Page 32 - The Atlas of Economic Complexity

MAPPING PATHS TO PROSPERITY | 33

W e are certainly not the first ones to dividuals and organizations to cooperate, share knowledge

To the extent that governance is important to allow in-
look for correlates or causal fac-
and make more complex products, it should be reflected in
tors of income and growth. There
are plenty of others who have come
the kind of industries that a country can support. There-
before us. One strand of the litera-
fore, the Economic Complexity Index indirectly captures in-
ture has looked at the salience of
formation about the quality of governance in the country.
Which indicator captures information that is more relevant
institutions in determining growth,
whereas others have looked at hu-
Here we compare the contribution to future economic
man capital or broader measures
growth implied by the WGIs and the ECI using a technique
of competitiveness. Clearly, more complex economies have for growth is an empirical question.
better institutions, more educated workers and more com- described in Technical Box 4.1. Since the WGIs are available
petitive environments, so these approaches are not com- only since 1996, we perform this exercise using the 1996-
pletely at odds with each other or with ours. In fact, institu- 2008 period as a whole and as two consecutive 6-year pe-
tions, education, competitiveness and economic complexity riods. We also compare with each individual WGI and with
emphasize different aspects of the same intricate reality. It the six of them together.
is not clear, however, that these different approaches have Figure 4.1 shows that the ECI accounts for 15.1 percent of
the same ability to capture factors that are verifiably impor- the variance in economic growth during the 1996-2008 pe-
tant for growth and development. In this section, we com- riod, while the six WGIs combined account only for 1.0 per-
pare each of these measures with the Economic Complexity cent. For the estimation using the two six year periods, we
Index and gauge their marginal contribution to income and find that ECI accounts for 10.5% of the variance in growth,
economic growth. whereas the six WGIs combined account for 1.6%.
We conclude that as far as future economic growth is con-
measures of governance and institutional quality cerned, the Economic Complexity Index captures signifi-
Some of the most respected measures of institutional cantly more growth-relevant information than the 6 World
quality are the six Worldwide Governance Indicators (WGIs), Governance Indicators, either individually or combined.
which the World Bank has published biennially since 1996. This does not mean that governance is not important for the
These indicators are used, for example, as eligibility criteria economy. It suggests that the aspects of governance impor-
by the Millennium Challenge Corporation (MCC) when se- tant for growth are weakly reflected in the WGIs and appear
lecting the countries they chose to support. These criteria to be more strongly reflected in the economic activities that
are based on the direct connection between governance and thrive in each country. These may be more effectively cap-
growth and poverty reduction. tured by the Economic Complexity Index.