Looking at the Global Economy Through a Sector Lens

For centuries the basic unit of measurement in global economics was the nation, and, as every economics student learns early on, the most common measures of global economic importance and performance are country based. While nation-based analyses and indices have their value, over the recent decades this way of viewing the world has come to hide as much as it reveals.


For a long time, many analysts, including me, have argue that sector-based views should enhance or even replace country-based views in specific situations. The VOX site recently posted a good overview of the case for country-based analysis in  a piece by Mike Orszag, Urvi Shriram, and Dennis J Snower entitled, “Economic Performance Index: An industry-centric measurement approach.”

The authors center their argument around something called the Economic Performance Index (EPI), which was developed by the Global Economic Symposium and Towers Watson. As the authors note:

As they strive to overcome economic challenges, policymakers and business leaders need solid analytics that accurately measure economic performance and competitiveness…The Economic Performance Index (EPI) goes further to the heart of the action, recasting the perspective and language of economic performance to the way business is done in practice: at the company and industry levels (Shriram et al. 2013). The progressive integration of the global economy is reducing the significance of national boundaries, making microeconomic characteristics of globally mobile firms more important. Countries are no longer the primary players; it is companies, embedded in their industry sector, who compete for market share in the global economic arena.

As every global executives knows, over the last half-century, but especially since the rise of  the BRICS, shifts in absolute and relative economic performance are best understood at the sector level. As trade barriers continue to fall, and that is the long-term trend, understanding sector performance is more important for gauging the impact of private sector strategies and public-sector policies. the The authors make a convincing case for their “bottom-up” approach to measuring economic performance, especially because in 2014 “the economic performance of a country directly depends on a heterogeneous mix of rising and falling companies within sunrise and sunset industries rather than any homogenous movement of trends and indicators.”

The VOX piece points, for example, some interesting changes in the global landscape:

In manufacturing industries like Aerospace & Defense, Automobiles and Electronics, emerging economies like China and India are overtaking developed superpowers like the US and Japan on a range of industry-specific performance factors. Even though the developed countries continue to dominate Health Care, population and income growth in emerging economies are stimulating demand for health services and thus increasing their growth potential. Shifting demographic and economic forces are also changing the Retail industry. With consumer spending declining in the US and UK and accelerating in China, India, Brazil, Argentina, and elsewhere, emerging markets are fast becoming world-class players.

Overall, this is a solid piece and a good illustration for why economists need to broaden their view of economic competitiveness. As sectors continue to morph and shift, we need to add different dimensions to how we understand the evolutions of these patterns around the world.

Read more: http://www.voxeu.org/article/industry-centric-economic-measurement

Carlos Alvarenga

Founder and CEO at KatalystNet and Adjunct Professor in the Logistics, Business and Public Policy Department at the University of Maryland’s Robert E. Smith School of Business.

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