Discussion on Criteria for Ranking Countries

01 May 2023 Discussion on Criteria for Ranking Countries
Talal Abu-Ghazaleh
 
•        Economic criteria is often utilized worldwide to classify countries and learn more about their economies, whether for general knowledge, to conduct academic and applied research and studies, or to invest in those countries and conduct business activities. Such criteria vary and usually include a timeframe of one or more variables combined to create a unified standard. Some criteria use annual economic growth rates to determine the movement of economic activity in the country over periods of time to know the level of overall performance, trends and the impact of global, regional and local variables.
•       Some may use the criterion of the size of economic activity according to the gross domestic product (GDP) to determine the size of the total market in a country compared to other countries. For example, China was not even among the first ten countries in the world in terms of the size of the economy in 2008. In 2022, it ranked second after the United States, and it is now expected to rank first in terms of the size of the economy.
•       While this information is considered necessary in several respects, researchers or observers may also wish to know the average income per capita. To do so, the GDP is divided over the number of residents in the countries being compared, so the results differ from one country to the other. For example, Luxembourg has a relatively small GDP (85.51 million dollars) and is classified as the highest in income per capita (GDP divided by population), which reached $138 per person in 2022, according to purchasing power parity.
•       If we want to compare the purchasing power of income or spending between countries, the spending rates are compared to the spending rate in the United States as a base point. Hence, the purchasing value of other countries is measured as less or more in comparison. Some may use the "Big Mac" index (the cost of buying a Big Mac burger sandwich at McDonald's) as developed and used by The Economist magazine since 1986 to measure whether the exchange rates in the market for the currencies of different countries (78 countries) are overvalued or undervalued. Interestingly, the accuracy of the production of this sandwich guarantees its similar production in all countries and so it can be used as an indicator of prices in different countries. According to the index, the most expensive country among the 78 classified countries is Switzerland (the price of a Big Mac sandwich is $6.71), and the least expensive is Venezuela ($1.76).
•       Others monitor the investment flow rates relative to the GDP, which indirectly indicates the ease of doing business, the attractiveness of a country compared to others, the country's capabilities or absorptive capacity for investments, and its stability over the years, as the legislative stability factor and the institutionalization of decision-making (and not their unilateralism) are very important for attracting investment. Researchers may want to directly look into the Business Report to find out the ease of doing business in any country compared to others. They may support their decision by using competitiveness and different criteria of economic freedom (many criteria of economic freedom differ in terms of inputs and results). These criteria are based on complex economic indicators and standard and statistical methods, some of which are objective, and others are subjective (usually by surveying the opinions of groups of people in different countries).
•       The criterion of the size of the GDP and its growth has faced much criticism for its use to measure well-being in a country that calculates the GDP in several different ways, including:
1.     The sum of consumer spending, investment spending, government spending, and net exports (exports minus imports) in one year.
2.     It may be calculated based on the total goods and services produced in the country minus the value of the goods and services used in the production processes, i.e. the sum of wages and profits for that year or what is called the added value.
3.     It may also be calculated through the total income obtained through economic resources (raw materials, capital, labor, entrepreneurship) in one year. They are mathematical methods that must lead to one criterion, which is (GDP) since economic theory assumes that consumption, income, and production are equal.
•       Many economists do not believe in the ability of the GDP or income per capita as criteria to measure the level of well-being in a country compared to other countries. For example, the growth and volume of GDP may not measure the extent of innovation in a country, nor is it indicative of the growth of the real economy if the researcher uses the size of the nominal economy, nor does this criterion measure the pollution that occurs in the environment, or how equitable the income distribution in the country is, or the size of the unorganized economy (the term unorganized economy is applied to economic activities that are not subject to taxation and are not monitored by the government, so they are not included in the gross national product), or the size or increase of human capital, or the diversification of the economy and the complexity of the products. Furthermore, an observer cannot anticipate and determine future risks or measure the extent of happiness in the country, the penetration of monopolistic practices, and many other things.
•       Despite all this, the GDP provides a standard figure to indicate a country’s economic situation. It is necessary for setting economic policies and macroeconomic analysis, as it is compatible with international production standards. The GDP often uses well-established international accounting principles. Therefore, despite the emergence of new criteria, such as the World Happiness Report, which measured the extent of happiness in all countries worldwide and was produced by (Bhutan), the GDP remains the first and most important reference.
•       As a result, the researcher may choose one or more of these criteria. I did not mention here, each according to his needs, whether he is a producer, a consumer, an investor, or a policy maker. Note that the latter's task requires that he rely on a mixture of numbers and benchmarks, an analytical approach, wisdom and common sense to see which groups in the country or abroad will be affected and where the impact will be more profound and more lasting before making an economic decision.