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The Building Blocks of Economic Complexity

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  • Cesar A. Hidalgo
  • Ricardo Hausmann

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 in order to generate sustained growth and prosperity.

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File URL: http://arxiv.org/pdf/0909.3890
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Paper provided by arXiv.org in its series Papers with number 0909.3890.

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Date of creation: Sep 2009
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Publication status: Published in Proc. Natl. Acad. Sci. (2009) 106(26):10570-10575
Handle: RePEc:arx:papers:0909.3890

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Web page: http://arxiv.org/

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References

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  1. C. A. Hidalgo & B. Klinger & A. -L. Barabasi & R. Hausmann, 2007. "The Product Space Conditions the Development of Nations," Papers 0708.2090, arXiv.org.
  2. Pier Saviotti & Koen Frenken, 2008. "Export variety and the economic performance of countries," Journal of Evolutionary Economics, Springer, vol. 18(2), pages 201-218, April.
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Citations

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Cited by:
  1. Clovis Freire, . "Productive Capacities in Asia and the Pacific," MPDD Working Paper Series WP/11/17, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP).
  2. Asier Minondo & Francisco Requena, 2012. "Complexity as a source of comparative advantage," Working Papers 1214, Department of Applied Economics II, Universidad de Valencia.
  3. Clovis Freire, . "Building Productive Capacities: Challenges and Opportunities for Least Developed Countries," MPDD Working Paper Series WP/12/02, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP).
  4. Ricardo Hausmann & Bailey Klinger, 2009. "Policies for Achieving Structural Transformation in the Caribbean: Private Sector Development Discussion Paper #2," IDB Publications 72918, Inter-American Development Bank.
  5. David Matesanz Gomez & Guillermo J. Ortega & Benno Torgler, 2012. "Synchronization and Diversity in Business Cycles: A Network Approach Applied to the European Union," CREMA Working Paper Series 2012-01, Center for Research in Economics, Management and the Arts (CREMA).
  6. Thomas Kemeny & Michael Storper, 2012. "Specialization and Regional Economic Development," SERC Discussion Papers 0121, Spatial Economics Research Centre, LSE.
  7. Baskaran, Thushyanthan & Blöchl, Florian & Brück, Tilman & Theis, Fabian J., 2011. "The Heckscher-Ohlin model and the network structure of international trade," International Review of Economics & Finance, Elsevier, vol. 20(2), pages 135-145, April.
  8. Hallward-Driemeier, Mary & Pritchett, Lant, 2011. "How business is done and the'doing business'indicators : the investment climate when firms have climate control," Policy Research Working Paper Series 5563, The World Bank.
  9. Peter Klimek & Ricardo Hausmann & Stefan Thurner, 2011. "Empirical confirmation of creative destruction from world trade data," Papers 1112.2984, arXiv.org.
  10. Xavier Cirera & Anabel Marin & Ricardo Markwald, 2011. "Explaining the Diversification Path of Exporters in Brazil: How Similar and Sophisticated are New Products?," Working Paper Series 2611, Department of Economics, University of Sussex.
  11. Ricardo Hausmann & Cesar A. Hidalgo, 2011. "The Network Structure of Economic Output," Papers 1101.1707, arXiv.org, revised Feb 2012.
  12. Sandra Poncet & Felipe Starosta de Waldemar, 2012. "Export upgrading and growth: the prerequisite of domestic embeddedness," Working Papers 2012-26, CEPII research center.
  13. Cesar A. Hidalgo, 2012. "Discovering East Africa's Industrial Opportunities," Papers 1203.0163, arXiv.org.
  14. Procter, Roger, 2011. "Echanching Productivity: Towards an Updated Action Agenda," Occasional Papers 11/1, Ministry of Economic Development, New Zealand.
  15. De Prato, Giuditta & Nepelski, Daniel, 2012. "Global technological collaboration network. Network analysis of international co-inventions," MPRA Paper 38818, University Library of Munich, Germany.
  16. Massimo Riccaboni & Stefano Schiavo, 2009. "The Structure and Growth of International Trade," Documents de Travail de l'OFCE 2009-24, Observatoire Francais des Conjonctures Economiques (OFCE).
  17. Asier Minondo, 2011. "Does comparative advantage explain countries’ diversification level?," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 147(3), pages 507-526, September.
  18. Hartmann, Dominik & Pyka, Andreas, 2013. "Innovation, economic diversification and human development," FZID Discussion Papers 65-2013, University of Hohenheim, Center for Research on Innovation and Services (FZID).

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