Economy – Quantitative Finance – General Finance
Scientific paper
2009-09-22
Proc. Natl. Acad. Sci. (2009) 106(26):10570-10575
Economy
Quantitative Finance
General Finance
20 Pages (double space), 4 figures
Scientific paper
10.1073/pnas.0900943106
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 in order to generate sustained growth and prosperity.
Hausmann Ricardo
Hidalgo Cesar A.
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