Countries Ranked by Their Economic Complexity
In the past, the trade between nations was a much simpler matter to grasp. Commodities and a few finished goods moved between a handful of countries in a straightforward way.
Today, around 6,000 officially classified products pass through the world’s ports, and digital products and services zip across country lines creating an extra layer of difficulty in measuring economic activity.
To try to understand this enormous level of economic complexity, the team at Harvard’s Growth Lab have created the Country Complexity Ranking. Here’s a look at the top 50 countries in the ranking:
|1||Japan||2.28||Cars, ICT (tech)|
|2||Switzerland||2.14||ICT, gold, packaged medicaments|
|3||South Korea||2.05||ICT, cars|
|4||Germany||2.02||Integrated circuits, ICT, cars|
|6||Czech Rep.||1.79||Cars, vehicle parts|
|12||United States||1.47||ICT, tourism|
|14||United Kingdom||1.42||ICT, finance|
|24||Romania||1.16||ICT, vehicle parts|
|29||Belarus||0.93||Refined oils, ICT|
|31||Lithuania||0.85||Transport, refined oils|
|33||Philippines||0.75||Integrated circuits, ICT|
|35||Canada||0.69||Crude oil, cars, ICT|
|36||Bosnia and Herz.||0.65||Tourism, ICT|
|41||Norway||0.56||Crude oil, petrol. gases|
|44||Tunisia||0.34||Electrical wire, tourism|
|46||Costa Rica||0.30||ICT, tourism|
|47||Uruguay||0.29||Tourism, wood pulp|
|48||Brazil||0.24||Soya beans, iron ore|
|49||Russia||0.24||Crude oil, refined oils|
Japan, Switzerland, and South Korea sit at the top of the ranking.
Czech Republic – which was recently ranked as the most attractive manufacturing destination in Europe – has a strong showing, ranking 6th in the world. The United States slipped out of the top 10 into 12th position.
The Power of Productive Knowledge
Highly ranked countries tend to have the following attributes:
• A high diversity of exported products
• Sophisticated and unique exported products (i.e. few other countries produce similar products)
In short, the ranking hinges on the concept of “productive knowledge” – or the tacit ability to produce a product.
Muhammed Yildirim, of Harvard University, has thought up a useful analogy for thinking about the role of productive knowledge in the complexity of an economy:
“Suppose that each type of productive knowledge is a letter and each product is a word composed of these letters. Like the game of Scrabble, each country holds a set of letters with plenty of copies of each letter and tries to make words out of these letters. For instance, with letters like A, C and T, one can construct words like CAT or ACT. Then our problem of measuring economic complexity resembles interpreting how many different letters there are in each country’s portfolio. Some letters, like A and E, go in many words, whereas other letters, like X and Q, are used in very few. Extending this analogy to the countries and products, only those with a larger diversity of letters will be able to make more and more unique products. On the other hand, words that require more letters will be made only in the countries that have all the requisite pieces.”
Not All Exports are Created Equal
Much like the rack of letters in a Scrabble game, the elements of every export-driven economy can be broken down and quantified. The resulting categories encompass everything from rendered pig fat to integrated circuits, each contributing to the country’s overall score.
Agricultural and extractive industries tend to score lower on the complexity scale. Machinery can be highly complex to produce and is connected to many facets of the global economy.
Visualizing this overall mix of categories can provide a unique perspective beyond big picture numbers like GDP. Below are a few real world examples of export markets on both ends of the complexity spectrum.
Since this ranking began in the mid-1990s, Japan has never been bumped from the top spot.
Due to a restricted land mass and some ingenuity, Japan has become the prototypical example of a low-ubiquity, high-sophistication export economy.
Cars and electronics are obvious standouts, but there numerous other high-value product categories in the mix as well. The country also has a wide variety of high value exports and trading partners, lowering the risk of a trade war or industry downturn crippling the country’s economy.
Many will be surprised to learn that Australia sits in the lower third of this complexity ranking.
