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Contagious disruptions and complexity traps in economic development

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  • Charles D. Brummitt
  • Kenan Huremovic
  • Paolo Pin
  • Matthew H. Bonds
  • Fernando Vega-Redondo

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.

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  • Charles D. Brummitt & Kenan Huremovic & Paolo Pin & Matthew H. Bonds & Fernando Vega-Redondo, 2017. "Contagious disruptions and complexity traps in economic development," Papers 1707.05914, arXiv.org.
  • Handle: RePEc:arx:papers:1707.05914
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    Cited by:

    1. Matthew Elliott & Benjamin Golub & Matthew V. Leduc, 2020. "Supply Network Formation and Fragility," Papers 2001.03853, arXiv.org, revised Apr 2022.
    2. Alje van Dam & Koen Frenken, 2019. "Variety, Complexity and Economic Development," Papers in Evolutionary Economic Geography (PEEG) 1912, Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography, revised May 2019.
    3. Alje van Dam & Koen Frenken, 2020. "Vertical vs. Horizontal Policy in a Capabilities Model of Economic Development," Papers in Evolutionary Economic Geography (PEEG) 2037, Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography, revised Aug 2020.
    4. Aymeric Vié & Alfredo J. Morales, 2021. "How Connected is Too Connected? Impact of Network Topology on Systemic Risk and Collapse of Complex Economic Systems," Computational Economics, Springer;Society for Computational Economics, vol. 57(4), pages 1327-1351, April.
    5. Vanessa Echeverri & Juan C. Duque & Daniel E. Restrepo, 2021. "Identifying poverty traps based on the network structure of economic output," Papers 2108.05488, arXiv.org, revised Aug 2021.

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