Elements in constructing Productivity Measurement and National Income

Productive Capacities Index (PCI) of UNCTAD

After decades of extensive research and policy analysis, the United Nations Conference on Trade and Development (UNCTAD) was able to create the Productive Capacities Index (PCI) as a productivity assessment. A multidimensional index that can offer country-specific insights and diagnostics on the growth of productive capacities, the index is the first attempt to quantify productive capacities across all economies. Additionally, PCI offers scores for each nation and region to assist in identifying systemic risks and factors that promote economic growth, such as advancements made in the direction of regional and global development objectives. A technique for evaluating long-term performance and advancement at the national or regional levels is the productivity measuring index (PCI). In particular, it helps in the identification of areas for policy action and gaps that affect the entire economy.

The Objective of the productivity measurement (PCI) index

PCI was created with the goal of assisting developing countries in the creation and implementation of comprehensive, coherent, and evidence-based policymaking. The index is intended to improve the quality of trade and development policies by emphasizing the development of productive capacities and structural transformation. It aids in the identification of economy-wide gaps and constraints that stymie attempts to promote productive capacities and structural transformation. Such institutional flaws enhance socioeconomic vulnerability to external shocks and impede governments' ability to respond quickly to calamities like the COVID-19 epidemic.

As a result, the productivity measurement index is a useful instrument for identifying important economic development restrictions and realigning governmental actions and interventions, as well as incentives, to meet these constraints. PCI is also a reliable and comprehensive instrument for tracking progress against national and international development targets and goals, such as the Sustainable Development Goals.

Correlation between PCI and GDP per capita

PCI scores and GDP per capita levels are inextricably linked, as a higher PCI score is frequently linked to a higher GDP per capita. The very positive correlation coefficient (0.91) between PCI and GDP per capita indicates the close association that improving productive capacity might have with overall GDP, resulting in an increase in GDP per capita. The strong and high degree of connection implies that the poorest countries, particularly LDCs and LLDCs, are at the bottom of the distribution, implying that low GDP per capita is closely associated with low productive capacity. This is to be expected, given an economy's productive capacity determines its ability to generate products and services. PCI can also help a country forecast its economic trajectory and the time it will take to reach a certain level of GDP per capita. It can also help policymakers determine how much time and resources they'll need to break out of the middle-income trap and set the groundwork for inclusive and long-term economic growth and development. PCI's multidimensionality and categories are critical for promoting transformational, inclusive growth and development. As a result, while using PCI for policy formulation and execution, it's important to consider the evolution of the constituent categories, which provide additional statistical data on areas where a country is progressing or falling behind.

The PCI includes forty-six indicators spanning eight areas of productive capacity (natural capital, human capital, energy, ICTs, transport, private sector, institutions, and structural change) and covers 193 economies from 2000 to 2018.

The eight categories which form the multidimensional PCI are,

  •  Energy,
  • Human capital,
  •  Information and communications technology (ICTs)
  •  Institutions,
  • Natural capital,
  • The private sector,
  •  Structural change
  • and Transport.
Productivity MeasurementProductivity Measurement 2

The productive Capacities Index (PCI) of UNCTAD as a productivity measurement index was constructed entailing eight-factor, Energy, Human capital, Information, and communications technology (ICTs), Institutions, Natural capital, The private sector, Structural change, and Transport.

The extremely strong connection between PCI and GDP per capita (0.91) suggests a close relationship between raising productive capacity and raising GDP overall, which would raise GDP per capita. The strong and high degree of connection implies that the poorest countries, particularly LDCs and LLDCs, are at the bottom of the distribution, implying that low GDP per capita is strongly associated with low productive capacity. This is to be expected, given an economy's productive capacity determines its ability to generate products and services. Countries or economies with high levels of productivity also have high levels of human development, according to the Human Development Index. Other categories, such as structural change, functioning institutions, and a thriving private sector, are also necessary for or have an impact on human development. Therefore, human development is the key to enhancing PCI, which results in more GDP growth.

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