatest optimism, at 5.3 percent growth. Overall, the model predicts significant convergence in global incomes, with significant catch-up in parts of Sub-Saharan Africa and Southeast Asia.
“Countries accumulate productive knowledge by developing their respective capacity to make both more products, and products of increasing complexity—this underpins economic growth,” said Hausmann. “Countries like India, Kenya, and the Philippines have made important recent gains in diversifying their exports into more complex products. Historically, these gains in economic complexity have translated into higher incomes, which position them as the frontrunners globally for their growth prospects.”
CID’s projections are based on newly released 2013 global trade data and The Atlas of Economic Complexity, an online tool which measures a country’s productive knowledge and predicts its rate of growth. Productive knowledge – the knowledge that goes into making products – captures more relevant information as to the drivers of economic growth, to provide a more accurate explanation for why countries are rich or poor. The Atlas shows remarkable accuracy in predicting future economic growth. Relative to the leading measures of governance, competitiveness, and education, The Atlas’ Economic Complexity measures are found to best forecast growth rates—with 10 times greater accuracy than the World Economic Forum’s Global Competitiveness Index.
New Country Rankings in Economic Complexity
Along with the growth projections, CID released the new 2013 Economic Complexity Index (ECI). The ECI ranks countries based on the average complexity of their export basket, using the same indicator that generated the growth projections. Of the countries that made the greatest improvements in ECI from 2003-2013, four of the top five are in Sub-Saharan Africa: Zambia, Tanzania, Uganda and Malawi. The region is not uniformly improving, however, as Mauritania, Namibia, and Zimbabwe are among the group with the worst declines in ECI. Policy approaches toward diversification and the management of commodities, like oil, increasingly diverge within regions and underpin differing economic outcomes.
The Economic Complexity growth projections underscore that not all exports are created equal. Rather, moving into greater productive diversity and more complex exports may hold the secret to countries’ growth prospects.
The countries that slipped the most in the complexity rankings are all commodity-driven economies, including Libya, Venezuela, Namibia, Georgia and Qatar. After a decade that saw oil prices triple to $98 at the end of 2013, oil-based economies translated higher prices into larger export value, becoming some of the fastest growing countries over the 2003-2013 period. This growth is not expected to be sustained; however, as CID’s growth projections show the concentration of exports in oil has come at the expense of greater diversification into other industries not as sensitive to price fluctuations. The dramatic decline in oil prices in mid-2014 bear out these risks: these oil-driven economies have witnessed downward revisions to their official growth projections, with a correction more closely aligned to the CID projections.
“Resource wealth appears to be rife with pitfalls that inhibit the diversification of productive knowledge into more complex areas, as seen from Libya to Venezuela to Qatar,” said Sebastian Bustos, a lead CID researcher on the project. “But this is not destiny, as Oman and the United Arab Emirates show the scope of what is achievable by focusing on productive capabilities and strategically increasing the complexity of one’s exports, starting from nearby products that rely on similar capabilities to those currently present in the country.”
The top of the rankings remain largely unchanged, with Japan, Switzerland, and Germany maintaining the greatest diversity in productive knowledge. The United States ranks 12th in the 2013 rankings, slipping four places over the prior decade. South Korea, by contrast, has shown the greatest rise among the leaders, up 13 spots to fourth. Other top risers are China (up 14 spots to 23rd), and Thailand (up 12 spots to 25th). When comparing a country’s ECI rankings to its income per capita over time, the growth projections look favorably on those countries, like Vietnam, that show the capabilities to produce more complex products than expected by its current income level. At 66th globally, Vietnam now outranks countries with significantly higher income per capita, like Chile (67th) and Australia (76th), as predictive of higher income growth in Vietnam. This pattern holds at the other extreme, too, where previous iterations of the rankings showed Greece as an outlier for having a higher income level than expected for its level of complexity, predicting a dip in growth.
About the Center for International Development
The Center for International Development (CID) at Harvard University is a university-wide center that works to advance the understanding of development challenges and offer viable solutions to problems of global poverty. CID is Harvard’s leading research hub focusing on resolving the dilemmas of public policy associated with generating stable, shared, and sustainable prosperity in developing countries. Our ongoing mission is to apply knowledge to and revolutionize the world of development practice.
Contact: Chuck McKenney
Phone: (617) 495-8496
Date: May 7, 2015
Harvard experts predict Uganda economic growth
Publish Date: Jul 13, 2015
INDIA and Uganda are poised to lead global growth in the next decade as new economic projections indicate the ascendency of countries on the Indian Ocean rim and East Africa.
With average annual growth projections of 7.9% and 7.0% for India and Uganda, respectively, the latest report by the Centre for International Development (CID) at Harvard University indicates relative stagnation for Europe and the US, while China’s growth will start to peter out.
CID’s projections are based on the newly released 2015 global trade data and The Atlas of Economic Complexity, an online tool which measures a country’s productive knowledge and predicts its rate of growth.
According to the Financial Times’ John Authers, a senior columnist, “CID has a successful record of identifying which countries are positioned to grow. Based on the latest global trade data for 2015, they aim to identify the drivers of why some countries grow, while others do not.”
Authers published an article about the predictions in the Financial Times.
With the exception of India and Philippines, all the countries in the top 10 are in Africa — Kenya (6.7%), Malawi (6.5%), Tanzania (6.5%), Egypt (6.0%), Madagascar (5.9%), Zambia (5.8%), Senegal (5.5%) and Philippines (5.5%).
“Our economic complexity predictions find India’s disputed upper hand in growth will expand into a widening gap in the medium-term, with growth projections to 2023 predicted to be at 7.9% annually, ahead of the 4.6% for China,” said
The projections also favour Pakistan’s potential, at 5.1% predicted growth, presenting a clear picture of South Asia and East Africa’s positive growth outlook.
The report notes that countries like India, Kenya and the Philippines have made quantum leaps in diversifying their exports “into more complex products”.
Citing the example of Libya, Venezuela, Namibia, Georgia and Qatar — all oil-based economies — the report warns of the dangers of failure to economically diversify as vindicated by the plummeting oil prices.
“For Uganda’s case, the economic projections are feasible. Government’s current investment in infrastructure will spur agriculture and create jobs,” Dr. Tom Mwebaze, Makerere University’s head of the department of policy and development economics, told New Vision on Sunday when asked about the projections.
Citing the example of China, Mwebaze downplayed concerns about Uganda’s fast-growing population turning out to be an impediment.
Commenting about the predictions, finance minister Matia Kasaija said: “This growth rate is feasible and in line with our projection. This will be possible if we continue investing in infrastructure, woo investors, avoid sinking resources into consumptive expenditure and encouraging more Ugandans to enter the money economy".
As to whether this will help scale down poverty levels is another matter. It is possible to increase wealth creation without reducing poverty” he added.