Journal Article

Reconciling contrasting views on economic complexity

Laio, Francesco, Ridolfi, Luca, Chiarotti, Guido, Sciarra, Carla

2020

Overview

Summarising the complexity of a country’s economy in a single number is the holy grail for scholars engaging in data-based economics. In a field where the Gross Domestic Product remains the preferred indicator for many, economic complexity measures, aiming at uncovering the productive knowledge of countries, have been stirring the pot in the past few years. The commonly used methodologies to measure economic complexity produce contrasting results, undermining their acceptance and applications. Here we show that these methodologies – apparently conflicting on fundamental aspects – can be reconciled by adopting a neat mathematical perspective based on linear-algebra tools within a bipartite-networks framework. The obtained results shed new light on the potential of economic complexity to trace and forecast countries’ innovation potential and to interpret the temporal dynamics of economic growth, possibly paving the way to a micro-foundation of the field. Both the mathematics and outcomes of the Method of Reflections (MR) and Fitness and Complexity algorithm (FC) approaches differ largely. Here the authors recast both methods in a mathematical and multidimensional framework to reconcile both and show that the conflicts between the two methodologies to measure economic complexity can be resolved by a neat mathematical method based on linear-algebra tools within a bipartite-networks framework.

• Publisher: Nature Publishing Group UK,Nature Publishing Group,Nature Portfolio
• Subject: 639/705/1041 / 639/766/530/2801 / Algorithms / Complexity / Economic development / Economic forecasting / Economic growth / Economics / GDP / Gross Domestic Product / Humanities and Social Sciences / Mathematical analysis / Multidimensional methods / multidisciplinary / Science / Science (multidisciplinary)