Synergistic small worlds that drive technological sophistication

It is a well-known fact that economic growth goes hand in hand with improvements in technological sophistication. While critical to such sophistication, the nature and underlying structure of the input interactions taking place inside production processes remain opaque, at least in the study of large systems such as industries and entire economies. We develop a method to quantify the degree of input complementarity in production processes form input-output data. We propose that the information-theoretic concept of synergistic information is analog to economic complementarity and exploit this link to create a data-driven approach that does not require the ex ante assumption of production functions. In contrast to alternative empirical approaches, our method is able identify input-input interactions and to quantify their contribution to output, revealing an input-input synergistic interaction network that characterizes an industry's productive technology. We find that more sophisticated industries tend to exhibit highly modular small-world topologies; with the tertiary sector as its central connective core. Overall, countries and industries that have a well-established connective core and specialized modules exhibit higher economic complexity, higher output, and lower emissions. The proposed method provides a framework to identify key relationships in the economy that can enhance economic performance.