Entropic measure unveils country competitiveness and product specialization in the World trade web

TL;DR

This paper introduces an entropy-based method to measure country competitiveness and product specialization in global trade, providing a new way to analyze economic efficiency and sectorial contributions.

Contribution

It develops a novel entropy-based framework for ranking countries and products, surpassing traditional diversification measures, with a convergent iterative scheme and broad applicability.

Findings

Reveals distinct country and product typologies based on entropy measures

Provides a decomposition of competitiveness into inter- and intra-sectorial components

Benchmarks new rankings against existing economic parameters

Abstract

We show how the Shannon entropy function can be used as a basis to set up complexity measures weighting the economic efficiency of countries and the specialization of products beyond bare diversification. This entropy function guarantees the existence of a fixed point which is rapidly reached by an iterative scheme converging to our self-consistent measures. Our approach naturally allows to decompose into inter-sectorial and intra-sectorial contributions the country competitivity measure if products are partitioned into larger categories. Besides outlining the technical features and advantages of the method, we describe a wide range of results arising from the analysis of the obtained rankings and we benchmark these observations against those established with other economical parameters. These comparisons allow to partition countries and products into various main typologies, with well-revealed characterizing features. Our methods have wide applicability to general problems of ranking in bipartite networks.