Economy, Domestic Economy

Parliament Reviews Int’l ECI Report

Parliament Reviews Int’l ECI ReportParliament Reviews Int’l ECI Report

The parliament research center has started reviewing the latest data on the Economic Complexity Index (ECI), according to Mehr news agency.

The ECI was originally introduced in 2009 by Cesar Hidalgo and Ricardo Hausmann, professors at the MIT and Harvard respectively. The index represents a comparative figure of economic complexity based on the divergence between the knowledge or “complexity”, necessary to produce goods a country is not producing and those that it can produce.

In particular, Hidalgo and Hausmann propose that exports and imports are important components of how complex the economy is. For example, if in a country’s trade balance raw materials and simple agricultural commodities figure prominently, it reflects the lack of economic complexity of that country.

The index has also been picked up by major global institutions, notably the World Bank, which is also the data set currently under review by the Iranian parliament.

This is not the first time the parliament reviews foreign indices, as World Bank and IMF reports have influenced policy-making in Tehran to varying degrees over the past twenty years. However, a concern with the ECI could reflect a continuing political drive to diversify the country’s exports and steer the economy towards robustness and independence as laid out in a set of principles by Leader of the Islamic Revolution Seyed Ali Khamenei, collectively called the ‘Resistance Economy’.

The World Bank ranks Iran 96 out of a total of 146 countries in its 2012 report on knowledge-based economies. The calculation used to achieve this result is based on the ECI. The Observatory of Economic Complexity (OEC), which also provides yearly rankings, puts Iran on the 110th spot in the same year. Countries that are given a negative number are dependent on other countries for the import of the majority of their complex goods. In 2012, all countries ranked lower than spot 65 (Egypt’s ranking), were complexity-dependent economies. This includes Iran.

The reason why Iran occupies such a low rank is that it remains heavily dependent on oil exports as a share of total exports earnings. These exports go almost exclusively to a handful of countries, with China on top. On the import side, Tehran spends most on acquiring basic goods and food also from a limited set of countries such as India, Turkey, China and the former Soviet republics. More complex goods are imported too, notably from South-Korea and Germany.

One should note that the latest data on the ECI refers to the year in which Iran was heavily affected by the tightening of western sanctions (imposed over Tehran’s nuclear energy program), which blocked the country from accessing the international financial system and scared away traders.

Sanctioned Iran, has also made great strides to advance its home-grown knowledge of complex technologies, of which nuclear-technology is but one example. Iran has also shown the ability to reach advanced status in fields like bio-molecular, petrochemical, military and pharmaceutical technologies.

According to the OEC, the complexity of Iran’s economy peaked in 1964, after which its annual rank has gradually declined. Of the countries which were near Iran’s position at the time, only Turkey and Malaysia have improved in rank, while those of Pakistan and Egypt have come down too.