Australia’s position in the Harvard Economic Complexity Index (ECI) has just received a significant boost, moving from 105th to 74th place out of the 145 countries assessed, but it is due to a recalibration of calculation methodology rather than a meaningful change in capability.
Harvard’s Growth Lab’s Atlas of Economic Complexity collates data from nations around the world, with the ECI ranking countries according to the diversity and complexity of what they produce and export.
Economies with a broad mix of complex products tend to score higher and are more prosperous, while those focused on a narrow range of simpler goods score lower and face more limited growth opportunities – the latter being the case for Australia.
Harvard makes clear that the improvement is largely due to changes in how the index is calculated, rather than structural shift in the complexity of Australia’s export base. Although it is the 9th richest economy per capita out of the 145 studied, the country ranks at number 74 on the ECI – the second lowest OECD nation.
“Compared to a decade prior, Australia's economy has become less complex, worsening 8 positions in the ECI ranking. Australia's worsening complexity has occurred in spite of the increasing diversification of its exports, as the country has diversified into lower complexity products,” stated Harvard’s analysis.
“Australia is less complex than expected for its income level. As a result, its economy is projected to grow slowly. The Growth Lab's 2034 Growth Projections foresee growth in Australia of 1.2 per cent annually over the coming decade, ranking 123rd out of 145 countries globally.”
The assessment also stated that Australia is positioned to take advantage of many opportunities to diversify its production moving forward, considering the high level of education and technical knowledge across the country.
Harvard’s analysis notes that Australia has started the process of structural transformation, which reallocates economic activity from low to high productivity sectors, and should use its existing knowhow to diversify into related products. Given its current exports, Harvard stated some of the sectors with high potential for new diversification in Australia are industrial machinery and organic chemicals.
The Advanced Manufacturing Growth Centre (AMGC), which has built a national network of more than 4400 manufacturers and industry partners, commented on the position change, stating Australia must focus on increasing its mid-tier manufacturing through value adding to raw commodities before exporting.
AMGC managing director, Dr Jens Goennemann, said over the past decade the organisation has demonstrated that when Australian industry is supported to innovate and commercialise smart ideas, it can create high-quality jobs, grow exports and build competitive, value-added products.
“While Australia’s rise in the updated Harvard Economic Complexity Index may look positive, it reflects changes in methodology rather than a sudden shift in our industrial capability,” said Goennemann.
“What it does highlight is our country’s untapped potential and serves as a reminder that we must have policy settings that support complex manufacturing and invest in scaling our abundant small-to-medium sized manufacturers if we are to secure a stronger, more resilient and more complex economy for all Australians.”
Head to atlas.hks.harvard.edu for further information on the ECI calculation and Australia’s comparative position.
