Identification of Top Performing Economies

Abstract

In the era of globalization and liberalization, important investment and business decisions have to carefully consider long-term performance and prospects of different national economies. National governments would also compete with one another on the strength of their economic performance and policies. Several organizations make regular efforts to evaluate prospects and rank countries for different purposes but research identifying the top performing economies considering different dimensions of their long-term performance is conspicuous by its absence. Using seven indicators of economic performance of 187 countries, this paper identifies the top 50 performers during the decades of 1981-90 and 1991-2000. Five of these indicators are the trend rates of growth over a decade in imports, foreign direct investment (FDI), capital formation, per capita income, and forex reserves. Average inflation rate and Human Development Index (HDI) are the remaining indicators. The selected indicators are very distinct from one another not only during the decade of eighties but also during the nineties. It is found that economic performance of countries, which was already specialized in a few dimensions, is becoming more specialized and focused during the nineties when compared to the eighties. This paper also examines the inter-relationship among the indicators over time. This study has generated findings for national policy making and for businesses to assess macroeconomic prospects. There are 26 common countries in the two sets of top 50 performers during the eighties and the nineties. High performance on the consumer inflation and/or human development front has emerged practically as a pre-condition for consistently good overall performance. On this count, it appears that a large number of the new entrants to the club of 50 top performers during the nineties are not likely to hold on to their position in the coming decade. Such emerging economies may prove to be risky. The experience of the eighties and the nineties suggests that high inflation during a decade does not deter the solid real economic performance on other dimensions during the same decade but may create problems of maintaining consistency of relative performance over time, if not checked. For predicting the overall performance of countries, past performance does not help in general. However, three indicators, viz., growth of per capita income, growth of FDI, and HDI can be predicted to some extent through past performance on various dimensions. The findings suggest the following: A trade-off exists between high inflation and future high growth and between high inflation and future high HDI. Long-term growth of investment may negatively affect the future long-term growth of output and long-term growth of forex reserves may negatively affect future long-term growth of FDI in a country. Growth causes human capital and not vice-versa. Based on the prediction of partial performance, the study identifies 15 economies likely to be among the top 50 performers in the first decade of the 21st century. Since four of the seven performance indicators do not depend on past performance, the remaining 35 top performers may spring genuine surprises. Economic environment and policies of countries during the decade would decide their relative performance.