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Capability Accumulation and Conditional Convergence: Towards a Dynamic Theory of Economic Complexity

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  • Cesar A. Hidalgo
  • Viktor Stojkoski

Abstract

We develop a dynamic model of economic complexity that endogenously generates a transition between unconditional and conditional convergence. In this model, convergence turns conditional as the capability intensity of activities rises. We solve the model analytically, deriving closed-form solutions for the boundary separating unconditional from conditional convergence and show that this model also explains the path-dependent diversification process known as the principle of relatedness. This model provides an explanation for transitions between conditional and unconditional convergence and path-dependent diversification.

Suggested Citation

  • Cesar A. Hidalgo & Viktor Stojkoski, 2025. "Capability Accumulation and Conditional Convergence: Towards a Dynamic Theory of Economic Complexity," Papers 2512.10672, arXiv.org.
    • Handle: RePEc:arx:papers:2512.10672
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    Cited by:

    1. Isaak Mengesha & Debraj Roy, 2026. "Measuring growth and convergence at the mesoscale," Papers 2601.12158, arXiv.org.

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