David Wu | International Trade and Economy Fellow
Australia is among the most prosperous nations in the world. According to 2019 estimates from the International Monetary Fund, the country globally ranks 10th in terms of per capita GDP and 14th in terms of GDP.
Yet, cross-country estimates of economic complexity, a measure of the diversity and complexity of a country’s exports, released in 2019 by Harvard University’s Growth Lab as part of the Atlas of Economic Complexity project found that Australia ranks 93rd globally—causing considerable debate among Australia’s economic thought leaders.
In comparison, Australia’s wealthy peers achieved ranks commiserate with their wealth, with the United States, United Kingdom and Japan ranking 12th, 14th and 1st in terms of economic complexity, respectively.
The economic rise of nations and international trade flows suggest that countries that can produce more complex products and then sell those products abroad tend to be more prosperous.
Consumers and firms the world over are familiar with smartphones and social media platforms from the United States, automobiles and semiconductors from Japan and pharmaceuticals and financial services from the United Kingdom. Such products all involve a moderate-to-high level of complexity and belong to sectors constituting a substantial part of the exports of these three countries.
In comparison, Australia’s export basket is dominated by low-complexity natural resources such as iron ore, coal, liquefied petroleum gas and gold—giving rise to its low rank behind the sanction-burdened Iran (88th) and ahead of the diamond-exporting Zimbabwe (100th).
But, despite its low rank, Australia is prosperous. This is hardly a refutation of the importance of complexity to a country’s economic prosperity but instead suggests that it is only one of the many factors that drive economic growth.
In the case of Australia, it reflects the global competitiveness of the country’s natural resources industry.
Although the country is luckier than most in terms of its natural resource endowment, sustainably capitalising on this has been no easy task and is a testament to Australia’s institutions, business environment, and international trade and investment diplomacy.
Australia’s low rank also highlights the importance of two areas of economic policy for Australia’s continued economic prosperity: international trade and investment and innovation and entrepreneurialism.
Demand for Australia’s natural resources will continue to be driven by economic growth from the Indo-Pacific. Trading partners in Northeast Asia will remain essential and those in Southeast Asia and South Asia will become increasingly important. Deepening economic engagement with Australia’s regional neighbours will be central to securing the continued transformation of the country’s natural resources into economic prosperity.
The initial November 2019 agreement on the Regional Comprehensive Economic Partnership mega trade deal by 15 of the 16 Indo-Pacific countries involved, including Australia, was an important step to deepen regional engagement. The crucial next step will be to work with India to bring it back into the trade deal after it pulled out at the last minute over unfair market access concerns.
Closer to home, Australia’s low complexity rank suggests that spurring home-grown innovation and entrepreneurialism has the potential to deliver a substantial growth dividend. Indeed, Australia globally ranks only 22nd in terms of its 2019 Global Innovation Index, down two spots from its rank in 2018.
Central to this endeavour is policy which supports innovation for both new and existing firms and their employees. This effort should include greater collaboration between the business, government and education sectors, financial incentives to encourage risk-taking and human capital development, and immigration policies geared to attract the best talent globally and fill skills shortages.
Australia’s natural resources will continue to play a central role in the country’s economic narrative—particularly with growing demand from the country’s trading partners in the Indo-Pacific. There’s no reason innovation and entrepreneurialism can’t play more of a role in this narrative too.
David Wu is the International Trade and Economy Fellow for Young Australians in International Affairs.
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