Sunday, November 13, 2011

The Atlas of Economic Complexity: Mapping Paths to Prosperity

The Atlas is a product of people from the Center for Global Development and MIT, and well worth your review. It makes a strong case that it is the evolution of technological capacity in a society, and especially the development of the capacity to produce a wide variety of products and to produce products that are complex themselves that is most predictive of GDP and economic growth. Check out these graphs from the report:

Ghana and Thailand have both invested in education over the last four decades, and according to the top graph, Ghana has actually produced more education than Thailand in that period. Thailand has succeeded in developing much wider productive capacity than Ghana, which has seen advances followed by declines. And Thailand has greatly increased its GDP per capita while Ghana remained rather static.

A couple of quotes from the report:
The amount of knowledge embedded in a society, however, does not depend mainly on how much knowledge each individual holds. It depends, instead, on the diversity of knowledge across individuals and on their ability to combine this knowledge, and make use of it, through complex webs of interaction.
Ultimately, the complexity of an economy is related to the multiplicity of useful knowledge embedded in it. For a complex society to exist, and to sustain itself, people who know about design, marketing, finance, technology, human resource management, operations and trade law must be able to interact and combine their knowledge to make products. These same products cannot be made in societies that are missing parts of this capability set. Economic complexity, therefore, is expressed in the composition of a country’s productive output and reflects the structures that emerge to hold and combine knowledge.
Clearly, more complex economies have better institutions, more educated workers and more competitive environments, so these approaches are not completely at odds with each other or with ours. In fact, institutions, education, competitiveness and economic complexity emphasize different aspects of the same intricate reality. It is not clear, however, that these different approaches have the same ability to capture factors that are verifiably important for growth and development.
A key concept of the analysis is that nations learn to produce new products where they already produce similar products and have the necessary productive capacity to expand to the specific new product. The authors have developed a network model of the product space utilizing extensive information from the international patterns of production, as shown below:

No comments: