How to predict future growth in emerging markets (EM)? This is a million dollar question for investors and policymakers. Dozens of crystal-ball indices have sprung up but most of them are pretty poor when it comes to making predictions.
So the latest measure, assembled by a group at Boston’s MIT and dubbed ‘economic complexity’, is of interest. It looks beyond the traditional measure of ‘economic diversity’, which has proved useful to economists because countries that export a diverse range of products tend to be better equipped to ride the roller coaster of global demand than those that produce just a few.
The new measure devised by the MIT team also considers the rarity of exported products, judged by the number of other countries that also export them. Including this factor alongside diversity of exports, the measure predicts that countries that export a wider variety of goods that are in relatively scarce supply stand to outperform those countries that export a narrow repertoire of goods in competition with other entrenched producers.