Contagious disruptions and complexity traps in economic development

TL;DR

This paper models how contagious disruptions in supply chains create a poverty trap, leading poor economies to produce simpler goods and highlighting the importance of reliability and gradual complexity growth for development.

Contribution

It introduces a model of an evolving input-output network with contagion effects, explaining the persistence of poverty traps and the non-linear relationship between complexity and buffers.

Findings

Disruptions spread contagiously among agents, hindering development.

Buffers to disruptions increase then decrease with complexity, matching global inventory patterns.

Large jumps in complexity can backfire, explaining policy failures.

Abstract

Poor economies not only produce less; they typically produce things that involve fewer inputs and fewer intermediate steps. Yet the supply chains of poor countries face more frequent disruptions---delivery failures, faulty parts, delays, power outages, theft, government failures---that systematically thwart the production process. To understand how these disruptions affect economic development, we model an evolving input--output network in which disruptions spread contagiously among optimizing agents. The key finding is that a poverty trap can emerge: agents adapt to frequent disruptions by producing simpler, less valuable goods, yet disruptions persist. Growing out of poverty requires that agents invest in buffers to disruptions. These buffers rise and then fall as the economy produces more complex goods, a prediction consistent with global patterns of input inventories. Large jumps in economic complexity can backfire. This result suggests why "big push" policies can fail, and it underscores the importance of reliability and of gradual increases in technological complexity.