Although Australia’s global ranking is high in a myriad of categories – household wealth per person, for example – its economic complexity score is -0.60, much lower than expected for its income level. Looking at the breakdown below, there are clues as to why this might be the case.
Australia’s largest exports are in low complexity categories, such as minerals and agriculture. To compound matters, the country’s economy is heavily linked to China’s. To underscore this point, a recent study found that a 5% drop in China’s GDP would result in a 2.5% dip in Australia’s.
It’s no secret that Venezuela has seen some tough times in recent years. The chart below shows just how reliant Venezuela was on oil exports to sustain its economy.
An over-reliance on a single export can leave a country extremely vulnerable in the event of price volatility or geopolitical events. In the case of Venezuela, three quarters of their export economy was comprised of crude oil – one of the lowest scoring product categories in the ranking.
The Rush to Diversify
A low level of economic complexity isn’t necessarily a problem. Many countries with middle-to-low scores in the ranking have great standards of living and a high level of wealth. Countries like Canada, Norway, and Australia were all well down the list.
On the other hand, some countries have made diversification a priority. SoftBank’s $100 billion Vision Fund is partially the result of Saudi Arabia’s push to develop a diversified, knowledge-based economy. Other oil-rich nations, such as Kazakhstan, are also pushing to diversify in the face of the world’s evolving energy mix.
As world economies evolve and the shift from fossil fuels continues, we will likely see economic complexity increase across the board.
COVID-19 Crash: How China’s Economy May Offer a Glimpse of the Future
China has seen a severe economic impact from COVID-19, and it may be a preview of what’s to come for countries in the early stages of the outbreak.
The Economic Impact of COVID-19
China, once the epicenter of the COVID-19 pandemic, appears to be turning a corner. As the number of reported local transmission cases hovers near zero, daily life is slowly returning to normal. However, economic data from the first two months of the year shows the damage done to the country’s finances.
Today’s visualization outlines the sharp losses China’s economy has experienced, and how this may foreshadow what’s to come for countries currently in the early stages of the outbreak.
A Historic Slump
The results are in: China’s business activity slowed considerably as COVID-19 spread.
|Economic Indicator||Year-over-year Change (Jan-Feb 2020)|
|Investment in Fixed Assets*||-24.5%|
|Value of Exports||-15.9%|
*Excluding rural household investment
As factories and shops reopen, China seems to be over the initial supply side shock caused by the lockdown. However, the country now faces a double-headed demand shock:
- Domestic demand is slow to gain traction due to psychological scars, bankruptcies, and job losses. In a survey conducted by a Beijing financial firm, almost 65% of respondents plan to “restrain” their spending habits after the virus.
- Overseas demand is suffering as more countries face outbreaks. Many stores are closing up shop and/or cancelling orders, leading to an oversupply of goods.
With a fast recovery seeming highly unlikely, many economists expect China’s GDP to shrink in the first quarter of 2020—the country’s first decline since 1976.
Danger on the Horizon
Are other countries destined to follow the same path? Based on preliminary economic data, it would appear so.
About half the U.S. population is on stay-at-home orders, severely restricting economic activity and forcing widespread layoffs. In the week ending March 21, total unemployment insurance claims rose to almost 3.3 million—their highest level in recorded history. For context, weekly claims reached a high of 665,000 during the global financial crisis.
“…The economy has just fallen over the cliff and is turning down into a recession.”
—Chris Rupkey, Chief Economist at MUFG in New York
In addition, manufacturing activity in eastern Pennsylvania, southern New Jersey, and Delaware dropped to its lowest level since July 2012.
Other countries are also feeling the economic impact of COVID-19. For example, global online bookings for seated diners have declined by 100% year-over-year. In Canada, nearly one million people have applied for unemployment benefits.
Hard-hit countries such as Italy and Spain, which already suffer from high unemployment, are also expecting to see economic blows. However, it’s too soon to gauge the extent of the damage.
Light at the End of the Tunnel
Given the near-shutdown of many economies, the IMF is forecasting a global recession in 2020. Separately, the UN estimates COVID-19 could cause up to a $2 trillion shortfall in global income.
