Economic Complexity – Australia

The national Economic Complexity Index (ECI) rankings for 2016 make interesting reading and raise some uncomfortable issues for Australia in particular.

ECI, developed jointly by MIT and Harvard University, has been shown to be a much more reliable descriptor of future national prosperity and growth than metrics like GDP. You’ll find Australia ranked at 65 – slightly above Botswana but somewhat behind Kazakhstan (60) and Colombia (55). This has serious implications for Australia and I would love comments or discussion on this topic. One of the things I find interesting is the disparity between Australia’s objective economic place in the world and our own cultural perception of ourselves. Certainly from a cultural perspective, we would largely consider our global peers to be those in Western Europe and North America (most of which have ECI rankings within the top 20). At the level of economic sophistication (related to complexity), however, our peer nations are those such as Kenya, Senegal and Zambia.

A few of the questions and comments I’ve received around this relate to how Professional and Business services tie in. For those who have asked – you’re right – the ECI is explicitly tied to a product output metric, however, professional and business services are an associated input. For example, for a country to produce and export a complex product, it needs local access to, not only product knowledge, but designers, marketers, financial services, trade law specialists, human resource management…… If one or more of these services are unavailable locally, the higher the likelihood that the local value chain will be interrupted. We’ve seen that with the biotechnology sector in Victoria – despite a huge amount of Government investment in the sector since 2000, the economic return to the State has been minimal. Victoria has had no problem with the knowledge creation side of biotech’ but our value chain is, often, significantly interrupted at the finance (particularly investment capital) part as well as scale up and logistics. This has meant that many of the product outputs (and economic return!) based on knowledge developed in Victoria / Australia are actually occurring in other countries (due to their high ECI – that is, the ability to “productize” knowledge!)


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