A New View of Technology Based Economic Growth

An example of a product space

from the Hidalgo paper identified below.

Ricardo Hausmann and Cesar Hidalgo have used network analysis techniques to illuminate the way in which national technological capacities change over time. While all countries have complex industrial systems, richer countries tend to export a mix of products that are hard for other countries to duplicate. Hausmann and Hidalgo point out that countries that successfully transform their industrial capacity to improve per capita GDP do so building on their existing capacities and slowly expanding into new industrial capacities. Here are some examples of their work:

Counting the Pin Factories: Plotting Economic Complexity
Ricardo Hausmann, IMPACT (Harvard Kennedy School), Autumn 2009

Hausmann and Cesar Hidalgo, a physicist who applies his knowledge of networks to economics, first looked at the number of products a country makes and then gradually refined their calculation of that country’s economic complexity by looking at factors such as how common its products were in the global market — T-shirts versus per capita income. Moreover, as they looked through 20 years’ worth of data (1985–2005) they found that if a country’s income was below what its complexity suggested it should be in 1985, it caught up in the following two decades.

Mapping a country’s economic structure — what the authors described in an earlier paper as the “product space”— is also predictive of future exports. Understanding which products and capabilities a country possesses makes it possible to see in which
direction that country might most productively develop.

The Dynamics of Economic Complexity and the Product Space over a 42 year period
César A. Hidalgo, CID Working Paper No. 189, December, 2009

Abstract: How does the productive structure of countries' changes over time? In this paper we explore this question by combining techniques of networks science with 42 years of trade data and find that, while the Product Space remains relatively stable during this period, the dynamics of countries' productive structures is characterized by a few highly dynamic economies. In particular we identify Brazil, Indonesia, Turkey, Malaysia, Thailand, Korea, Singapore and China, as countries that transformed their productive structures considerably during these four decades, albeit following different trajectories. For instance, the economic complexity of Korea, Singapore and China was relatively high at the beginning of the observation period and continued to increase during these forty two years, moving these countries into the top spots of the economic complexity rankings for the beginning of this millennium. Brazil, Indonesia and Turkey, on the other hand, transformed their productive structures significantly during the same period of time, but did so starting from a less sophisticated foundation. We conclude the paper by moving from this and other observations into the policy implications of this view of economic development and argue that the government involvement in the private sector should be to help catalyze market activities and solve coordination problems that emerge naturally when countries try to accumulate capabilities. This represents an alternative to more traditional views of the role of government that postulate, in their extremes, that the public sector should either have no involvement in private sector activities or, on the other hand, substantial ownership of the means of production.

Beyond The 'Washington Consensus:' Economic Webs And Growth
Stuart Kauffman, National Public Radio, January 12, 2010

A body of economic theory known as the "Washington Consensus" has guided attempts to spur global economic growth for over two decades. This Consensus has largely failed, and contemporary economic growth theory seems mostly at a loss to understand the failure.

Meanwhile, the disparity of income between rich and poor countries has grown from 4-to-1 in Adam Smith's time to 70-to-1 now. No one knows why.....

We propose an extension of growth theory based on the structure of economic webs and their sub-critical versus supra-critical expansion into an un-prestatable "Adjacent Possible" of the "econosphere" that may be of significant help in guiding attempts to to drive growth.