The building blocks of economic complexity
- Center for International Development and Harvard Kennedy School, Harvard University, Cambridge, MA 02138
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Edited by Partha Sarathi Dasgupta, University of Cambridge, Cambridge, United Kingdom, and approved May 1, 2009 (received for review January 28, 2009)
Abstract
For Adam Smith, wealth was related to the division of labor. As people and firms specialize in different activities, economic efficiency increases, suggesting that development is associated with an increase in the number of individual activities and with the complexity that emerges from the interactions between them. Here we develop a view of economic growth and development that gives a central role to the complexity of a country's economy by interpreting trade data as a bipartite network in which countries are connected to the products they export, and show that it is possible to quantify the complexity of a country's economy by characterizing the structure of this network. Furthermore, we show that the measures of complexity we derive are correlated with a country's level of income, and that deviations from this relationship are predictive of future growth. This suggests that countries tend to converge to the level of income dictated by the complexity of their productive structures, indicating that development efforts should focus on generating the conditions that would allow complexity to emerge to generate sustained growth and prosperity.
Footnotes
- 1To whom correspondence should be addressed. E-mail: cesar_hidalgo{at}ksg.harvard.edu
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Author contributions: C.A.H. and R.H. designed research, performed research, contributed new reagents/analytic tools, analyzed data, and wrote the paper.
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The authors declare no conflict of interest.
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This article is a PNAS Direct Submission.
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↵* In ref. 4, Maddison presents GDP per capita measures for 60 countries since 1820. In that year, the ratio of the 95th to the 5th percentile was 3.18 but it increased to 17.82 by the year 2000. Today, the U.S. GDP per capita is >60 times higher than Malawi's.
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This article contains supporting information online at www.pnas.org/cgi/content/full/0900943106/DCSupplemental.
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↵† Indeed, it is common for poorer countries to exchange labor for capital. For example, building a road in the US is done by a relatively small team of workers, each of them specialized to operate a different machine or technique, whereas more modest economies will tend to use more workers, yet less specialized ones, because the relative cost of machines to labor is larger in poorer economies. Hence we should expect poor countries to use less labor inputs in the production of products than what would be reported from U.S. labor data, accentuating the effect presented in Fig. 2D.
