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Findings from the Positive Peace Report 2020 revealed a relationship between high levels of Positive Peace and superior economic performance.

Countries that improved in Positive Peace from 2009 to 2019 recorded an average annual growth rate in per capita GDP almost three percentage points above nations in which the PPI had deteriorated.

Predicting Economic Performance

Positive Peace can be used to signal future superior economic performance, thereby acting as a predictor of better economic and corporate outcomes.

Positive Peace outcomes are autoregressive, meaning that once a PPI score improves for a country or region in a given year, it will tend to continue improving for some time in the future.

Positive Peace and economic processes are also self-reinforcing. A better PPI outcome in a given year will increase the probability of favorable economic results in the future, which will in turn, contribute to further improvements in Positive Peace.

These dynamics mean that Positive Peace and economic cycles tend to have long durations and be intermeshed with one another.

Because of this, nation states or regions that improve in the PPI up to a certain time, can expect to record superior economic performance beyond that time.

This is at the heart of the PPI’s ability to predict the economic outperformance of countries and regions. This ability can be used by businesses and investors to help guide their commercial and financial sovereign exposures.

Procedure for predicting future economic outperformance using the PPI

Aggregate Economic Activity

The recursive process described above allows the construction of an annually re-calibrated portfolio of countries whose real GDP growth outperforms future growth in global real GDP.

For example, by selecting those countries that improved materially in Positive Peace up to a specific year, say 2018, an investor will have a portfolio of nations whose real GDP growth will be higher than the global average in 2019.

The methodology can be further developed and adapted for different time lags and different predictive windows. The combined GDP of the annually re-calibrated portfolio of PPI improvers rose by 48 per cent from 2010 to 2019 (Figure 5.13).

This is 12 percentage points higher than the global average growth of 36 per cent in the same period, amounting to an outperformance of 33.3 per cent.

Real GDP outperformance by Positive Peace improvers