Australia slips again on Harvard’s Economic Complexity Index

Australia fell again in the global ranking of economic complexity according to the latest index published by the Harvard Kennedy School of Government.

According to the Atlas of Economic Complexity, in 2020 Australia ranked 91st of 133 countries, just above Namibia, which has an economy 124 times smaller than Australia, and just below Kenya, which has an economy 12 times smaller than Australia.

Australia climbed nine places between 2017 and 2019 to 86e. However, over the past decade, Australia has fallen eight places in the economic complexity ranking.

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Economic complexity is defined not only by a country’s productive knowledge and information about its productive capacity, but the index also includes how often a country’s goods are exported as well as comparing “sophistication and diversity” of other exporting countries.

Australia has fallen five places since the publication of the Economic Complexity Index with 2019 data. Economic growth forecasts to 2030 from the Harvard Kennedy School’s Growth Lab are also published on the Atlas of economic complexity. The Australian economy is expected to grow by 1.96% over this period, the 112e highest growth rate of 133 countries.

The Atlas says the growth projection is low because “Australia is less complex than expected for its income level.” In 2020, Australia had the 13e the largest economy in the world with a GDP of approximately US$1.3 trillion.

Since 1995, Australia has fallen 36 places from the 55e. Australia’s worst ranking is 93rdwhere the country ranked in 2012, 2014 and 2017.

Published annually, the data was updated at the end of last month. Rankings are based on each country’s Economic Complexity Index. High complexity countries have a “range of sophisticated and specialized capabilities” allowing them to export a wide range of complex products.

The Japanese economy has been ranked as the most economically complex since 1995. The Economic Complexity Index value was 2.27 in 2020, while the Australian Index value was -0.52.

The continued relatively low levels of economic complexity comes as the level of research and development (R&D) spending in Australia is falling. Gross R&D expenditure as a percentage of GDP has fallen by almost 20% since 2008, which was the peak of the 21st century.

Gross expenditure on R&D in Japan represents 3.28% of GDP, making it the seventh country spending proportionally on R&D. The two economies that spend the most on R&D as a proportion of GDP are Israel at 5.14% and South Korea at 4.63%.

Israel had the 21st the most complex economy in 2020 while South Korea had the fourth most complex economy, according to the Atlas of Economic Complexity.

R&D expenditure as a share of GDP by higher education institutions, the public sector and the private sector has declined over the past decade. In 2020-21, public sector spending fell by about a third, from 0.24% in 2012-13 to 0.17% in 2020-21, while tertiary sector spending fell by 0, 63% to 0.61% over the same period. Business spending in 2019-20 was $18.17 billion, just below the $18.32 billion spent in 2011-12.

On Tuesday, Industry and Science Minister Ed Husic said he had started discussions with Chief Scientist Dr Cathy Foley on initiatives to increase public spending on R&D.

Do you know more? Contact James Riley by email.

Sharon D. Cole