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Seizing the looming economic complexity opportunity

Feb 05,2023 - Last updated at Feb 05,2023

Jordan has a chance to boost its economic complexity. According to the Economic Complexity Index (ECI), Jordan ranks 59th out of 131 countries. However, in the past decade, Jordan's economy has become less complex, falling 12 spots in the ECI ranking. This is due to factors such as a limited variety of exports, low-tech industries and high production costs. Despite this, Jordan's complexity exceeds what is expected for its income level. The Harvard Growth Lab predicts that Jordan has the potential to diversify its production through existing knowledge and skills, thereby capitalising on moderate diversification opportunities.

The ECI was created in 2009 by economists Ricardo Hausmann from Harvard University and Cesar Hidalgo from MIT. It evaluates countries based on the diversity and complexity of their products/exports. The ECI utilises two key types of data: Prevalence, which gauges the number of countries that can produce a certain product, and diversity, which assesses the number of different products a country makes. The ECI takes into consideration two factors: The variety of a country's exports, which reflects the distribution of productive expertise among its citizens, and the level of development of these exports, which shows their contribution to the country's economy. A country with a limited range of commodities has not a "complex" economy, and one with a diverse set of products but a "simple" composition also has a "simple" economy.

Economic complexity refers to the diversity and interconnectivity of an economy's industries. An economy is considered more complex if it comprises a wide range of industries and has a high degree of interdependence between them. Economic complexity reflects the extent of cumulative knowhow embedded in the economy's productive structure and its productive capabilities, which include infrastructure, land, laws, machines, people, books, and collective knowhow. Since it is challenging to measure and compare such diverse and complex productive capabilities, Hausmann and Hidalgo developed the ECI, which attempts to estimate these capabilities indirectly by analysing the mix of products countries export. The key question is whether increasing product complexity and diversity leads to long-term economic growth.

A study of 31 OECD countries from 1982 to 2017 showed that economic complexity positively impacts economic growth and per capita income. This is exemplified by countries like Singapore, the USA, Germany and Japan, whose diverse and complex product offerings greatly contribute to their growth.

Research by the Harvard Growth Lab found that countries whose exports are more complex experience faster growth. Thus, growth can be boosted by diversifying expertise to produce a wider and more complex range of goods and services. Department of Statistics data reveal that Jordan's exports are heavily concentrated in medium-complexity products such as Chemicals and Textiles. The concerning trend is that growth in exports has come from low and medium-complexity products, particularly woven clothing and inorganic chemical products. This is due to over half of Jordan's industrial production being in low-tech industries. According to Harvard Growth Lab, Jordan has added 10 new products since 2005 but they only contributed $5 in per capita income in 2020. Jordan has not diversified enough to drive substantial income growth.

Economic complexity is crucial for boosting export growth and must come from a diverse range of products available in Jordan. Exported goods should not just be in their raw, simple form but processed and made more complex to increase their added value and contribute more to Jordan's GDP. Establishing and keeping a high-tech company in Jordan, rather than selling it abroad at a high price, would have a greater positive impact on the economy.

In conclusion, a long-term reevaluation of Jordan's productive structure is essential for sustainable economic growth and higher levels of complexity. The current structure is not sufficient to achieve this without the introduction of new industries. The Economic Modernisation Vision aims to transform Jordan into a hub for industry in the region, providing fast-growing exports of high-value and high-quality products. The Vision outlines 366 practical initiatives to fully unlock Jordan's economic potential and make it more complex and competitive. It is crucial to take advantage of this opportunity.

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