Business sectors that benefit from Positive Peace

New research shows the links between the prosperity of specific business sectors and increasing Positive Peace.

The services and construction sectors respond better to improvements in Positive Peace, while agriculture and manufacturing are not as reactive, research has found.

Findings from the Institute for Economics and Peace showing the dynamic correlation between Positive Peace and macro-economic indicators suggests corporate activity is strongly associated with the attitudes and institutions that lead to peaceful societies.

Positive Peace is associated with specific business sectors

While Positive Peace is associated with specific business sectors in different ways, IEP found the service sector is the most sensitive to improvements in the Positive Peace Index, with a dynamic correlation coefficient of -0.41.

The link appears to be particularly strong for countries within the Organisation for Economic Co-operation and Development (OECD), and newly advanced economies within the “BRIC” group, including countries such as Brazil, Russia, India and China.

Positive Peace and the service sector

The service subsector has also experienced strong growth on the back of Positive Peace improvements in non-OECD, non-BRIC nations.

Some of this growth has been domestically oriented, as seen in Bhutan’s fast growing health, education and asset ownership services, but there has also been a growing presence in global service markets, for example in Ethiopia’s fast development in international air travel and telecommunications.

Positive Peace and the construction sector

Construction represents the next sub-sector with the highest dynamic correlation with Positive Peace, with the coefficient estimated around -0.39. The subsector involves building activity, development of infrastructure assets and installation of heavy fixed equipment.

A number of countries recently showing socio-economic improvements have experienced construction booms.

Lao recorded strong growth in construction on the back of new electricity production projects in the Mekong tributaries and from renewed investment in real estate.

Panama’s construction activity has been buoyed by a government capital investment program that helped build a public metro system in Panama City. Azerbaijan experienced a construction boom that saw rapid urban expansion in and around the capital Baku.

Since 2005, these countries have recorded substantial improvements in the Positive Peace Index overall score.

Positive Peace and Agriculture and manufacturing business sectors

IEP’s research also found that agriculture and manufacturing are not as responsive to improvements in Positive Peace. This is especially the case for non-OECD, non-BRIC nations, where the dynamic correlation coefficients are particularly low in absolute terms.

In high-income countries, agriculture is well-mechanised and farming is usually performed in large scale with industrial techniques.

In these circumstances, improvements in Positive Peace may lead to better economic conditions including cheaper funding, access to more efficient equipment and easier access to price guarantees through financial derivative markets.

Agriculture in middle- to low-income countries usually involves small scale operations and little-to-no mechanisation. In these conditions, it is possible that weather and geographical constraints exert greater impact on yield than Positive Peace factors.

IEP investigated the dynamic correlation between between Positive Peace and several macro-economic indicators.

Dynamic correlation gauges how changes in one variable relate to changes in another, without necessarily implying causation. While the analysis of static correlations provides a snapshot of the state of a system at a given time, dynamic correlations show how its internal structure changes over time.

Analysis of dynamic correlations can highlight areas of a system that tend to develop more slowly than others, or growth bottlenecks. It can also help policymakers identify low-hanging fruit: areas more responsive to improvements in Positive Peace that may kick-start virtuous growth cycles.

By assuming that observed dynamic relationships will continue in the future, dynamic analysis can be used to help predict socio-economic outcomes.

Case Study Lithuania: Positive Peace and manufacturing business sector

Lithuania’s PPI score improved by 13.9% from 2009 to 2019. On a percent basis, the country posted the highest improvement in Positive Peace in Europe over this period. All domains and Pillars of Positive Peace recorded substantial improvements in this Baltic nation in the past decade.

Of particular note, the Good Relations with Neighbours, and High Levels of Human Capital posted very large improvements. Lithuania even recorded improvements in Low Levels of Corruption and Well-Functioning Government – the only Pillars that saw deteriorations globally over the decade.

This progress was accompanied by a noticeable boom in manufacturing, largely driven by foreign direct investment (FDI) inflows. Lithuania streamlined the process of obtaining construction permits, updated its urban zoning planning frameworks from the Soviet era and eased the tax burden on hiring labour. These are examples of progress in the Well-Functioning Government Pillar.

In 2010, there were ten large manufacturing projects being built in the country. By 2018, this number had risen to 27.3. In that year, a report by Cushman & Wakefield – The Manufacturing Risk Index – placed Lithuania as the world’s second-most attractive destination for manufacturing, behind only China. A report by Invest Lithuania states that in 2017, 3,066 new jobs per million people were created by FDI projects. The EU average is more than three times lower: 900 jobs per million.