The Building Blocks of Economic Complexity
Cesar A. Hidalgo, Ricardo Hausmann

TL;DR
This paper introduces a network-based measure of economic complexity derived from trade data, showing its strong correlation with income levels and predictive power for future growth, emphasizing the importance of complexity in development.
Contribution
It develops a novel network approach to quantify economic complexity and demonstrates its relevance for understanding and predicting economic development.
Findings
Complexity measures correlate with income levels.
Deviations predict future economic growth.
Complexity influences development trajectories.
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…
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Taxonomy
TopicsEconomic and Technological Innovation · Innovation and Socioeconomic Development
