Which Latin American Countries Rank Highest On the Economic Complexity Index?

Bloomberg Línea — Economic growth is one of the main goals of every country in the world, as well as a constant concern for international organizations, especially in recent months when inflation has advanced by leaps and bounds.

One of the ways to evaluate this growth, beyond measuring the monetary value of the final goods and services produced in a country in a given time as GDP, is the way in which the process of growth and productive development takes place, through the Economic Complexity Index (ECI), which measures the knowledge intensity of an economy taking into account the products it exports, according to the Massachusetts Institute of Technology (MIT).

Organizations and experts define economic complexity as the type of productive structure of a country and the interrelation between its sectors. The Observatory of Economic Complexity (OEC) points out that this is a powerful dimensionality reduction technique used to predict and explain future economic growth, as well as to identify income inequality and greenhouse gas emissions.

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What is the rate of economic complexity in Latin America?

One of the ways to interpret this index is to identify that a country is more economically complex the more products it exports, and the more those products are exported by fewer countries, that is, the possibility of having a greater concentration or participation in the international market with such products.

Mexico has the highest economic complexity and leads the Latin American ranking with a score of 1.09, although it is located in 23rd position globally, and is almost one point behind Japan, which leads the list with a score of 2.06.

Brazil is second in Latin America (with a score of 0.33), followed by Panama (0.31), Costa Rica (0.24) and Colombia (0.14).

“Economic complexity generates wealth because competitive advantage increases exports of high-tech products (...) countries with a more exceptional capacity to produce sophisticated goods are more likely to earn higher incomes than less productive countries,” the Economic Commission for Latin America and the Caribbean (ECLAC) stated in an article published in August 2022.

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However, not all Latin American countries have a wide range of products to export, much less sophisticated goods or services, since most of the countries in the region export mainly raw materials.

Thus, 10 of the 18 countries measured in 2021 by the OEC have a negative economic complexity index.

World Bank data up to 2018 showed that 55.3% of the region’s total exports are composed of commodities, and that only 20.8% of the labor force is attached to the industrial sector.

For this reason, countries such as Chile, Peru and Ecuador have a negative score. In addition, Venezuela and Nicaragua are the worst performers in this measurement, with scores of -1.08 and -1.03, respectively.

These are the global and regional positions of Latin American countries in the Economic Complexity Index, with figures up to 2021 from the Economic Complexity Observatory:

How can countries improve their score?

Earlier this year, José Manuel Salazar-Xirinachs, executive secretary of ECLAC, said that the cause of the low growth that has put the region in “a second lost decade” is low productivity and lack of productive diversification.

“This is the real development crisis facing Latin America and the Caribbean: the region has failed miserably to promote technological sophistication, economic complexity and diversification of production and exports, which has caused all countries to fall into the middle-income trap,” he said in his participation in the 2023 World Economic Forum.

“We know that there are no easy recipes to achieve high, sustained and sustainable growth. There are no silver bullets. There is a whole list of things that have to be right: investment climate, infrastructure, education, macroeconomic balances, good governance.”

José Manuel Salazar-Xirinachs, executive secretary of ECLAC

For Salazar-Xirinachs, productivity has not grown “at all” in 30 years in Latin America and the Caribbean, which is the region with the worst productivity performance in the last 40 years in the world.

“But one solution could be cluster initiative policies or cluster-based policies, which can be built from the bottom up, even if some of the factors on the competitiveness list are not 100% correct,” he explained.

Finally, he pointed out that clusters are specific forms of public-private partnerships where a governance space is created in which all relevant actors collaborate to promote competitiveness, job creation, innovation, skills, financing and the removal of obstacles to the growth of the cluster, sector or agglomeration.

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