Sunday, January 22, 2012

The Building Blocks of Economic Complexity in a Global Product Space

TEDxBoston - César A. Hidalgo - Global Product Space - YouTube

Dr. Hidalgo offers another metric, specifically one of diversity, in addition to GDP to analyze the wealth of a country.

In his analysis, a capability is a resource, whether physical good or intangible skills and services. Countries vary in capabilities which lead to different products. To create certain products, the country must have the appropriate capability. Some valuable products require specific and rare capabilities. A large hold of capabilities can be then used as a indicator of wealth. Capabilities can be estimated by product output. This is done by the method of reflections (paper). When GDP is plotted against the estimated number of capabilities (8:10, video), we get a better analysis of wealth than with just GDP because capabilities adds another dimension (Fig. 1, paper). We see that despite having similar GDPs, a country with many capabilities would tend toward other obviously wealthy countries, but a country with few capabilities would tend toward other obviously poor countries.

Looking at the product space (12:12, video), we can see that different sectors are clustered showing different geopolitical tendencies (14:00, video). Also can see that progress of a country to become more wealthy; the products of a country, e.g. Malaysia (14:35, video), migrates from nodes with a small connectivity (thus small capabilities) to those with a higher connectivity (high capabilities), which is an implication of the wealth that Malaysia has acquired over the years, which is in agreement with historical records.

In conclusion, a strategy toward wealth would be to migrate from products along edges that would lead to products that had higher connectivity.

Since a small post or video cannot do justice to the research, see his paper:

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