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The building blocks of economic complexity
César A Hidalgo1, Ricardo Hausmann
1Center for International Development and Harvard Kennedy School, Harvard University, Cambridge, MA 02138, USA. cesar_hidalgo@ksg.harvard.edu
Summary
Economic complexity, measured through trade networks, correlates with national income. Countries with more complex economies tend to have higher incomes and experience future growth, suggesting development efforts should foster complexity.
Area of Science:
- Economics
- Economic Complexity
- Network Science
Background:
- Adam Smith linked wealth to the division of labor and increasing economic specialization.
- Economic development is associated with a rise in specialized activities and their complex interactions.
Purpose of the Study:
- To develop a framework for understanding economic growth and development centered on economic complexity.
- To quantify a nation's economic complexity using its trade data.
Main Methods:
- Interpreting international trade data as a bipartite network connecting countries to exported products.
- Characterizing the network structure to derive measures of economic complexity.
Main Results:
- Developed quantifiable measures of economic complexity based on network structure.
- Demonstrated a correlation between derived complexity measures and a country's income level.
- Showed that deviations from the complexity-income relationship predict future economic growth.
Conclusions:
- Economic complexity, as reflected in productive structures, dictates a country's income level.
- Development strategies should focus on creating conditions that promote the emergence of economic complexity for sustained prosperity.
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