1. AS A FACTOR OF ECONOMIC SECURITY
ECONOMIC COMPLEXITY
AS A FACTOR OF ECONOMIC SECURITY
Igor V. Kononenko
Head of Strategic Management Department,
National Technical University ‘Kharkiv Polytechnic Institute’
Professor, Doctor of Technical Sciences,
Laureate of the State Prize of Ukraine

2. 2 AZERBAIJAN'S ACHIEVEMENTS FOR THE YEARS OF INDEPENDENCE
According to the Global Competitiveness Index in Azerbaijan occupies a honorable 40 th place among all countries (World Economic Forum).
GDP per capita (US $)
Population (thou. pers.) 2

3. AZERBAIJAN'S ACHIEVEMENTS FOR THE YEARS OF INDEPENDENCE
Exports (mln. dollars)
Imports (mln. dollars)
Average expected life expectancy at birth for men was 71.6 years - the highest rate among post-Soviet countries (2012). 3

4. THE ECONOMIC COMPLEXITY INDEX
The economic complexity index (ECI) – a measure that reflects the diversification of products exported by the country, as well as the ubiquity of these products in world exports.
ECI has been proposed by researchers from Harvard University C.A. Hidalgo and R. Hausmann in 2009.
The economic complexity index is calculated on the basis of the analysis of data about world countries export. A method of its calculation is recursive. 4

5. THE COUNTRY-PRODUCT NETWORK
This network consists of 129 countries, 772 products
and links connecting countries and products
Source: C. A. Hidalgo, R. Hausmann. SUPPLEMENTARY MATERIAL FOR:THE BUILDING BLOCKS OF ECONOMIC COMPLEXITY, 2009.

6. THE ECONOMIC COMPLEXITY INDEX
Method of Reflections
On the first iteration
diversification  the number of products exported by the country,
ubiquity  the number of countries exporting each kind of products
are calculated.

7. THE ECONOMIC COMPLEXITY INDEX
Method of Reflections
On the second iteration
average ubiquity of the products exported by country,
average diversification of the countries exporting product
are determined.

8. THE ECONOMIC COMPLEXITY INDEX
Method of Reflections
On the third iteration
average diversification of countries with an export basket similar to given country,
average ubiquity of the products exported by countries that export product
are determined.

9. THE ECONOMIC COMPLEXITY INDEX
It is difficult to interpret the results of subsequent iterations in economic terms.
However, as the authors show, obtained estimates are extremely important indicators of the country's economic development.
The more DIFFERENT products exports the national economy and the LESS ubiquity of these products (fewer competitors), the higher is the economic complexity index.

10. THE ECONOMIC COMPLEXITY INDEX
Japan and Germany, with high indices of the ECI, export many kinds of products which have a low ubiquity, which indicates that they are diversified and complex economies.
Countries with low indexes the ECI, such as Angola or Zambia, exported only a few products, which have a relatively high ubiquity (i.e. exported by many countries) and that are exported by countries that are not necessarily very diversified, which indicates that these countries have little diversification and that the products which they export, is not very complicated.
The leaders in the world rankings are Japan (ECI equal to 2.2) and Germany (ECI equal to 1.9).

11. Number of population, persons. The economic complexity index
Indices of economic complexity for countries that are similar in population size to Azerbaijan
Country
Number of population, persons.
The economic complexity index
Rank
Azerbaijan
9 mln. 730 thou.
( )
- 1,3
110
Belarus
9 mln. 498 thou.
( )
0,81 31
Austria
8 mln. 579 thou.
( )
1,7 6
Switzerland
8 mln. 236 thou.
1.87 3
Bulgaria
7 mln. 202 thou.
( )
0,5 38

12. COMMODITY STRUCTURE OF EXPORT OF AZERBAIJAN
Animal & Animal Products
Vegetable Products
Azerbaijan. Export
Foodstuffs
Mineral Products
Chemicals & Allied Industries
Plastics / Rubbers
Raw Hides, Skins, Leather, & Furs
Textiles
Footwear / Headgear
Wood & Wood Products
Stone / Glass
Metals
Machinery / Electrical
Transportation
Miscellaneous
Source: tree_map/export/aze/all/show/2014/
Service

13. VOLUME OF EXPORT OF AZERBAIJAN CHANGE
Animal & Animal Products
Vegetable Products
Azerbaijan. Export
Foodstuffs
Mineral Products
Chemicals & Allied Industries
Plastics / Rubbers
Raw Hides, Skins, Leather, & Furs
Textiles
Footwear / Headgear
Wood & Wood Products
Stone / Glass
Metals
Machinery / Electrical
Transportation
Miscellaneous
Source:
Service

14. COMMODITY STRUCTURE OF EXPORT OF BULGARIA
Animal & Animal Products
Vegetable Products
Bulgaria. Export
Foodstuffs
Mineral Products
Chemicals & Allied Industries
Plastics / Rubbers
Raw Hides, Skins, Leather, & Furs
Textiles
Footwear / Headgear
Wood & Wood Products
Stone / Glass
Metals
Machinery / Electrical
Transportation
Miscellaneous
Source:
Service