On the bright side, some analysts are forecasting a recovery as early as the third quarter of 2020. A variety of factors, such as government stimulus, consumer confidence, and the number of COVID-19 cases, will play into this timeline.
You’re Grounded: The COVID-19 Effect on Global Flight Capacity
The COVID-19 pandemic is throwing everything up in the air—including the fate of airline companies. See how global flight capacity has gone into a tailspin.
You’re Grounded: The COVID-19 Effect on Flight Capacity
It’s not an exaggeration to say that the COVID-19 pandemic has thrown the world into a tailspin.
As the number of new cases continues to surge in parts of the world, numbers are beginning to decline in others as public health officials and governments tirelessly work to slow the contagion and reach of the virus.
The potent combination of trip cancellations and country-specific restrictions on international flights has had a staggering impact on the $880 billion global airline industry. Today’s visualization highlights data from the OAG Aviation Worldwide, which tracks how global flight capacity differs from last year’s numbers.
Asia Faced the First Hard Landing
Nearly all countries have some type of travel advisory in place, with many encouraging people to avoid non-essential travel even before COVID-19 was officially considered a pandemic by the World Health Organization (WHO).
The earliest impacts of these were felt in February, as flight capacity in and out of China dropped sharply around Lunar New Year. Also, the country’s sharpest year-over-year drop was recorded on February 17, 2020, with a 71% drop in flights compared to the same date in 2019.
Flight capacity for Hong Kong, which was already seeing its traveler numbers declining due to months-long protests, continues its slump. As of March 16, 2020, it was down by an immense 81% compared to 2019 – the most of any jurisdiction represented in the data.
Monitoring the Situation Elsewhere
Meanwhile in Europe, Italy saw a 22% drop in flights coinciding with the announcement of a national lockdown on March 9, 2020. Now that the situation has intensified, flights to and from Italy have plummeted 74% from their normal rates.
On March 11, 2020, the U.S. enforced a 30-day ban on travelers from the Schengen Area, a free-travel zone consisting of 26 countries in Europe. Although the UK and Ireland were initially exempt, the ban has since been extended to include both countries as well.
Meanwhile, as of March 17th, the U.S.-Canada border is closed for all non-essential travel. This follows a previous announcement from the Canadian government that it would be curbing entry to only Canadian citizens, family members, permanent residents, diplomats, and Americans.
Broadly speaking, countries around the world are taking similar actions to limit the spread of the virus and “flatten the curve”:
|Measure Taken||Example Countries*|
|Suspending flights from specific countries||🇺🇸United States, 🇹🇷Turkey|
|Returning citizens must enter through specific airports||🇨🇦Canada, 🇺🇸United States|
|Mandatory screening||🇮🇹Italy, 🇧🇴Bolivia|
|14 day self-quarantine||🇮🇱Israel, 🇬🇷Greece|
|Complete closure of borders||🇬🇹Guatemala, 🇵🇪Peru|
*As of March 17, 2020
More Turbulent Times Ahead?
As both COVID-19 and the global response to it continues to evolve, here are the largest flight capacity reductions across a few more countries in the past week:
|Country||09 Mar 2020 Flights||16 Mar 2020 Flights||% Change (16 Mar vs 9 Mar)|
|🇸🇦 Saudi Arabia||1,301,605||1,102,472||-15.3%|
|🇰🇷 South Korea||795,752||710,558||-10.7%|
Naturally, the economic impact on airlines has been immense. Nearly 40% of flights impacted by the European travel bans are U.S. based, such as Delta and United Airlines, with billions in lost revenue already estimated for this year.
Many airlines worldwide face the threat of bankruptcy in coming months, if these declining trends continue. To hedge against these domino effects of the outbreak, U.S. airlines are requesting upwards of $60 billion in bailouts and direct assistance from the government.
COVID-19 is throwing everything up in the air—including the fate of airline companies. It’s not yet clear when these stringent travel restrictions may be lifted, but one can only hope that these airlines do not have to continue to weather the storm much longer.
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