Australia goes from terrible to worse in economic complexity, but nobody seems to notice

By Brent Balinski

The most recent Economic Complexity Index rankings continue a downward slide for Australia, which has fallen from 93rd to 102nd. 

The figures, compiled by the Growth Lab at the Harvard Kennedy School, were updated in September, though have not been noted in news coverage since.

According to Australia’s profile in the Atlas of Economic Complexity – which illustrates the ECI performance of 145 countries – the lower result is down to “a lack of diversification of exports”. While these have grown in value by an average of nearly 10 per cent a year for the last five, there is a “troubling⁩ pattern of export growth”. 

The major exports are low- and moderate-complexity products. Diversification into new products for the last 15 years shows just one new addition: rare earth metals, which contributed an extra $4 in income per capita in 2022.

“You have fallen just behind Bangladesh and Senegal in what you’re able to produce within your goods exports today…  Also Australia has fallen from its ranking of 63rd in the year 2000,” Tim Cheston, Senior Research Manager at the Growth Lab, tells @AuManufacturing.

“So again, falling from 63rd to 102nd shows that we’re consistently going in the wrong direction within this measure of economic complexity.”

Though the ECI has been mentioned in news articles published since then, the new figures seem to have been ignored, with all articles referring to the old 93rd ranking in the Growth Lab’s 2023 update.

So why has the continued slide apparently gone unnoticed?

For one, the Growth Lab’s media efforts haven’t been aggressive this time around.

Cheston tells us that there was a major revamp of the Atlas website in the last update, requiring “the full team’s focus so we did not have a full press release analyzing the new figures”.

Another explanation could be that the political class wouldn’t benefit by making any noise.

The government would not gain by drawing attention to the news. The opposition mightn’t either, given that the figures are based on trade data overlapping with their time in office. Also, the downward trajectory is a richly bipartisan phenomenon.

The results predict limited Australian growth prospects, with the researchers claiming a strong correlation between export diversification and GDP expansion.

Ricardo Hausmann, the founder and Director of the Growth Lab, uses an analogy of scrabble tiles. Economically complex nations have a diverse set of letters, with more options for words and the possibility of higher scoring words.

While Australia is the eighth-richest nation by per capita GDP, this is out of step with its complexity. Before us is a deck of vowels.

Economic growth is tipped to be “1.7%⁩ annually over the coming decade, ranking in the ⁨bottom half⁩ of countries globally.”

Cheston cites India and Greece in explaining the predictive power of the ECI. 

Back in 2008, India was more complex than you’d expect for its income level.  

“India has complied over time and has been one of the fast-growing countries over the past couple of decades. And then if you went back to 2008 and and saw a country like Greece, you’d day, ‘Greece! How did you become so rich? You don’t have the complexity that would sustain your income level,” Cheston says. 

“And unfortunately Greece has struggled over the past two decades… The value of this index is not just in explaining differences in income today, it actually is very valuable in predicting your medium-term future in terms of where your growth prospects are for the next decade.”

This episode of @AuManufacturing Conversations serves as an explainer for the ECI. In it, Cheston tells us about the most recent updates, what he thinks of the infamous assessment that “Australia is rich, dumb and getting dumber”, and more.

This episode is brought to you by APS Industrial. Providing exclusive access to the market-leading Siemens industrial automation and low voltage electrical portfolio, APS Industrial partners with the best, to bring local industry the best.

Episode guide

1:05 – Introduction to the conversation, to Cheston, and to the Economic Complexity Index and what it measures.

3:09 – The most recent results, what they say, and who the leaders are. And why has South Korea risen so fast in the last two decades?

5:24 – Vietnam is another fast riser up the ranks, showing that countries that evolve their knowhow are those that do so will grow the fastest.

6:58 – Australia in the latest rankings, falling behind Bangladesh and Senegal to 102nd. “Consistently going in the wrong direction.”

7:45 – Why has Australia performed so badly in the ECI rankings? 

8:30 – The challenges that low economic complexity creates.

10:40 – What Australia should consider to improve its prospects, starting with its “world-class service sector” and the decarbonisation trend.

14:00 – Shortcomings of the analysis, and shortcomings in how it’s been interpreted in the past.

Further reading

Simplified ingredient lists and increased economic complexity

Australia’s lack of economic complexity on display – again

Australia’s low economic complexity – infographic

Future relies on value adding, ingenuity – Husic

Picture: credit Harvard University Growth Lab