15. VOLUME OF EXPORT OF BULGARIA CHANGE
Animal & Animal Products
Vegetable Products
Bulgaria. Export
Foodstuffs
Mineral Products
Chemicals & Allied Industries
Plastics / Rubbers
Raw Hides, Skins, Leather, & Furs
Textiles
Footwear / Headgear
Wood & Wood Products
Stone / Glass
Metals
Machinery / Electrical
Transportation
Miscellaneous
Source:
Service

16. COMMODITY STRUCTURE OF EXPORT OF BELARUS
Animal & Animal Products
Vegetable Products
Belarus. Export
Foodstuffs
Mineral Products
Chemicals & Allied Industries
Plastics / Rubbers
Raw Hides, Skins, Leather, & Furs
Textiles
Footwear / Headgear
Wood & Wood Products
Stone / Glass
Metals
Machinery / Electrical
Transportation
Miscellaneous
Source:
Service

17. VOLUME OF EXPORT OF BELARUS CHANGE
Animal & Animal Products
Vegetable Products
Belarus. Export
Foodstuffs
Mineral Products
Chemicals & Allied Industries
Plastics / Rubbers
Raw Hides, Skins, Leather, & Furs
Textiles
Footwear / Headgear
Wood & Wood Products
Stone / Glass
Metals
Machinery / Electrical
Transportation
Miscellaneous
Source:
Service

18. COMMODITY STRUCTURE OF EXPORT OF AUSTRIA
Animal & Animal Products
Vegetable Products
Austria. Export
Foodstuffs
Mineral Products
Chemicals & Allied Industries
Plastics / Rubbers
Raw Hides, Skins, Leather, & Furs
Textiles
Footwear / Headgear
Wood & Wood Products
Stone / Glass
Metals
Machinery / Electrical
Transportation
Miscellaneous
Source:
Service

19. VOLUME OF EXPORT OF AUSTRIA CHANGE
Animal & Animal Products
Vegetable Products
Austria. Export
Foodstuffs
Mineral Products
Chemicals & Allied Industries
Plastics / Rubbers
Raw Hides, Skins, Leather, & Furs
Textiles
Footwear / Headgear
Wood & Wood Products
Stone / Glass
Metals
Machinery / Electrical
Transportation
Miscellaneous
Source:
Service

20. COMMODITY STRUCTURE OF EXPORT OF SWITZERLAND
Animal & Animal Products
Vegetable Products
Switzerland. Export
Foodstuffs
Mineral Products
Chemicals & Allied Industries
Plastics / Rubbers
Raw Hides, Skins, Leather, & Furs
Textiles
Footwear / Headgear
Wood & Wood Products
Stone / Glass
Metals
Machinery / Electrical
Transportation
Miscellaneous
Source:
Service

21. VOLUME OF EXPORT OF SWITZERLAND CHANGE
Animal & Animal Products
Vegetable Products
Switzerland. Export
Foodstuffs
Mineral Products
Chemicals & Allied Industries
Plastics / Rubbers
Raw Hides, Skins, Leather, & Furs
Textiles
Footwear / Headgear
Wood & Wood Products
Stone / Glass
Metals
Machinery / Electrical
Transportation
Miscellaneous
Source:
Service

22. CHANGE OF VOLUME OF EXPORT
The dependence of the coefficient of variation of export volume from the index of economic complexity
Azerbaijan
Bulgaria
The coefficient of variation
Belarus
Switzerland
Austria
The economic complexity index
The coefficient of variation shows how changing the country's exports, compared with the average value. The diagram shows that the increase in the index of economic complexity corresponds to a decrease in the coefficient of variation (except Switzerland). However, the change can means a reduction and an increase in exports.

23. Number of export volume increases during the period
THE NUMBER OF EXPORT VOLUME INCREASES
The number of export volume increases
Country
Number of export volume increases during the period
from 2004 to 2015.
Azerbaijan 6
Bulgaria 9
Belarus 7
Austria 10
Switzerland 8
The data presented in the table show that having the lowest the economic complexity index, Azerbaijan more frequently of all was prone to negative changes in the volume of exports between 2004 and 2015.
The increase in economic complexity contributes stability of export and an increase in its volume.

24. Goods market efficiency index
The dependence of the goods market efficiency index from the economic complexity index
Switzerland
Goods market efficiency index
markets
Austria
Azerbaijan
Bulgaria
The economic complexity index
The goods market efficiency index according to the Global Competitiveness Report, The World Economic Forum

25. GDP per capita (World Bank, 2015, in current US $)
The dependence of the GDP per capita from the economic complexity index
Switzerland
Austria
GDP per capita (US $)
Azerbaijan
Bulgaria
Belarus
The economic complexity index
GDP per capita (World Bank, 2015, in current US $)
Country
GDP per capita (US $)
Azerbaijan
5 496,3
Bulgaria
6 993,5
Belarus
5 740,5
Austria
43 775,0
Switzerland
80 945,1
With an the economic complexity index and GDP data Harvard University made a forecast of annual GDP growth until 2024 for the world. For Azerbaijan, it was 1.55% per year.

