The Economic Complexity Observatory

Abstract:

Much of the analysis of economic growth has focused on the study of aggregate output. Here, we deviate from this tradition and look instead at the structure of output embod- ied in the network connecting countries to the products that they export. We characterize this network using four structural features: the negative relationship between the diversification of a country and the average ubiquity of its exports, and the non-normal distributions for product ubiquity, country diversification and product co-export. We model the structure of the network by assuming that products require a large number of non-tradable inputs, or capabilities, and that countries differ in the completeness of the set of capabilities they have. We solve the model assuming that the probability that a country has a capability and that a product requires a capability are constant and calibrate it to the data to find that it accounts well for all of the network features except for the heterogeneity in the distribution of coun- try diversification. In the light of the model, this is evidence of a large heterogeneity in the distribution of capabilities across countries. Finally, we show that the model implies that the increase in diversification that is expected from the accumulation of a small number of capabilities is small for countries that have a few of them and large for those with many. This implies that the forces that help drive divergence in product diversity increase with the complexity of the global economy when capabilities travel poorly. Download Paper

Abstract:

In this paper we introduce five graphical statistical methods to compare countries level of development relative to other countries and across time. For this, we use seven panels of data on the Human Development Index and its components, containing information on more than 100 countries for more than 35 years. We create visual comparisons of the level of development of countries relative to each other, and across time, through five different visualization techniques: (i) Rankings (ii) Values (iii) Distributions (iv) visual metaphors (The Development Tree), and (v) networks, by introducing the concepts of Partial Ordering Networks (PON) and Development Reference Groups (DRG). The graphical exploration of both, values and distributions, show a saturation of both the education and life dimensions of the HDI, suggesting a need to extend the definitions of this components to include either more subcomponents, or completely new measures that could help differentiate between countries facing different development challenges. The Development Tree and the Partial Ordering Network, on the other hand, are used to create graphical narratives of countries and regions. The simplicity of the Development Tree makes it an ideal graphical metaphor for branding the HDI in a multilingual setting, whereas Partial Ordering Networks provide a more organic way to group countries according to their levels of development and connect countries to those with similar development challenges. We conclude by arguing that graphical statistical methods could be used to help communicate complex data and concepts through universal cognitive channels that are heretofore underused in the development literature. Download Paper

Abstract:

How does the productive structure of countries’ changes over time? In this paper we explore this question by combining techniques of networks science with 42 years of trade data and find that, while the Product Space remains relatively stable during this period, the dynamics of countries’ productive structures is characterized by a few highly dynamic economies. In particular we identify Brazil, Indonesia, Turkey, Malaysia, Thailand, Korea, Singapore and China, as countries that transformed their productive structures considerably during these four decades, albeit following different trajectories. For instance, the economic complexity of Korea, Singapore and China was relatively high at the beginning of the observation period and continued to increase during these forty two years, moving these countries into the top spots of the economic complexity rankings for the beginning of this millennium. Brazil, Indonesia and Turkey, on the other hand, transformed their productive structures significantly during the same period of time, but did so starting from a less sophisticated foundation. We conclude the paper by moving from this and other observations into the policy implications of this view of economic development and argue that the government involvement in the private sector should be to help catalyze market activities and solve coordination problems that emerge naturally when countries try to accumulate capabilities. This represents an alternative to more traditional views of the role of government that postulate, in their extremes, that the public sector should either have no involvement in private sector activities or, on the other hand, substantial ownership of the means of production. Download Paper

Abstract:

For Adam Smith, wealth was related to the division of labor. As people and firms specialize in different activities, economic efficiency increases, suggesting that development is associated with an increase in the number of individual activities and with the complexity that emerges from the interactions between them. Here we develop a view of economic growth and development that gives a central role to the complexity of a country’s economy by interpreting trade data as a bipartite network in which countries are connected to the products they export, and show that it is possible to quantify the complexity of a country’s economy by characterizing the structure of this network. Furthermore, we show that the measures of complexity we derive are correlated with a country’s level of income, and that deviations from this relationship are predictive of future growth. This suggests that countries tend to converge to the level of income dictated by the complexity of their productive structures, indicating that development efforts should focus on generating the conditions that would allow complexity to emerge to generate sustained growth and prosperity. Download Paper

Abstract:

Does the type of product a country exports matter for subsequent economic performance? to take an example from the 19th-century economist David ricardo, does it matter if Britain specializes in cloth and portugal in wine for the subsequent development of either country? the seminal texts of development economics held that it does matter, suggesting that industrialization creates externalities that lead to accelerated growth (rosenstein-rodan 1943; Hirschman 1958; Matsuyama 1992). Yet, lacking formal models, mainstream economic theory has made little of these ideas. instead, current dominant theories use two approaches to explain countries’ patterns of specialization.

The first approach focuses on the relative proportions in which countries possess productive factors (physical capital, labor, land, skills or human capital, infrastructure, and institutions) and the proportions in which these factors are needed to produce different goods (see Flam and Flanders 1991). Hence, poor countries specialize in goods that are relatively intensive in labor and land, while richer countries specialize in goods that use more human and physical capital and demand better infrastructure and institutions. According to these… (read more by downloading paper)

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Abstract:

Economies grow by upgrading the products they produce and export. The technology, capital, institutions, and skills needed to make newer products are more easily adapted from some products than from others. Here, we study this network of relatedness between products, or “product space,” finding that more-sophisticated products are located in a densely connected core whereas less sophisticated products occupy a less-connected periphery. Empirically, countries move through the product space by developing goods close to those they currently produce. Most countries can reach the core only by traversing empirically infrequent distances, which may help explain why poor countries have trouble developing more competitive exports and fail to converge to the income levels of rich countries.

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