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Economic complexity methods need better evaluation. Out-of-sample forecasting shows tree-based machine learning models best predict new product activation, offering policy insights for product introduction feasibility.

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Area of Science:

  • Economics
  • Data Science
  • Machine Learning

Background:

  • Economic complexity and relatedness measures lack systematic evaluation frameworks.
  • Forecasting new product activation is crucial for economic development and policy.
  • Existing methods require robust comparison and validation.

Purpose of the Study:

  • To establish a systematic evaluation and comparison framework for economic complexity methods.
  • To benchmark machine learning models for forecasting new product activation.
  • To provide a quantitative measure for assessing new product introduction feasibility.

Main Methods:

  • Utilized out-of-sample forecast exercises for systematic evaluation.
  • Compared various machine learning models, including tree-based algorithms.
  • Employed cross-validation, excluding country-specific data from training sets.

Main Results:

  • Tree-based algorithms significantly outperformed auto-correlation benchmarks and other supervised models.
  • Forecasting the activation of new products emerged as the key predictive task.
  • Cross-validation excluding predicted country data yielded the best predictive performance.

Conclusions:

  • Out-of-sample forecasting provides a robust framework for evaluating economic complexity methods.
  • Machine learning, particularly tree-based algorithms, offers superior predictive power for new product activation.
  • The developed approach offers a scientifically tested, quantitative tool for policy decisions on product introduction.