26. THE ECONOMIC COMPLEXITY INDEX
Diagram constructed using data containing 150 countries and 318 products aggregated according to the NAICS (North American Industry Classification System) .
Azerbaijan
Number of products exported by country;
average ubiquity of the products exported by country.
Source: C. A. Hidalgo, R. Hausmann. SUPPLEMENTARY MATERIAL FOR:THE BUILDING BLOCKS OF ECONOMIC COMPLEXITY, 2009.

27. ECONOMIC SECURITY Economic security includes: macroeconomic security;
financial security;
foreign economic security;
investment security;
scientific and technological security;
energy security;
production security;
demographic security,
social security,
food security.
The economic complexity increases economic security, affecting virtually all its components.

28. The Graphical interpretation of the regularity
THE REGULARITY OF THE COUNTRY’S GDP GROWTH RATE CHANGES INFLUENCE ON THE VOLUME OF GROSS FIXED CAPITAL FORMATION (I. Kononenko, A. Repin, )
The Graphical interpretation of the regularity

29. The first section of the regularity
THE REGULARITY OF THE COUNTRY’S GDP GROWTH RATE CHANGES INFLUENCE ON THE VOLUME OF GROSS FIXED CAPITAL FORMATION (I. Kononenko, A. Repin, )
The first section of the regularity
First, there is the growth of capital investment in the economy if the GDP growth rate is above a certain threshold value which is different for each country. Moreover, investment growth is observed with increase and decrease of GDP growth rate, provided GDP growth changes occur in the above-threshold area.
The Graphical interpretation of the regularity

30. The second section of the regularity
THE REGULARITY OF THE COUNTRY’S GDP GROWTH RATE CHANGES INFLUENCE ON THE VOLUME OF GROSS FIXED CAPITAL FORMATION (I. Kononenko, A. Repin, )
The second section of the regularity
Secondly, there is a decrease, or (rarely) stabilization of the volumes of capital investment into the economy in case a GDP growth rate falls if the reduction of GDP growth rate is observed in the area below the threshold.
The Graphical interpretation of the regularity

31. The third section of the regularity
THE REGULARITY OF THE COUNTRY’S GDP GROWTH RATE CHANGES INFLUENCE ON THE VOLUME OF GROSS FIXED CAPITAL FORMATION (I. Kononenko, A. Repin, )
The third section of the regularity
Thirdly, there is a rise in investment or stabilization with an increasing GDP growth, if such an increase occurs in the area with positive values.
The Graphical interpretation of the regularity

32. The fourth section of the regularity
THE REGULARITY OF THE COUNTRY’S GDP GROWTH RATE CHANGES INFLUENCE ON THE VOLUME OF GROSS FIXED CAPITAL FORMATION (I. Kononenko, A. Repin, )
The fourth section of the regularity
Fourthly, if the increase of GDP growth occurs in the area of negative growth values, this process is accompanied by an investment decrease.
The Graphical interpretation of the regularity

33. The fifth section of the regularity
THE REGULARITY OF THE COUNTRY’S GDP GROWTH RATE CHANGES INFLUENCE ON THE VOLUME OF GROSS FIXED CAPITAL FORMATION (I. Kononenko, A. Repin, )
The fifth section of the regularity
In the fifth place, if a GDP growth is in the area of positive values of growth after a period of GDP growth falling in the sub-threshold zone there is an investment reduction (which in rare cases may happen even a year after such a fall).
The Graphical interpretation of the regularity

34. Gross fixed capital formation of Azerbaijan
THE REGULARITY OF THE COUNTRY’S GDP GROWTH RATE CHANGES INFLUENCE ON THE VOLUME OF GROSS FIXED CAPITAL FORMATION (I. Kononenko, A. Repin, )
Gross fixed capital formation of Azerbaijan
Gross fixed capital formation (current US$)
GDP growth (annual %)

35. WHAT TO DO TO INCREASE ECONOMIC SECURITY?
Harness the production of high technology products.
Promote the export of high technology products - provide favorable conditions for such exports.
Promote high technology products of Azerbaijan in the world.
Among the measures for the development of high-tech business:
business plan competitions, especially among the youth,
organization of technology transfer,
creation of business incubators, and
the creation of industrial parks and others.

36. THANK YOU FOR ATTENTION!
Igor V. Kononenko
Head of Strategic Management Department of NTU ‘KhPI’
Professor, Doctor of Technical Sciences,
Laureate of the State Prize of Ukraine
Tel.: +38 (050)