# Leontief Meets Shannon - Measuring the Complexity of the Economic System

## TL;DR

This paper introduces a novel complexity measure for economic systems based on Shannon entropy and Leontief's circular production model, quantifying the informational content of economic flows.

## Contribution

It combines Leontief's production theory with Shannon entropy to create a new, quantifiable measure of economic complexity using Markov chains.

## Key findings

- The measure is applied to data from seven countries over several decades.
- Results show variation in economic complexity across nations and time periods.
- The approach provides a new quantitative tool for analyzing economic structure.

## Abstract

We develop a complexity measure for large-scale economic systems based on Shannon's concept of entropy. By adopting Leontief's perspective of the production process as a circular flow, we formulate the process as a Markov chain. Then we derive a measure of economic complexity as the average number of bits required to encode the flow of goods and services in the production process. We illustrate this measure using data from seven national economies, spanning several decades.