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Complexity, Specialization, and Growth

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  • Ferrarini, Benno

    (Asian Development Bank)

  • Scaramozzino, Pasquale

    (University of London)

Abstract

This paper analyzes the role of complexity in production on the level of output and on its rate of growth. We develop an endogenous growth model with human capital accumulation, where increased complexity could exert either a positive or a negative effect on the level of output but always a positive effect on its rate of growth. Our empirical measure of complexity is derived from net trade flows, and is based on the product space description of production sectors in the global economy. The evidence from a broad cross-section of countries is consistent with the main theoretical predictions of the model, and supports the view that production complexity is important in order to account for differences in economic performance. An indicator of the intensity of vertical trade among countries is also shown to be relevant to explain output performance.

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Bibliographic Info

Paper provided by Asian Development Bank in its series ADB Economics Working Paper Series with number 344.

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Length: 24 pages
Date of creation: 20 Jul 2013
Date of revision:
Handle: RePEc:ris:adbewp:0344

Note: http://www.adb.org/sites/default/files/pub/2013/economics-wp-344-complexity-specialization-growth.pdf
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Keywords: international trade flows; vertical trade; economic growth; complexity;

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  1. Ferrarini, Benno, 2011. "Mapping Vertical Trade," ADB Economics Working Paper Series, Asian Development Bank 263, Asian Development Bank.
  2. Georg Duernecker & Moritz Meyer & Fernando Vega Redondo, 2012. "Being Close to Grow Faster: A Network-Based Empirical Analysis of Economic Globalization," Economics Working Papers, European University Institute ECO2012/05, European University Institute.
  3. Alessandrini, Michele & Fattouh, Bassam & Ferrarini, Benno & Scaramozzino, Pasquale, 2011. "Tariff liberalization and trade specialization: Lessons from India," Journal of Comparative Economics, Elsevier, vol. 39(4), pages 499-513.
  4. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, Elsevier, vol. 22(1), pages 3-42, July.
  5. Dornbusch, Rudiger & Fischer, Stanley & Samuelson, Paul A, 1977. "Comparative Advantage, Trade, and Payments in a Ricardian Model with a Continuum of Goods," American Economic Review, American Economic Association, American Economic Association, vol. 67(5), pages 823-39, December.
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  8. Hernando Zuleta, 2004. "A Note on Scale Effects," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(1), pages 237-242, January.
  9. Kremer, Michael, 1993. "The O-Ring Theory of Economic Development," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 108(3), pages 551-75, August.
  10. Costinot, Arnaud, 2009. "On the origins of comparative advantage," Journal of International Economics, Elsevier, Elsevier, vol. 77(2), pages 255-264, April.
  11. Alberto Dalmazzo & Tuomas Pekkarinen & Pasquale Scaramozzino, 2007. "O-ring Wage Inequality," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 74(295), pages 515-536, 08.
  12. Ricardo Hausmann & C├ęsar Hidalgo, 2011. "The network structure of economic output," Journal of Economic Growth, Springer, Springer, vol. 16(4), pages 309-342, December.
  13. Lall, Sanjaya, 1992. "Technological capabilities and industrialization," World Development, Elsevier, Elsevier, vol. 20(2), pages 165-186, February.
  14. C. A. Hidalgo & B. Klinger & A. -L. Barabasi & R. Hausmann, 2007. "The Product Space Conditions the Development of Nations," Papers 0708.2090, arXiv.org.
  15. Hausmann, Ricardo & Klinger, Bailey, 2006. "Structural Transformation and Patterns of Comparative Advantage in the Product Space," Working Paper Series, Harvard University, John F. Kennedy School of Government rwp06-041, Harvard University, John F. Kennedy School of Government.
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