Geographic and demographic factors can provide countries with a comparative advantage in exporting specific products
It is well understood that geographic factors influence country competitivess. For instance, countries that experience extreme droughts have lower productivity in agriculture while landlocked countries face more challenges in their trade competitiveness. What is less known is that geographic and demographic capabilities can be measured at a more granular level to identify further opportunities for value-added exports.
Key questions include:
- Which geographic factors have the most impact on country competitiveness?
- What is the impact of these geographic factors on the economic potential of different products or services?
- What types of policies could be implemented to support their development?
Geo-capability Mapping helps a country identify new opportunities to export value-added products
Geo-capability Mapping is a quantitative tool to analyze the impact of a country's geographic and demographic features on its capabilities to produce and export new and higher value-added products. The tool allows the identification of priority geographic and demographic drivers of competitiveness as well as opportunies to develop related products and services where the potential is greatest.
Geo-capability Mapping is inspired from Economic Complexity methodology where geographic and demographic indicators are considered to be additional "products" with potential revealed comparative advantages that each involve a set of capabilities 1. Revealed comparative advantages for geographic and demographic indicators are highlighted when indicators for a country deviate significantly (positively or negatively) from the worldwide average. In this case the country is deemed to have an “advantage” in the corresponding geographic or demographic characteristics.
Geo-capability Mapping is particularly well adapted to countries with sectors that are most influenced by geographic and demographic factors, such as agribusiness or renewable energies
Geo-capability Mapping reveals a country’s productive capabilities mainly for sectors that are directly by geographic and demographic factors, such as agribusiness or renewable energies.
Consider the case of agribusiness in Nepal and Vanuatu.
The case of Nepal
Nepal is one of the most mountainous countries in the world with frequent earthquakes and a variety of climate zones, from the subtropic to the ice belt. The population of 30 million is among the poorest in the world and lives mostly in rural areas, with high levels of unemployment. The economy is centered around the agriculture, textile and tourism sectors.
Geo-capability analysis applied to Nepal reveals product advantages associated with high altitude and a high share of rural population.
Figure 1 provides a graphic representation of the linkages between geographic and demographic indicators with relevant existing and new potential animal products.
Nepal can build on its geo-capabilities to expand production and export of higher value-added agricultural products such as preserved meat, fuit mixes and chocolate. Further agricultural products with development potential in Nepal are summarized in table 1.
Table 1. Nepal productive capabilities based on its geography and demography in the agricultural sector
|Nepal already produces with advantage||Nepal can produce and export with advantage due to its geography and demography|
The case of Vanuatu
Vanuatu is an archipelago with a small population of 276,000 distributed over more than 80 tropical islands with volcanic landscapes and untouched rainforests. The economy is driven mainly by agriculture, tourism and finance supported by consistently warm weather, abundant fertile land, as well as beautiful landscapes. Agriculture, forestry, and fishing provide a living for 60% of the economically active population.
Geo-capability analysis applied to Vanuatu reveals product advantages associated with high average temperatures, low temperature changes, and a young and rural population (see Figure 2).
As in the case of Nepal, Vanuatu can leverage its geo-capabilities to develop exports of higher value-added agricultural products. These include dried fish, chocolate, and coconut oil (see table 2).
Table 2. Vanuatu productive capabilities based on its geography and demography in the agricultural sector
|Vanuatu already produces with advantage||Vanuatu can produce and export with advantage due to its geography and demography|
The case of Nepal and Vanuatu illustrate that existing geographic and demographic capabilities may serve as a basis for diversifying into new products within existing sectors. Moreover, the country may further build on these existing capabilities to nurture and develop new capabilities to move up the value chain.
Targeted government policies can be used to fully leverage geo-capabilities
Targeted government policies can help create the right conditions for the development of new export opportunities supported by geo-capabilities. For example, the government is putting in place a fast-track process for import of inputs required for the processing of tuna, chocolate and coconut oil. Moreover, fishing licenses granted to foreign companies are being renegotiated to ensure that greater value added is produced in the country (e.g. from fresh fish to canned). In addition, the government of Vanuatu is now actively targeting foreign investors in sectors with demonstrated geo-capabilities.
The government of Nepal1 has been working with international financial institutions to expand micro-finance and credit opportunites for farmers looking to grow products supported by geo-capabilities.
By fully leveraging Geo-capability Mapping, governments can expand investment and employment opportunities to the wider benefit of their citizens.
1The concept of Economic Complexity, put forward by Hausmann and Hidalgo, aims to assess a country’s capabilities based on its revealed comparative advantage in exports of products that require different capabilities. Capabilities are derived from an analysis of what it takes to produce those exports.
2Nodes with different colours reflect indicators or products of different sectors. Edges reflect connection between products or indicators. Larger circles on the chart indicate products or geographic / demographic indicators for which the country has a Revealed Comparative Advantagen (RCA).