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Complexity, Specialization, and Growth

  • Ferrarini, Benno

    (Asian Development Bank)

  • Scaramozzino, Pasquale

    (University of London)

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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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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  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. Lall, Sanjaya, 1992. "Technological capabilities and industrialization," World Development, Elsevier, vol. 20(2), pages 165-186, February.
  3. W. W. Rostow, 1959. "The Stages Of Economic Growth," Economic History Review, Economic History Society, vol. 12(1), pages 1-16, 08.
  4. Andrea Zaghini, 2005. "Evolution of trade patterns in the new EU member states," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 13(4), pages 629-658, October.
  5. Kremer, Michael, 1993. "The O-Ring Theory of Economic Development," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 551-75, August.
  6. Hausmann, Ricardo & Klinger, Bailey, 2006. "Structural Transformation and Patterns of Comparative Advantage in the Product Space," Working Paper Series rwp06-041, Harvard University, John F. Kennedy School of Government.
  7. Costinot, Arnaud, 2009. "On the origins of comparative advantage," Journal of International Economics, Elsevier, vol. 77(2), pages 255-264, April.
  8. Ferrarini, Benno, 2011. "Mapping Vertical Trade," ADB Economics Working Paper Series 263, Asian Development Bank.
  9. Alberto Dalmazzo & Tuomas Pekkarinen & Pasquale Scaramozzino, 2007. "O-ring Wage Inequality," Economica, London School of Economics and Political Science, vol. 74(295), pages 515-536, 08.
  10. 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.
  11. Georg Duernecker & Moritz Meyer & Fernando Vega Redondo, 2012. "Being Close to Grow Faster: A Network-Based Empirical Analysis of Economic Globalization," Economics Working Papers ECO2012/05, European University Institute.
  12. Ricardo Hausmann & Cesar A. Hidalgo, 2011. "The Network Structure of Economic Output," Papers 1101.1707, arXiv.org, revised Feb 2012.
  13. 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, vol. 67(5), pages 823-39, December.
  14. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  15. 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.
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